NCUA Plans Big Cash Infusion Into Corporates

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ALEXANDRIA, Va. – NCUA plans to borrow as much as $800 million at preferable rates from the U.S. Treasury, which it will infuse into the corporate credit unions as capital in the system continues to dwindle to dangerous levels.

But before NCUA can borrow the new funds it must repay a $1 billion loan it borrowed to assist U.S. Central FCU, that has now been eliminated because of the growing losses at U.S. Central. That’s why NCUA assessed a $1 billion charge on credit unions last week.

The funds will be used to provide low-cost liquidity to the corporates as the annual period of low liquidity for the system approaches, Larry Fazio, deputy executive director for NCUA, said last week.

The new initiative is the latest in a series of efforts engineered by NCUA to keep the corporates afloat amid growing losses and the drying up of capital – at least four corporates have extinguished all of their capital and several others are teetering. The corporate bailout program so far has included the federal guarantee of all corporate-issued debt, the guarantee of all corporate deposits and massive liquidity loans.

The liquidity loans will be made through the Temporary Corporate CU Stabilization Fund, created by Congress last year to effectuate the corporate bailout, and will come from one of two sources, either the National CU Share Insurance Fund, which is on the line for $10 billion in emergency loans to U.S. Central FCU and WesCorp FCU, or the U.S. Treasury, which provides a $6 billion line of credit to the corporate fund, according to NCUA. The NCUSIF, in turn, may borrow the funds from the Central Liquidity Facility, as it did for the U.S. Central and WesCorp emergency loans.

“The NCUSIF has borrowed $10 billion through the CLF and deposited $5 billion each into WesCorp and U.S. Central to continue to stabilize liquidity needs,” said John McKechnie, chief spokesman for the agency.

“NCUA is particularly aware of seasonal needs,” he said, of the lower liquidity in the credit union system during the summer.

The move came as NCUA was approving a $1.06 billion assessment to be paid by all federally insured credit unions to finance the corporate bailout, the second charge for the corporate bailout so far, following last year’s $337.5 million charge.

The new borrowings will raise the liabilities for the corporate bailout fund, originally set at $6 billion, to $7.1 billion.

NCUA is preparing a massive consolidation of corporate assets that would facilitate the securitization and sale of some $50 billion of troubled securities held by the corporates. A plan for the so-called legacy assets is expected to be announced next month.

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