WASHINGTON-When credit unions meet here this week for CUNA's GAC they will be anything but unified over whether or not to accept federal funding to shore up ailing balance sheets at corporate credit unions.
Dennis Dollar, the former NCUA chairman who heads up a consulting firm that bears his name in Birmingham, Ala., acknowledged there are deep rifts in the credit union world over the issue even as both CUNA and NAFCU were pushing for access to TARP funds, even if only to serve as an untapped backstop.
"Any trade association is going to have a split on an issue this philosophical, and it is a philosophical issue," Dollar told Credit Union Journal. "I find it hard to criticize CUNA and NAFCU for their position on it. I think they are doing their best to listen to their members."
NAFCU chairman Fred Becker defended the group's efforts to give credit unions the option of receiving the taxpayer dollars, noting credit unions were invited into the program to purchase asset-backed securities by former Treasury Secretary Hank Paulson. But since the creation of TARP, the $350-billion or so in funds that have been allocated to date have not been used for that purpose, Becker pointed out, and instead have gone toward being capital infusions in troubled banks.
"We achieved parity in the passage of the law but not in implementation," said Becker.
In recent weeks both CUNA and NAFCU have asked even more stridently for a change in federal law to allow corporates to directly tap the Central Liquidity Fund, but it is still far from clear that such a solution would be incorporated in any Congressional bill within the appropriate timeframe. Given that circumstance and the further deteriorating economy, Becker argued the trade groups are simply preparing for the worst.
"The bottom line may be that we need assistance because of the magnitude of the losses that remain undetermined and we need to have all the tools in the toolbox," he said. "(And) at this stage anything credit unions would get would be a small rounding error compared to what the banks have been getting."
There is also the problem of immediacy that is forcing both groups to lobby ever more strongly for federal funds at least as a backstop to the NCUSIF if the efforts to revise the CLF's governing legislation do not come to fruition.
"What's at stake here is time," Pat Keefe, CUNA's VP-communications told Credit Union Journal. "Credit union auditors are already telling CUs that they will have to start writing down their 1% deposit, based on NCUA's estimation of total costs to the NCUSIF to guarantee corporate deposits ($3.7 billion). But nobody really knows if that number will be more or less. Nevertheless, that's the only number out there, and so auditors require the write down."
An informal poll at cujournal.com revealed many within credit unions believe taking TARP funds could endanger credit unions' tax-exempt status, or at the very least injure the movement's reputation in the eyes of the public and Capitol Hill, after decades of trumpeting the fact that CUs have not taken a penny in taxpayer aid.
"I would hope the lawmakers would understand we're in one of the worst economic situations ever. But I still think you get a little tarnish on the white hat when you take tax money," said Anheuser-Busch Employees' Credit Union CEO J. David Osborn. "It could undermine the message of safety and soundness. It depends on how it is done. If it is just a handout and there is no repayment required and no conditions, I think that has a bad connotation. But if they use TARP to buy bad performing loans or to supplement those bad performing loans, I think that would be seen in a different light."
Osborn further applauded the trade organizations for "doing everything they can" to ease the systemic burden on individual credit unions.
While there are some very vocal opponents of using any federal dollars, whether it be through TARP or other means, to help credit unions, many see the situation as the "lesser of the two evils," as Nevada FCU CEO Brad Beal put it.
Dennis Dollar agrees. "I don't think that it is the reputation-killer that it was only a few years ago," Dollar argued. "The current economic situation is such that the line outside the taxpayer window is getting longer and longer. Most credit unions I talk to would rather stay out of that line, (but) there are those who feel that the reputation risk of taking TARP funds is better than the reputation risk of going under."
Credit unions should expect the banking industry to attack them on both fronts if they receive federal funds, but GTE FCU CEO Bucky Sebastian believes the argument is a red herring.
"Our superior product and our superior design is in what we do with our members, not with whether or not the federal government helps us via deposit insurance or via TARP funds," he said. "I believe that we are entitled to our tax exemption because we operate not-for-profit, and as long as we operate not for profit we should be exempted from tax. And any other conversation about why we would be tax exempt is a diversion."
Beal agreed that credit unions should not fear losing their tax status if they accept federal dollars.
"All of the important distinctions remain in place," he said. "If you look at our industry and the capitalization, and compare that to the banks or anybody else I don't think we have to apologize for anything."
