WASHINGTON – The credit union lobby insisted yesterday that the government-backed resolution of the corporate credit union meltdown does not amount to a taxpayer bailout because it is ultimately being paid by rank-and-file credit union members.
“This is just another desperate attack by bankers on the credit union tax exemption – when the bankers know, full well, credit unions are paying every dime of what it will cost to resolve the unfortunate situation with these wholesale corporate credit unions,” said CUNA President Bill Cheney, following the Independent Community Bankers Association’s call to the Treasury Department to review the credit union tax exemption in light of the government-backed rescue.
The new dispute comes after the Treasury Department endorsed the latest phase of NCUA corporate resolution plan and the extension of the payments for another five years, until 2011. The total cost of the corporate meltdown is now estimated at $16 billion, with $5.5 billion of it credit union capital that has been erased by corporate losses, and another $10.5 billion to be paid by natural person credit unions over a 12-year period.
The ICBA told Treasury Secretary Timothy Geithner yesterday it believes the federal backing of some $35 billion of securities to be issued by NCUA from the accumulated toxic assets of five failed corporates amounts to a taxpayer bailout and raises the question of the validity of the tax exemption. The bankers also have argued that the federally subsidized loans Treasury has provided U.S. Central FCU and WesCorp FCU over the last two years, and the government guarantees for all corporate debt and deposits, amount to a taxpayer bailout.
“The NCUA’s solution to this crisis involves the isolation of the bad assets in a securitization trust that will sell government guaranteed notes. This tax-funded backstop will prevent the immediate recognition of the losses that would result from a fire sale of the assets,” Camden Fine, president of the ICBA, told Geithner in a letter delivered yesterday morning.
“The taxpayer bailout of the credit union system should cast doubt on the wisdom and the fairness of their tax exempt status,” said the banking lobbyist. “At a time of record deficits, every dollar of revenue counts. This consideration alone makes a strong case for repealing the tax exemption for credit unions. But now, credit unions not only do not pay tax, but when they are troubled they get a taxpayer bailout.”
CUNA and NAFCU were quick to respond to the banker’s letter.
CUNA’s Cheney disputed the assertion that the government backing of the NCUA bonds amounts to a taxpayer bailout. “This is simply not true,” wrote Cheney in a separate letter to the Treasury secretary. “While the bonds to be issued by NCUA have the full faith and credit of the United States Government, credit unions – not taxpayers – will pay all of the costs.”
NAFCU scolded the bankers, who are still paying off their own taxpayer-funded bailout, known as the Troubled Asset Relief program.
“NAFCU finds it ironic that a trade association which represents institutions that make up the majority of the TARP ‘deadbeats’ would attack another industry for actually solving an issue themselves and paying their own bills. Community banks were the biggest users of the TARP bailout, and community banks represent the overwhelming majority of ‘deadbeat’ recipients who have failed to pay back their bailout and actually created the TARP cost to the taxpayer,” said NAFCU’s chief lobbyist Dan Berger in a follow-up letter to Secretary Geithner.
