NCUA Media Advisory

Weekly Corporate Credit Union Update – May 22, 2009

May 22, 2009, Alexandria, Va. – Chairman Michael Fryzel stated “On Wednesday May 20, 2009, the President signed NCUA’s Corporate Stabilization Fund into law.  Congress provided this important legislation to allow a responsible and pragmatic mechanism for credit unions to maintain a strong federal insurance fund in a financially manageable manner. I am confident the stabilization fund will allow natural person credit unions to more readily adapt their operations and services to the costs associated with the corporate stabilization efforts.  By spreading the costs of the stabilization efforts over seven years, and the replenishing of the NCUSIF through premiums over eight years, credit unions will be able to continue to provide valuable services to their members during these trying financial times.  NCUA will be issuing guidance to credit unions on the impact of the actions taken by Congress in the near future.”

Chairman Fryzel testified this week before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit in support of H.R. 2351, The Credit Union Share Insurance Stabilization Act.  Additionally, the NCUA Board took action this week to enhance the accessibility and utilization of the Temporary Corporate Credit Union Liquidity Guarantee Program. 

Regarding the Temporary Corporate Credit Union Liquidity Guarantee Program, Chairman Fryzel stated “On May 21 the Board made several significant modifications to the Temporary Corporate Credit Union Liquidity Guarantee Program.  First, the Board authorized the extension of the Program to apply to newly issued unsecured debt obligations issued on or before June 30, 2010 (from June 30, 2009).  The one year extension provides participating corporate credit unions with greater flexibility in their liquidity planning.  Second, the Board extended the maximum term for debt covered by the Program from June 30, 2012, to June 30, 2017. The five year extension will allow corporate credit unions to secure longer-term stable funds at lower cost.  And finally, the Board revised the fee schedule from a flat rate of 75 basis points to a rate based on the maturity of the debt instrument at the date of issuance.  The new fees are considerably less than the existing flat rate.  These changes will allow greater choice for corporates in meeting their liquidity needs at significantly lower cost.”

Normal operations continue without interruption at U.S. Central and WesCorp.  The following items specific to U.S. Central and WesCorp are of note:

• The reviews of all private label mortgage backed securities by Clayton Fixed Income Services, Inc., at both U.S. Central and WesCorp are complete.  Both corporates are working with their members in order to provide them the results of these reviews.
• The final determination of the other than temporary impairment (OTTI) charges at U.S. Central will result in the retail corporate credit unions writing down 100 percent of their paid-in capital investments and 23 percent of the membership capital investments.  Originally, it was estimated that 63 percent of membership capital would be written off.  Based on the final determination, only one retail corporate credit union, rather than 15, is expected to have negative retained earnings as a result of the losses on capital investments at U.S. Central.
• To date the corporate credit unions are successfully meeting member needs for the seasonal outflow of funds that normally occurs at this time of the year.  Actions taken at the April NCUA Board meeting in relation to enhancements of the Temporary Corporate Credit Union Share Guarantee Program and at the May NCUA Board meeting in relation to the Temporary Corporate Credit Union Liquidity Guarantee Program are expected to assist in maintaining adequate levels of liquidity going forward. 
• Member communication and outreach efforts continue.  The following is a summary of communications efforts for each corporate credit union:
• U.S. Central – A member conference call was held on May 19 to provide the current status of liquidity in the corporate credit union system and to discuss strategies to ensure continued adequate levels of liquidity over the coming months. 
• WesCorp – The first town hall meeting took place on May 18 in Pomona, CA. Approximately 200 members attended the meeting.  A series of additional town hall meetings are scheduled through June 9.  The future town hall meetings will take place in Vacaville, CA; Fresno, CA; Las Vegas, NV; San Francisco, CA; Tukwila, WA; Boise, ID; and Honolulu, HI.  

NCUA will be issuing a Letter to Credit Unions today providing guidance to natural person credit unions on the treatment for exhausted paid-in-capital and membership capital accounts at corporate credit unions.  An additional Letter to Credit Unions to provide guidance in relation to the impact of this week’s Congressional action will be forthcoming.

The National Credit Union Administration charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, operates and manages the National Credit Union Share Insurance Fund, insuring the accounts of nearly 90 million account holders in all federal credit unions and the majority of state-chartered credit unions. NCUA is funded by credit unions, not federal tax dollars.

 

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