CUs Want Boost In Prepaid Corporate Bailout Program To $1 Billion

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ALEXANDRIA, Va. – Dozens of credit unions are committing to participating in a proposal allowing them to prepay NCUA assessments for the corporate bailout, with most of them calling for an increase in the program from the $300 million proposed to at least $1 billion.

“I am in favor of the proposal if it will reduce the overall cost of the bailout,” Wayne Bunker, president of Provident CU, wrote in a comment letter to NCUA. “We are flush with liquidity and with investment rates very low the lost opportunity cost will be less than the reduced assessment.”

But most commenters agree the $300 million cap NCUA would put on the program would not be enough to make a meaningful difference in the final costs of the bailout and called for an increase to as much as $1 billion or $2 billion.

“We don’t believe that credit unions will participate as much in the aggregate with a $300 million minimum as they would with a $1 billion minimum,” wrote Steve Smith, CFO for Sharonview FCU. “Therefore, the higher the minimum, the higher the participation, and the greater the benefit to those credit unions who need it the most.”

The comments come as NCUA is expected to vote next month on the prepaid program which will allow credit unions to voluntary make payments that will count against their future corporate bailout assessments, potentially lowering the borrowing costs for NCUA, which projects it will need $2.9 billion to fund the corporate bailout by 2013.

Most commenters are calling for a broadening of the program so that credit unions that want to prepay less than the $10,000 minimum may participate, and those that want to pay more than the 36 basis point maximum can do so.

Other commenters urged NCUA to pay a dividend on the voluntary payments or even give the participants a discount on their future bailout assessments not available to non-participants.

But credit unions want more information from NCUA before deciding for sure, including the status of the costs associated with the current program, the performance of the trust holding the assets of the five failed corporate credit unions, and the accounting treatment for the non-interest bearing assets that would be the prepaid assessment. “I wonder if auditors would consider this a non-earning asset since you admit it will not earn dividends,” said Phillip Matous, president of Total Community CU.

Several credit union executives, still angry from the billions of dollars in corporate bailout charges being assessed by NCUA, rejected the proposal of giving NCUA what amounts to an interest-free loan.

“In summary, don't ask for money before it is due,” wrote Bill Before, CFO for Spokane Teachers CU.

 

 

 

 

 

 

 

 

 

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