Friday, April 9, 2010

Matz: If NCUA Had Not Acted, Corporate CU Crisis Would Have Been Catastrophic

In a speech to the Texas Credit Union League on April 8, NCUA Chairman Debbie Matz told the audience of credit union officials that if numerous actions to address the corporate credit union crisis had not been taken, the credit union industry would have faced grave systemic risk.

Ms. Matz said:

“About 90 percent of natural-person credit unions had investments in the corporates. If the corporate system had collapsed, the natural-person-credit-union system would have suffered huge and insurmountable losses – shattering confidence in all of America’s credit unions. Since they had such large investments in the corporates, credit unions would have lost about $30 billion in net worth – about one-third of the net worth of all natural-person credit unions at the time. That would have led to the collapse of at least 800 – perhaps as many as 1,200 – natural-person credit unions.

In addition, the federal Share Insurance Fund would have had to levy huge assessments on the remaining credit unions, in order to cover the remainder of the losses. It is uncertain whether those remaining credit unions could have withstood the strain. They would have been facing enormous costs in terms of capital, along with a catastrophic loss of public confidence.”

Below are some of the extraordinary governmental actions that have been taken to keep corporate credit union crisis from becoming a systemic crisis for all credit unions:

• Encouraging corporate credit unions with large unrealized losses on holdings of mortgage backed securities (MBS) to make application to the Federal Reserve Discount Window.

• Converting loans made by corporate credit unions to natural person credit unions to Central Liquidity Facility (CLF)-funded loans using funds borrowed by the CLF from the U.S. Treasury.

• Announcing and implementing the Temporary Corporate Credit Union Liquidity Guarantee Program (TCCULGP) on October 16, 2008. The TCCULGP provides a 100 percent guarantee on certain new unsecured debt obligations issued by eligible corporate credit unions.

• Announcing and implementing the Credit Union System Investment Program (CU SIP) and the Credit Union Homeowners Affordability Relief Program (CU HARP).

• Approved issuance of a $1 billion NCUSIF capital note to U.S. Central as a result of pending realized losses on MBS and other asset-backed securities.

• Approved the Temporary Corporate Credit Union Share Guarantee Program (TCCUSGP), which guarantees uninsured shares at participating corporate credit unions through June 30, 2012.

• Legislation creating a Temporary Corporate Credit Union Stabilization Fund (CCUSF), which would borrow money from the Treasury for up to seven years and use the money to pay expenses associated with the ongoing problems in the corporate credit union system.


  1. This is all old stew... So, What's your point?

  2. Dear Anonymous:

    It may be old stew for you and me; but not for a lot of people.

    It helps to provide context to the extraordinary support NCUA has provided the corporate CU system.

  3. Keith...while I understand your role as a paid shill for banks...At least the taxpayer did not have to save the system as we did with TARP for the banking system. The bank model was proven to be inferior, and as a taxpayer and consumer, I like the fact that credit unions handled their own issues which the banks were not able to do.

  4. Actually, the credit union industry did get support from the Treasury and indirectly taxpayers. Over $18 billion was borrowed by the Central Liquidity Facility from the Federal Financing Bank to help stabilize the corporate credit union system. Also, $1 billion was borrowed from the Treasury that was injected as capital into U.S. Central. So, credit unions did benefit from the safety net.

    Credit unions will repay that borrowings, just as banks are repaying their borrowings from TARP.

    Also in case you missed it, the Federal government is projected to earn a nice profit from the Capital Purchase Program of TARP. The losses are projected to come from AIG, GM, and Chrysler.



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