WASHINGTON — A bill introduced in the House last week would allow credit unions to stretch out the costs of the $6-billion corporate credit union bailout for as long as eight years, adding impetus to the bid to ease the burden on the 7,800 natural person credit unions that are paying the freight.
"Unless Congress takes quick action to change the law, two-thirds of credit unions will have negative earnings in 2009 as a result of the need to rebuild deposit insurance reserves after the $5.9-billion rescue of corporate credit unions," said Rep. Paul Kanjorski, the Pennsylvania Democrat who introduced the bill and a long-time ally of credit unions. "As members of a cooperative movement, credit unions are willing to help one another and to pay their fair share to recapitalize the system, but we shouldn't ask them to do the impossible."
The bill is similar to the bill that passed the Senate last week as part of broader housing legislation.
"This initiative," said NCUA Chairman Michael Fryzel in a statement, "moves the NCUA and the credit union industry another step closer to creating a real and pragmatic solution to the corporate credit union situation. It continues the momentum created by last week's Senate passage of the NCUA Corporate Credit Union Stabilization Program and underscores two key concepts: that the credit union industry must maintain a strong and credible share insurance fund for the benefit of the 90 million credit union members nationwide and, that credit unions should have a mechanism in place to address losses in their corporate system that does not present an excessive financial obstacle to their ability to serve members."
Kanjorski's bill, like the provisions of the Senate bill, would create a $6-billion Corporate CU Stabilization Fund with money borrowed from the U.S. Treasury and financed by premiums assessed credit unions. The fund would be used to brace the corporates and eventually be merged into the National CU Share Insurance Fund after seven years.
The bill would also allow NCUA up to eight years to recapitalize the NCUSIF after paying for costs related to the corporate bailout, and it would provide up to $30 billion in emergency funding for NCUA to help stem a systemic crisis. Approval of the Treasury Secretary, the Federal Reserve and the President would be necessary for NCUA to tap into the emergency funding.
Introduction of the House measure comes as the House Financial Services Subcommittee on Financial Institutions is preparing to hold hearings this week on the failure of U.S. Central FCU and WesCorp FCU and NCUA's oversight of the corporate system. NCUA Chairman Fryzel will testify, as will representatives of CUNA, NAFCU and NASCUS.
The new House bill is widely expected to be combined with one or more other bills seeking to ease the burden of the $6 billion corporate plan on credit unions.
The bill is expected to be combined either with the housing bill passed by the Senate two weeks ago that also includes funding for an expanded bank bailout; or with the House's version of the housing bill passed in March, according to credit union lobbyists.
"There's still a lot of moving parts," said Brad Thaler, senior lobbyist for NAFCU. "Putting this bill out there provides a vehicle to get these provisions passed in one form or another."
Missing from the House bill are provisions that would expand emergency funding for the FDIC to as much as $500 billion, or to increase the federal deposit insurance coverage to $250,000 per account. Those measures are expected to be merged eventually with the credit union provisions in an overall deposit insurance bill.
Rep. Luis Gutierrez (D-IL), chairman of the House Financial Services Subcommittee on Financial Institutions; Rep. Ed Royce (R-CA), a long-time credit union ally; Rep. David Scott(D-GA) and Rep. Steven LaTourette (R-OH), another long-time credit union ally, all joined Kanjorski in sponsoring the corporate bailout bill.
