ALEXANDRIA, Va. – The corporate credit unions have submitted a comprehensive plan to NCUA that would help them to deal with growing losses on their books.
The plan has three main components: it would expand liquidity for the corporates; help them build so-called Tier 1 capital; and address the future of the corporate system.
"We’re at the point where we’re just waiting to get some feedback from NCUA," said Brad Miller, chief lobbyist for the Association of Corporate CUs.
The plan comes as the corporates face a growing confidence crisis caused by surging losses–an estimated $18 billion of unrealized losses on underwater securities. In November alone, after the Treasury Department scrapped plans to buy illiquid assets from credit unions and banks, the corporates added more than $2 billion of new losses to their books.
The unrealized losses are such that if even a fraction of them were realized it could wipe out all of the capital of a handful of the most affected corporates.
But Miller said that scenario is too dire and that the corporates still hope to continue to hold the impaired securities "until a market recovery or to maturity" in hopes of not having to realize those losses.
The chief components of the plan submitted to NCUA are to expand liquidity among the corporates to enhance their ability to hold the illiquid assets even as they continue to deteriorate because of the credit crisis.
In addition, it would help them build core capital to cushion the blow of any losses the corporates will have to realize, said Miller. The corporates would voluntarily submit to the plan.
NCUA is also developing a more comprehensive plan to aid the corporates. The federal agency is pumping $4.9 billion of liquidity into the corporates next week under its CU System Investment Program, but top agency officials admit that is only a short-term fix and that a longer term initiative is necessary.
Miller said NCUA’s "SIP" program will go a long way towards easing liquidity in the corporate network by replacing more costly loans from outside the credit union system with low-cost federally-backed funds generated through NCUA’s Central Liquidity Facility.
