PORTLAND, Ore.-If enacted, NCUA's proposed corporate bailout plan is going to push hundreds of credit unions to the edge of survivability, according to one analyst.
Frank Selker, president of Asset Exchange, which typically performs credit card portfolio analysis, told CU Journal that there will need to be more discussion of finding a "better way" to implement a plan "to pay for the U.S. Central problem." "It would be better to spread it out over several years, because this is a very difficult time for credit unions to absorb this sort of thing," he said.
Asset Exchange analyzed NCUA data from Q3 2008 and subtracted 56 basis points from every CU's net worth ratio. He said the resulting "histogram" demonstrates close to 220 CUs would see their net worth slide below 8%. Others that already were considered undercapitalized would be bumped down to lower net worth "buckets," such as 6% to 7% ("Adequate"), 5% to 6% ("Under"), and so forth. "It is like a waterfall," Selker assessed. "Several of these buckets are considered at least borderline low or very low."
Some of the CUs being dragged to lower buckets would include 22 with $1 billion or more in assets, he said, 12 would still be above "Adequate" at 7% to 8%, and eight would be in the 6% to 7% range, but two would drop into the 5% to 6% bucket.
"Historically, the $1 billion-plus credit unions are comfortable running with a lower net worth," Selker said. "Almost like banks, they don't mind being on the edge. But with so many loans going bad, credit unions want that capital."
Selker said he was not fully versed on the particulars of proposals to use the Central Liquidity Facility to assist corporate credit unions, rather than the National CU Share Insurance Fund, but he said from what he has heard the concept is a good one.
"All things being equal, it would be better to spread it out over several years," he asserted. "You don't want to take a weakened system and hit it with a shock. Even though credit unions are better off than banks, they are still taking a hit and compounding that with this charge is not helpful."
