WASHINGTON – CUNA has proposed a corporate aid plan to NCUA which would provide additional guarantees of corporate deposits beyond the current $250,000 per account provided by the National CU Share Insurance Fund.
The additional guarantee would help shore up confidence in the corporate network, which has suffered over the past year by growing unrealized losses on the corporates’ vast investment portfolios, according to Bill Hampel, chief economist for CUNA, who developed the new plan.
The guarantee proposal is similar to one included in a corporate plan submitted to NCUA last month by the Association of Corporate CUs.
The additional guarantee would help the corporates by stemming what are growing withdrawals by natural person credit unions, thus helping the corporates to continue to hold impaired securities until maturity, according to Hampel. The corporates would pay a fee for the additional guarantee under the CUNA plan.
The corporates are sitting on an estimated $18 billion of unrealized losses on mostly asset-backed securities. Corporate executives hope to be able to erase most of those losses–which represent the current market value of the investments--by continuing to hold the bonds to maturity.
But the growing losses have prompted large withdrawals from the corporates, especially by big credit unions, requiring the corporates to borrow more funds at higher rates in order to hold on to the distressed securities.
Under the CUNA plan, the additional guarantee, which is not quantified, would be provided by the National CU Share Insurance Fund, which currently guarantees the deposits of the corporates up to $250,000 per account. The credit union lobby will continue to try and convince Congress and the Treasury department to put aside some of the funds from the Troubled Asset Relief Program that would be used to reserve against the additional guarantees, said Hampel.
Hampel pointed out that banks have obtained similar guarantees on short-term debt, Money Market Funds and other holdings under several programs approved by Congress and the Treasury.
The CUNA proposal is one of several being studied by NCUA to deal with the deteriorating finances of the corporates, especially a handful of the corporates. More than 90% of the unrealized losses are held by seven corporates, U.S. Central FCU, WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU, Corporate One FCU, Southeast Corporate FCU and Constitution Corporate FCU.
The Association of Corporate CUs submitted a comprehensive plan calling for greater use of the emergency loan fund, the Central Liquidity Facility, to expand liquidity for the corporates in order to enable them to hold the distressed securities.
In addition, The Rochedale Group, a consulting firm headed by former U.S. Central FCU President Dan Kampen, has submitted a plan to NCUA on behalf of Members Gateway LLC which would, among other things, transfer control over the U.S. Central FCU board from the corporates to natural person credit unions.
NCUA has also hired Big Four accounting firm PriceWaterhouseCoopers to develop a plan for the corporates.
