WASHINGTON – The credit union lobby was working last week to develop some kind of assistance package geared towards credit unions, after the Treasury Department effectively edged them out of its bailout plans under the Troubled Asset Relief Program, or TARP.
But a consensus was elusive, with CUNA targeting the National CU Share Insurance Fund as the vehicle for funneling assistance to credit unions, and NAFCU insisted the NCUSIF not be used because of the potential to risk the health of the credit union deposit fund.
Both groups were lobbying Congress last week to get the Treasury to reverse course, after Treasury Secretary Henry Paulson announced the $700 billion bailout approved by Congress last month will not be used to buy distressed mortgage assets, but to infuse banks and other financial interests with new capital. Because credit unions have been unable to gain clearance for the cash infusions, this effectively leaves them out in the cold.
CUNA President Dan Mica said Friday CUNA believes TARP money could still find its way to credit unions through NCUA, either through the NCUSIF or the emergency lending fund, known as the Central Liquidity Facility. He suggested that Treasury allocate $20 billion to $30 billion to NCUA, which could be distributed to needy credit unions through one of the two entities. NCUSIF, for example, which has almost $8 million in assets provided by credit unions, already makes emergency loans to troubled credit unions, known as 208 assistance, for the section of the Federal CU Act that governs it.
"We want access and we want it through NCUA," Mica told The Credit Union Journal. Mica lamented the fact that the credit union lobby was still awaiting a ruling from Treasury on the eligibility of credit unions for TARP cash, when Secretary Paulson made his surprise announcement last week. "We’re concerned that we haven’t heard from the Treasury yet on how credit unions can access TARP," he said.
The credit union initiative, however, is faced with several obstacles. The most important is that no one in the credit union movement has publicly acknowledged any distress on the part of credit unions. This at a time when Treasury officials are fielding hundreds of requests from entities claiming distress.
This goes for the corporate credit union network, which has played down the potential affects of more than $12 billion of unrealized losses the corporates are holding on mortgage backed securities. This is the main fault line for credit union, but neither CUNA or NAFCU or NCUA has publicly acknowledged any need to assist the corporates.
In addition, CUNA insists that because they are mutually owned credit unions could not participate in the TARP as it is currently being conducted, that is, a cash infusion by Treasury in exchange for an ownership stake.
And third, credit unions appear to be adequately served by September’s expansion of the emergency lender CLF to $40.5 billion. By the end of October almost 100 credit unions had tapped into the credit union loan fund for more than $1.7 billion, the highest ever in the 30 years of the fund.
Officials with both CUNA and NAFCU suggested last week that a credit union-only TARP could be managed through the CLF. NAFCU President Fred Becker told NCUA Chairman Michael Fryzel last week his group believes the CLF would be the best vehicle to launch such an effort. Becker said last week his group has not endorsed any specific plan, but continues to lobby Treasury for the same access to TARP as banks and other entities.
Any plans are awaiting NCUA’s leadership. An NCUA spokesman said last week the agency is waiting for Treasury to finalize the rules governing TARP before it decides what action it may take for credit unions.
