WASHINGTON – The growing number of banks getting financial assistance under the Treasury’s Troubled Asset Assistance Program is prompting some in the credit union industry to see that credit unions are also eligible for cash under the bailout program.
But credit unions are debating among themselves how such financial assistance would be structured and whether it would jeopardize the credit union tax exemption.
John Annaloro, president of the Washington CU League, noted that after Treasury infused $125 billion into the nation’s nine largest banks, it has agreed to invest another $35 billion into an additional 20 regional banks, with more funds promised for troubled banks. "It’s my contention that credit unions should be eligible for some of those funds," Annaloro told The Credit Union Journal yesterday.
Especially concerning for Washington credit unions, said Annaloro, was news that Washington Federal Savings is receiving $230 million in new capital under the Treasury program. "Our credit unions are worried about how that might affect their ability to compete, with rates on loans, rates on deposits, and all of that."
CUNA and NAFCU are working with Treasury and NCUA to ensure that credit unions have equal access to the Treasury program, which was originally aimed at using as much as $700 billion to buy distressed mortgage assets from banks and credit unions. But the program has been expanded several times in recent weeks to include the capital infusion for banks, and possible insurance companies, as well as the purchase of distressed mortgage assets.
"The consensus is that credit unions should not be excluded from the program. Whether credit unions should actually use it is much more complex and there is not a consensus on that," said Eric Richard, general counsel for CUNA, who is working with the Treasury on the program.
Among the issues being explored by credit unions is, since credit unions are cooperatively owned, what would they give Treasury in exchange for a capital infusion. The banks for example, are giving Treasury an equity stake in exchange for the funds.
Another issue is that most credit unions, with the exception of low-income credit unions, are prohibited from accepting alternative, or secondary, capital.
CUNA has asked NCUA to create its own relief program just for credit unions. The program would buy mortgage loans and mortgage backed securities from credit unions, including corporates, which are holding as much as $10 billion of underwater mortgage securities. The program would be operated by the NCUSIF, thereby allowing credit unions to continue to maintain they have never been helped by a taxpayer bailout.
One solution being discussed is for the Treasury to infuse funds into the National CU Share Insurance Fund, which NCUA could use to direct assistance to needy credit unions or to create its own troubled asset fund. Besides paying insurance on credit union deposits, the $7 billion NCUSIF is also used to provide emergency loans to troubled credit unions.
Under one scenario suggested by CUNA, NCUA would assess all credit unions a small premium on their 1% NCUSIF deposit to raise funds for the credit union-specific bailout.
Separately, a group calling itself the Credit Union Housing Roundtable, comprised of credit unions, asked NCUA last week to provide it with $1 billion through the Central Liquidity Facility to assist credit unions with troubled mortgage loans.
NCUA Chairman Michael Fryzel said yesterday NCUA has not asked the Treasury to expand its capital infusion to credit unions. "While NCUA has been involved in the consultative process for the Troubled Asset Relief Program with the Department of Treasury, we are not making recommendations for any additional credit union participation beyond the one set forth in statute," Fyzel said.
NAFCU President Fred Becker said his group is keeping its focus on ensuring that credit unions get to fully participate in the sale of troubled mortgage assets sales to the Treasury. NAFCU is also concerned that some banks may be using the cash provided by the Treasury, not to make new loans, but to acquire other banks, as PNC did this week in its deal to buy National City Bank.
