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.