WASHINGTON – The massive $5-billion cost of the corporate credit unions bailout is giving increasing numbers of credit union executives second thoughts on the industry’s position that it doesn’t need a federal bailout.
NCUA is fielding increasing calls to bend to the temptation of a taxpayer bailout and stage a full-scale effort to get the U.S. Treasury to pay the costs of the corporate rescue.
"While some relish holding onto the maxim that 'credit unions have never cost the taxpayers or
the federal government a dime,' letting that stand in the way of the credit union system getting
the help it needs and deserves to stay relevant and viable makes little sense in the extraordinary
circumstances we are in. Seeking and accepting assistance from outside the credit union system
is worth the risk that our collective position or posture may encounter with respect to other
matters," said William Raker, president of Burnsville, Minn.-based US FCU, in a comment letter to NCUA on the proposal to reform the corporate system.
"The financial world we live in today is unlike anything in the past. The public is probably accustomed to 'everybody' reaching out to the government and would not be surprised or dismayed if credit unions did the same thing," said Ronald Powers, president of TCC CU, in Dallas. "To completely self-fund the problem, which may continue into next year at least, will hurt individual credit unions and place us at a disadvantage versus our competitors."
The credit union lobby has been slow to ask Congress for funds available under the Treasury’s Troubled Asset Relief Program, maintaining it does not need TARP funds, but would incorporate it as a backstop to the National CU Share Insurance Fund and the Central Liquidity Facility. Many leaders in the credit union movement maintain that a taxpayer bailout could lump credit unions in with banks, failed automakers and other troubled industries, and jeopardize the credit union tax exemption.
But a growing number of commenters on the corporate proposal are dismissing that position and insist that a government bailout is preferable to the $5-billion assessment with which natural person credit unions will fund the corporate bailout.
David Adams, president of the Michigan CU League, acknowledged the dilemma. A task force launched by the Michigan league recognizes the reputation risk and political challenges associated with accessing federal funds for strengthening the NCUSIF, said Adams. "This option should only be used at a last-resort, based on NCUA’s risk assessment related to corporate credit unions and the broader industry. However, NCUA should seek limited authority for using Treasury funds as a last-resort 'backstop' for the NCUSIF."
The TARP funds, he said, would be repaid by the NCUSIF as the economy improves.
"The reality," said Christine Woods, president of Keystone FCU in Downington, Penn., "is that the economic environment under which all financial institutions are operating is both challenging and complex; alternative sources of finding the NCUSIF such as Temporary Assistance Relief Program (TARP) funds must be considered in the interest of fairness to all concerned."
TARP money, said Dan Paulson, president of Las Vegas-based West Star CU, could also be used to save some natural person credit unions. "The banks and mortgage companies have gotten bail outs but Credit Unions just get the bill," said Paulson in his comment letter.
