WASHINGTON-NCUA and the credit union lobby were working last week on several angles aimed at stretching out the $5-billion cost of the corporate credit union bailout over numerous years, in order to ease the strain on credit unions.
The federal regulator was working with CUNA and NAFCU on a bill that would allow NCUA to recapitalize the National CU Share Insurance Fund over as many as five years, instead of the current law's requirement that the fund's diminished reserves be replenished in a single year.
A bill that would do just that-part of a broader measure to make permanent the temporary increase in federal deposit insurance coverage to $250,000 per account-has been endorsed by the House Financial Services Committee and is widely expected to pass the full House in the next few weeks.
CUNA and NAFCU also appeared to be coming together last week on a proposal that could shift some of the cost of the corporate bailout from credit unions to the emergency loan fund, known as the Central Liquidity Facility. But the initiative still lacks the endorsement of NCUA. "We don't think it accomplishes everything we think needs to be accomplished," said John McKechnie, chief spokesman and congressional liaison for the agency, who said they will continue to work with CUNA and NAFCU on a solution.
The support of the federal regulator is critical to any legislative proposal the credit union lobby takes to Congress, as lawmakers begin deliberations to extend the funding level for the CLF, which has become the focus of NCUA aid to credit unions over the past six months.
Congress is expected to approve a semi-permanent increase in the funding for the CLF to $41 billion, where it was lifted to last September. Without congressional action, the funding will revert to its nominal $1.5 billion on March 6.
Over the past six months NCUA has used the once moribund loan fund to pump billions of dollars in low-cost funding into natural person credit unions. The funds have even been used indirectly to boost troubled corporate credit unions, which are currently barred from accessing the CLF.
But a proposal being floated by CUNA and NAFCU would allow corporates to access the CLF directly for loans as long as eight years in maturity that would be able to be counted as net worth, or capital.
This way NCUA could shift some of the funding for the $5 billion corporate bailout away from the NCUSIF to the CLF.
"The CLF (proposal) is one approach we're looking at," said Mary Dunn, director of regulatory affairs for CUNA, who is working on the initiative. "We've tried to come up with several solutions so if one doesn't work credit unions are not left out in the cold."
Fred Becker, president of NAFCU, was adamant that there needs to be an alternative to NCUA's plans to raise the $5 billion for the corporate bailout through an assessment on credit unions. "NCUA's proposed solution to the current situation will result in two-thirds of the credit union industry to record negative income for 2009 and drive a number of credit unions, most particularly those in the "Sand States" to Prompt Corrective Action," said Becker.
"There is no question that if another alternative to NCUA's proposal is not adopted, credit unions will have to curtail their lending and there will be a deterioration in the confidence in credit unions," he said.
