WASHINGTON — Leaders of the credit union movement asked the Senate Banking Committee last week for help paying for the $5 billion corporate credit union bailout by allowing NCUA to stretch out the assessment for the bailout to as long as eight years and to give troubled corporate credit unions direct access to the $41 billion emergency loan fund known as the Central Liquidity Facility.
Representatives of NCUA, CUNA and NAFCU made separate pleas to assist in the corporate bailout, which is expected to push as much as three-fourths of all credit unions into the red this year unless the cost can be alleviated in some way.
Banking regulators and executives made a similar plea to allow the FDIC to stretch out the premiums the banks will be assessed to pay for the ongoing banking bailout.
Deposit Insurance Increase Supported
The credit union representatives also told the senators they support making permanent an increase in federal deposit insurance coverage to $250,000 per account, where it was temporarily raised last July. This will help boost depositor confidence in this time of economic crisis, they said.
The provision to allow NCUA to stretch out the bailout assessment is attached to the controversial cramdown bill now before the Senate, but that bill has been delayed indefinitely by, among other things, opposition by the CUs and banks.
Either way, both the provision to increase deposit insurance coverage permanently to $250,000, as well as to extend the payments for the corporate bailout are expected to pass Congress as they both have strong bipartisan support.
The credit union representatives were in agreement on the need to allow NCUA to stretch out the premium to pay the cost of the bailout, but NCUA declined to endorse a proposal supported by CUNA and NAFCU which would allow the CLF to make capital infusions into troubled corporate and natural person CUs.
The credit union witnesses were: David Marquis, executive director of NCUA; Terry West, president of VyStar CU, and chairman of CUNA's Task Force on NCUA's Corporate Stabilization Plan; and David Wright, president of Services CU, who is representing NAFCU.
Terry West, testifying on behalf of CUNA, also told the senators some financial assistance form the Treasury Department's Troubled Asset Relief Program would also help mitigate the costs of the corporate bailout. "We believe such funding, which would be fully repaid by the credit union system in a reasonable amount of time, is appropriate under the circumstance," said West.
"Some banker groups," said West, "have had the temerity, given where certain banks are regarding TARP money, to charge that credit unions' tax exemption would be threatened if we receive such funds. In our view, this should not be the case, because any funds from TARP would be reimbursed. Further, Treasury has developed a TARP program specifically for Subchapter S Banks, which receive very favorable tax treatment. No one is suggesting that this step undermines their generous tax benefits the Subchapter S banks receive from the federal government."
Pushing CUs Into The Red
Wright, president of a $37-million credit union in Yankton, S.D., told the senators if the NCUA is forced to charge the $5-billion cost of the corporate bailout all this year, as required under current law, it will push an estimated 5,350 federally insured credit unions, Or 69% of the total, into the red for 2009. As many as 209 credit unions could be forced in prompt corrective action, requiring NCUA action to raise their capital to minimum levels, he said.
The additional costs borne by credit unions would force them to increase fees, raise loan rates, cut dividends and even reduce lending, at a time when consumers all around the country are in need of additional sources of funds, he testified.
