As our nation climbs out of its worst economic slump in 60 years, many Americans are returning to the rock-solid principles of disciplined saving, prudent investment and a well-informed trust in their money managers.
A renewed understanding also exists that small business, more than Wall Street and the large companies it serves, is the primary engine of jobs and prosperity.
It should be little surprise, then, that credit unions have emerged from the financial wreckage of the last two years bruised but stronger, certainly wiser and more relevant to the average consumer than ever before.
Though the future looks bright, it would be a disservice to credit union members and the American public to minimize the industry's missteps or to fail to explain what we are doing to correct them.
The bitter fact is that, to preserve capital and confidence, the National Credit Union Administration has recently taken under conservatorship three corporate credit unions, the larger institutions that supply back-office financial and administrative services to local credit unions. These moves were similar to steps taken against two other "corporates" that did not meet our standards for financial viability in 2008.
What went wrong?
By now the story is all too familiar: Mortgage brokers made dubious loans that led to waves of foreclosures. Rating agencies handed out AAA ratings for mortgage-backed securities that are now "toxic assets." When the mortgage bubble burst in 2007 and 2008, the fallout caused an extraordinary decline in the global economy.
It also exposed some of our largest corporate credit unions to extreme shock since they, too, had invested heavily in mortgage-backed securities. When the market for these bonds collapsed, the losses pushed a handful of corporates toward insolvency, requiring swift action on our part to prevent a systemic collapse. To stabilize the system, NCUA guaranteed shares at all the corporates.
Let me be clear: This is not a government bailout! Not one dime of taxpayer money will be spent to cover losses. One laudable aspect of the credit union system is that it takes care of its own. And now the vast majority of well-run and financially stable credit unions will repay their guarantees through special assessments.
People will see no changes at their local credit unions. NCUA has acted to ensure their credit union service is not disrupted in any way. As for the failed corporate credit unions' impaired assets, they will be securitized as marketable bonds guaranteed by the full faith and credit of the U.S. government.
That is an explanation, not an excuse. To be sure, credit unions were not the only financial institutions to be whipsawed by a plunging economy and suddenly worthless securities. But it should not have happened, and NCUA is committed to making sure it does not happen again.
We have just announced a regulatory framework, developed in consultation with the Treasury Department and the Federal Reserve, that will require higher capital levels at corporates and place greater controls on their risk-taking, while strengthening oversight, governance and transparency. For example, the new rules prohibit a corporate credit union from accepting funds from a single source exceeding 10% of its assets and from concentrating too much risk in a single type of asset.
Last quarter, U.S. credit union membership swelled to more than 90 million. Assets, shares, loans and net worth all grew, albeit slightly. Shares grew six times faster than loans. Investments rose by 5%. The credit union aggregate net worth ratio held steady at 9.9%, which means credit unions hold more than $80 billion in capital. More than 95% of federally insured credit unions exceed the statutory definition of "well capitalized." These numbers are not record-setting. But they are signs that the credit union industry is — overall — healthy, stable and poised for growth.
Just as important, during a time when millions of Americans saw their life savings wiped out as the stock market cratered, not one member lost a dime of the money they kept in federally insured credit unions, all of which guarantee deposits up to $250,000 in the same way the Federal Deposit Insurance Corp. insures bank deposits.
None of this is to suggest that we see nothing but blue skies ahead. Many parts of the country continue to face high unemployment, declining real estate values and struggling businesses. But to the extent problems exist, today's credit unions are better able to handle them. They are better capitalized, more diversely invested, more competitive and more closely monitored.
Across the U.S., the nearly 8,000 federally insured credit unions help working families establish a credit record, improve their financial skills, advance their education and strengthen their security by giving access to basic products and services such as checking and savings accounts; credit and debit cards; and car, home or student loans. And they ensure entrepreneurs' access to the capital they need to expand and hire new workers. As we progress toward an economic revival, a strengthened credit union system is doing what it can to make sure we get there as fast and securely as possible.