The Credit Union National Association (CUNA) in a September 28 press release stated that a potential source of alternative capital for credit unions could include permitting credit unions to invest in the capital of other credit unions.
Alternative capital is uninsured and subordinate to all other claims against the credit union, including the claims of creditors, shareholders, and the share insurance fund.
CUNA calls this proposal “credit unions helping credit unions.”
I call it a nutty idea.
How quickly CUNA has forgotten about the problem of interdependency risk associated with the corporate credit union fiasco.
Natural person credit unions that belonged to Western Corporate (WesCorp) have had to write down their equity investments in this failed corporate credit union, which is currently under NCUA conservatorship. As credit unions wrote down this capital investment, it adversely impacted their net worth.
Now, this recommendation of allowing CUs to hold capital investments in other credit unions only reinforces the interdependency risk within the credit union system. If a credit union, which received a capital investment from other credit unions, was to fail, this would cause the investing credit unions to write off their investment and this would reduce their capital.
Why would CUNA advocate a policy that would potentially increase systemic risk within the credit union industry?
Didn’t they learn anything from the failure of WesCorp?
The public policy lesson from the corporate credit union fiasco is the need to limit such interdependency risk, not advance policies that expand it.
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I'm confused. Are you trying to help credit unions? Because if this idea is really that bad and would bring more credit unions to their knees, it seems like the ABA's best approach would be to just keep quiet and let CUs distribute their capital woes like cancer.
ReplyDeleteAnd banks were protected from making large investments in Fannie Mae and Freddie Mac? Those investments were encouraged by "non-cheerleading" regulators. How is California National Bank doing today?
ReplyDeleteJeffry:
ReplyDeleteI'm not that devious.
Question Mr. Leggett - Has the banking industry learned anything from the real estate fiasco they caused? In addition, where is the bailout money for credit unions? Oh, I forgot that we did not need billions in bailout money. Shall we mention Bank of America that is the biggest fraud in our country? Since when does the Federal Government get to own public banks? Is this what the American people want? I do not think so and as long as you are convinced that credit unions are evil, you will never get it. Yes, I do believe you are that devious! One more thing, at least credit unions can help each other, unlike banks that cannot get pass the fact that they are competitors. Maybe that is why you do not like credit unions, so the banks can have a monopoly that is ran by the Federal Government. No competition. Before criticize credit unions for helping each other, you should look at your own industry.
ReplyDelete