Washington Watch

Register now

U.S. CENTRAL TAPPED FED WINDOW AS LOSSES MOUNTED

WASHINGTON-U.S. Central FCU borrowed billions of dollars in dozens of short-term emergency loans from the Federal Reserve's discount window as losses on the central bank for credit unions continued to grow in the summer and fall of 2008, according to records made public by the Fed last week.

The Fed records, for example, show U.S. Central borrowing $1-billion for two weeks from the discount window Nov. 4, 2008, and following it up with regular billion-dollar loans, culminating in a $5 billion loan on Nov. 12, 2008.

The increased lending from the discount window came as the Fed cut the loan rate by 50 basis points and as mounting losses on investments were making it increasingly expensive for the Lenexa, Kan., corporate giant to borrow in the public markets by selling short-term commercial paper, or at the Federal Home Loan Bank of Topeka, where it had almost exhausted a $7-billion line of credit.

The one-time $52-billion corporate was also tapping into the Fed's specially created short-term Term Auction Facility for billions of dollars at the time, topping out at a $5-billion, 28-day loan, the Fed's records show.

The Fed's lending, however, was not enough to save the one-time central bank for credit unions, as NCUA was needed to join in with an emergency $1-billion loan of its own in January 2009, just two months before the increasing losses required it to take over U.S. Central in the biggest credit union failure ever.

Several other credit unions also tapped into the Fed's discount window during the heightening financial crisis in 2008, but growing losses barred some from accessing the emergency loans, including Members United Corporate FCU, which was also eventually taken over by NCUA. WesCorp FCU tapped the Fed for $450 million on Nov. 7, 2008, then for $275 million on Nov. 12.

At the time the normal credit union sources for liquidity were drying up, with several corporates teetering near insolvency, and several Federal Home Loan Banks also suffering liquidity crunches. As a result, several natural-person credit unions made use of the Fed's low-rate loans.

Alaska USA FCU made regular use of the loans in the spring of 2008, then later in the year and then throughout 2009. Other credit unions using the discount window included Northwest Community CU, Spokane Teachers CU, Scott CU, Pioneer CU, First Financial FCU, Polie and Fire FCU, OnPoint Community CU, New England FCU and North Carolina State Employees' CU.

Credit union borrowing from the Fed reached a fever-pitch in November and December of 2008 when the credit markets seized up, the records show. At that time U.S. Central loans outstanding reached $6 billion, while WesCorp ratcheted up its lending from just $200 million to $3 billion. Several big credit unions were also tapping the discount window for funds, including Alaska USA ($375 million); America First CU ($58 million); Visions FCU ($8.2 million) and Eastern Financial Florida CU, the Florida giant that eventually failed in the spring of 2009 ($40 million).

The Fed's records show an extraordinary use of the discount window by banks large and small, as well as many foreign institutions during the growing financial crisis. Among the largest borrowers were European banks Dexia SA and Depfa, a subsidiary of German Hypo Real Estate Group. Banks from Spain, France and Japan also tapped into the Fed's discounted loan facility.

The Fed usually keeps the records of its lending activities secret so as not to trigger a run on any one institution, but the extraordinary records of activity during the financial crisis were ordered made public by a federal court after a lawsuit by several leading news organizations.

 

GOP BIDS TO REPEAL DODD-FRANK LEGISLATION

WASHINGTON-A group of Republican senators raised the pressure to repeal last year's Wall Street reform bill with a new bill that seeks to scratch the new law that would cap debit fees, create a new consumer agency and create new regulations for the mortgage market, financial derivatives and governance of big financial institutions.

The bill, dubbed the Financial Takeover Repeal Act of 2011, has the backing of 18 Republican senators and GOP leadership, but is widely seen as doomed because the Senate is still controlled by the Democrats, who passed the financial reform bill, and President Obama.

Still, the Republicans in the Senate, and some of their colleagues in the House, vowed to press forward with the repeal effort.

"We must repeal the Democrats' takeover of the financial markets that favors Wall Street corporations, over-regulates small businesses with massive new bureaucracy and hurts consumers," said Sen. Jim DeMint, the South Carolina Republican who drafted the bill. "Democrats rammed this government power-grab through last year, despite widespread concerns it would perpetuate federal bailouts, restrict credit to qualified borrowers, and raise costs for all Americans."

House Republicans have been seeking to repeal several of the bill's major portions in a piecemeal fashion, passing bills to scrap or amend several major portions of the bill.

The credit union lobby was ambiguous about the new bill, though it supports rollbacks in several areas. NAFCU President Fred Becker noted his group's opposition to many of the provisions of the bill, like imposition of price controls on debit fees and the creation of a consumer financial protection agency. "Given the forgoing and the oncoming regulatory tidal wave we would welcome and support any and all legislative relief for our industry," he said.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER