WASHINGTON-CU's chances for tapping the Treasury department's Troubled Asset Relief Program faded last week, even as the House was passing a bill that would facilitate cash infusions for credit unions under the TARP.
The bill, which would place strict new requirements for federal assistance under the Treasury's $700 billion bailout, is not expected to be taken up by the Senate, according to most observers, meaning the provision that would allow credit unions to count TARP cash as net worth, or capital is dead for now.
"I don't think anybody really expects that bill to be considered by the Senate," said Ryan Donovan, senior lobbyist for CUNA, who added, "Our concern is that credit unions continue to have access to assistance that they need."
"It is unlikely that the legislation is going to become law," said Brad Thaler, NAFCU's senior lobbyist, who also noted a lack of enthusiasm for the measure in the Senate. But, he noted, the House vote does provide an impetus for getting the credit union provision into another bill.
The chances of the House bill, which would change parts of last fall's TARP legislation, became dimmer still after the Senate voted the week before to release the final $350 billion of the $700 billion TARP funds to the Treasury for disbursal.
Still, last week's House vote, which included the credit union provision, is a sign that Congress could pass the provision as part of another bill, according to ThaLer, who said NAFCU will continue lobbying for the measure.
Why Provision Is Necessary
The provision is necessary because under current law most credit unions are unable to count outside sources of capital as net worth, in effect shutting them out of the massive financial bailout bill.
The bill would allow credit unions to count government sources, such as TARP cash, cash acquired under TARP in the purchase of distressed assets, Section 208 assistance from NCUA or loans guaranteed by the U.S. Small Business Administration, as net worth.
Under current law, only those credit unions designated by NCUA as low-income may count outside sources of capital, such as non-member deposits, in their net worth calculations. There are about 1,000, mostly small community development credit unions, that are designated as low-income. Most large credit unions, those reporting big losses for 2008, are not qualified to count outside sources in their net worth calculations.
The House TARP bill would also set aside tens of billions of dollars to assist troubled homeowners to refinance their mortgages and would require recipients of TARP assistance to prove they are using the funds to increase lending to consumers and small businesses, limit their ability to use the funds to finance mergers and bar them from paying bonuses to top executives until the money is repaid.
