CUs’ lack of access to TARP questioned

Jan. 14, 2009 – Rep. Joe Baca, D-Calif., in a hearing Tuesday, noted Congress’ intention that assistance provided by the Troubled Assets Relief Program was to be available to credit unions and asked witnesses from the Federal Reserve and FDIC why he’s hearing that the institutions have yet to access funds under the program.

In other comments during the hearing, both Reps. Donald Manzullo, R-Ill., and Brad Sherman, D-Calif., emphasized that credit unions have money to lend.

In response to Baca’s query, Donald Kohn, vice chairman of the Federal Reserve Board, noted the difficulty of including cooperative institutions, since TARP infusions are preferred stock but said he would take the matter with up Treasury.

In addition to addressing uses for the second half of TARP funding, yesterday’s House Financial Services Committee hearing was set to discuss H.R. 384. The measure, introduced by Committee Chairman Barney Frank, D-Mass., would clarify Treasury’s authority in the program and require that between $40 and $100 billion of the funds go toward foreclosure mitigation. In addition, the measure would make permanent last year’s temporary increase in federal deposit and share insurance increase to $250,000.

A letter submitted by NAFCU was inserted into the record of yesterday’s hearing. It stated the association’s position that all types of financial institutions should have access to TARP Funds. NAFCU Senior Vice President of Government Affairs Dan Berger wrote that because the Capital Purchase Program, which was implemented by Treasury through TARP, does not allow for participation by member-owned cooperative institutions, “credit unions are unfairly constrained in their ability to address the economic challenges that they now face through no fault of their own.”

Kohn noted in his testimony that the second part of the TARP funding should be used to step up efforts to avoid preventable foreclosures. In addition, he said the funds could be used to restart key credit markets through programs such as the Term Asset-Based Securities Loan Facility. Lastly, he told the panel that the funds could be used to strengthen the financial institutions.

John Bovenzi, deputy to the chairman and chief operating officer of FDIC, said in his testimony that purchasing troubled assets is a vital part of the TARP program. He also emphasized the need for accountability and transparency in initiatives to purchase troubled assets.

Frank mentioned that the Committee is planning an oversight hearing on Treasury’s use of TARP funds in February.