WASHINGTON – The credit union lobby appears to be coalescing around a proposal to shift the burden of the $5 billion corporate credit union rescue from the National CU Share Insurance Fund to the Central Liquidity Facility, which would stretch out the repayment of the plan and minimize the cost to credit unions.
Credit union lobbyists are working with lawmakers on legislative language that would allow the CLF to make loans directly to corporate credit unions for as long as eight years. NCUA, barred from lending CLF funds directly to the corporates, began lending CLF money in December to the corporates through natural person credit unions via so-called CU System Investment Program, or CU SIP, notes.
Under the SIP initiative, NCUA is lending CLF funds at 1.25% to credit unions, which are required to invest those funds in SIP notes at needy corporates at 1.5%. Under the proposed legislation, NCUA could instead lend CLF funds directly to corporates at the lower 1.25%. The 25 basis points is an important difference at a time where some Federal Home Loan Banks are lending corporates funds at 1.4%, making the corporates reluctant to participant in the CLF/SIP initiative.
The long-term CLF loans could be counted by the corporates, including U.S. Central, currently the recipient of a $1 billion NCUSIF capital note, as capital, under the proposal. The loans could also be counted as capital by needy natural person credit unions.
Fred Becker, president of NAFCU, said yesterday they are targeting a developing spending bill which would make permanent an increase in the CLF funding to $40.5 billion, for the changes to the CLF statute. "We’re putting together language," said Becker, who expressed confidence that CUNA is on board the effort. They also hope to gain NCUA’s endorsement. "NCUA’s support is critical," Becker told The Credit Union Journal.
Shifting the burden of the corporate bailout from the NCUSIF to the CLF is desirable for several reasons.
First, the NCUSIF represents credit union capital, so it must be replenished when a huge payment like the $1 billion capital infusion for U.S. Central is provided; while the CLF is a loan fund provided from U.S. Treasury dollars.
As a result, the CLF’s resources are much greater, $40.5 billion, compared to $7.7 billion for the NCUSIF.
Just as important, the Federal CU Act requires that the NCUSIF’s reserves be replenished within a year after falling below 1.20% (dollars held per $100 of deposits insured). That is why NCUA is planning to pay for the $5 billion cost of the corporate bailout by charging credit unions a premium this year.
A bill that would allow NCUA to replenish NCUSIF reserves over as many as five years is working its way through Congress and would provide additional relief for credit unions.
If some of the costs, like the $1 billion U.S. Central infusion, are shifted to the CLF, the repayment could be stretched out as long as eight years, under the proposed legislation, without having credit unions pay the cost through an NCUSIF assessment.
