ALEXANDRIA, Va.-The controversy over the $5-billion bailout of the corporate credit union network is bringing to the fore a festering dilemma for credit union executives and directors over where their ultimate allegiance lies; is it to the credit union movement as a whole, or to their own members?
NCUA Chairman Michael Fryzel recognized this dilemma even before the crisis over U.S. Central FCU hit, saying "ultimately, credit unions are going to have to decide for themselves the value of the corporate system."
Two weeks later, after the NCUA Board approved the $5-billion bailout in response to a $1.1-billion loss by U.S. Central, Fryzel called on credit unions to come to the rescue of the corporate system.
"The credit union industry will be using the funds they have put on deposit with the National Credit Union Share Insurance Fund to help shore up the credit union system, which they are a part of," said Fryzel, in explaining plans to spread the costs of the corporate bailout among all of the nation's 8,000 credit unions through a special premium.
"I think it is unfortunate but necessary," said Brad Beal, president of Nevada FCU. "The corporates play an integral role in the credit union system; we need the services they provide for a lot of good reasons. It is important to keep them sound and in operation." Beal estimates his $900-million credit union's share of the corporate bailout at $4 million.
Jim Blaine, the president of North Carolina State Employees CU, said he hopes the credit union movement can cooperate and develop a plan together that relies on credit union resources, rather than go to outside sources, such as the Treasury Department's Troubled Asset Relief Program, for help. He urged NCUA to make public all of the documents and reviews it is using to assess the need for assistance so that everyone involved in the credit union movement can participate in developing a plan.
"It's a cooperative system and I hope we can work on solving the problems as best we can together," said Blaine. "I would prefer that we solve the problem on our own."
But others wonder why their credit unions should have to pay to save corporates in which they may have no direct stake.
"Look, no one's done more for credit unions then we have," said Cutler Dawson, president of Navy FCU, which has donated millions in assistance, equipment and volunteer manpower to credit unions over the years. "But my ultimate responsibility and all credit union executives' responsibility and all the directors' responsibilities is to the members, and that trumps any other issue," said Dawson, who estimated Navy Fed would pay an estimated $280 million as part of NCUA's current corporate plan.
Curt Prins, a director at Wright Patman Congressional FCU, which ceased investing in the corporates after it lost $1 million in the 1995 failure of Capital Corporate FCU, bristles at the thought of participating in a bailout of the corporates. Congressional's share of the corporate bailout will be $3.3 million, according to Prins, who has served as a credit union director for 35 years.
"My first allegiance is not to the system," said Prins. "I feel very strongly about the system; I love the system, but as a board member my first allegiance is to the members and their money."
