WASHINGTON – The House Financial Services Committee is expected to vote today on a proposal to exempt all financial institutions under $75 billion in size–meaning all credit unions–from contributing to a systemic risk fund that would liquidate failed institutions once considered “too big too fail.”
The current bill would exempt all institutions under $10 billion, which would ensnare at least three natural person credit unions–Navy FCU, Pentagon FCU and North Carolina State Employees’ CU–and possible two corporate credit unions, U.S. Central FCU and WesCorp FCU. Those large institutions would pay into a fund that would unwind giant failures that pose a risk to the financial system, such as AIG Insurance.
It’s not clear whether the systemic risk coverage would extend to U.S. Central, the one-time $52 billion corporate credit union whose $6 billion in losses over te last two years are trickling down to the nation’s 7,800 natural person credit unions and to their 90 million members.
The amendment to the systemic risk bill was proposed by long-time congressional credit union ally Brad Sherman, D-Calif., who made sure that the exemption easily covers the $41 billion Navy FCU, the world’s largest credit union.
NCUA Chairman Deborah Matz called on Financial Services Chairman Barney Frank yesterday to leave credit unions out of the bill. “Even the failure of the largest credit union would have no systemic effect outside of the credit union industry,” Matz said in a letter to the Massachusetts Democrat.
“Any credit union failure would be managed internally by NCUA through the National Credit Union Share Insurance Fund (NCUSIF) and, therefore, would pose no risk to the FDIC-run resolution fund,” wrote Matz.
The NCUA Chairman also urged that credit unions be exempt from the fees to be collected for the resolution of the failed financial giants. “As a practical matter, credit unions would be asked to pay assessments into a resolution system to which they would never cause a loss,” she wrote to Rep. Frank.
“Second, I question the advisability of authorizing any federal agency other than NCUA to take supervisory action against credit unions,” wrote Matz.
Democratic leaders of the House panel, who support the creation of a new systemic risk agency, were fighting off attempts by Republicans during yesterday’s debate on the bill to water down the proposal, saying it would amount to creation of a permanent obligation of a government bailout of troubled institutions. “This codifies “too big to fail,” said David Price, R-Ga., who worried that the ad hoc bailouts of the last two years, like AIG and Fannie Mae, Freddie Mac, will be made permanent.
