ALEXANDRIA, Va. – NCUA announced this morning it hopes to aid the corporate credit union network by lending billions of dollar to natural person credit unions at a low rate that would be conditioned on the funds being deposited in their corporates.
The plan would provide significant new capital to the corporates at a time when unrealized losses on their investments are soaring, prompting billions of dollars in withdrawals. "This is designed to buy time," NCUA Chairman Michael Fryzel told The Credit Union Journal this morning.
Under the plan, dubbed the Credit Union System Investment Program, natural person credit unions would be encouraged to borrow from NCUA’s emergency loan fund, the Central Liquidity Facility, at 1.25%, the rate at which the CLF borrows from the Treasury, then deposit it in their corporate at a rate of 1.50%. Credit union participation would be conditioned on the funds being deposited in their corporate.
"We’re providing an opportunity to help the corporates and for natural person credit unions to earn money," said Fryzel.
The effort comes as unrealized losses on corporates’ balance sheets have soared to as much as $14 billion. While most corporates have expressed an intent to hold the securities to maturity and realize the book value of the investments, the increased borrowing costs to hold the securities, coupled with a run on deposits by natural person credit unions, is making it increasingly difficult for the corporates to hold the underwater securities. This plan should enhance the corporates ability to hold the securities, according to Fryzel.
"This is a time, a situation in the financial area that calls for bold new programs," said Fryzel.
NCUA had considered allowing corporates to tap into the CLF directly, but decided the Federal CU Act would not allow it. That is why this plan is being engineered through the natural person credit unions.
NCUA is currently briefing Congress and the main credit union lobby groups, CUNA and NAFCU, on the plan.
