Tuesday, August 8, 2017

Puerto Rico Oversight Board Certifies Fiscal Plan for Island's Credit Union Regulator and Insurer

The Financial Oversight and Management Board for Puerto Rico has certified a fiscal plan for the Public Corporation for the Supervision & Insurance of Cooperatives in Puerto Rico (COSSEC).

COSSEC is responsible for overseeing and insuring the island's 116 credit unions or cooperatives. These credit unions have $8.5 billion in assets and $7.9 billion in deposits

The fiscal plan acknowledges the risks coops face amid Puerto Rico’s fiscal crisis, as there is a high level of concentration in Puerto Rico’s debt among some cooperatives that could compromise the solvency of some.

The 116 cooperatives on the island have invested almost $965 million in Puerto Rico bonds, or 65 percent of their total investments totaling $1.5 billion. According to the document, Government Development Bank (GDB) notes comprise the greatest percentage of the Puerto Rican bonds held by the coooperatives. GDB bonds are worth 84 percent less than their original, or par, value.

In total, Puerto Rico bonds held by cooperatives are listed at 49.2 percent of their par value.

However, the plan states that given enough time, most cooperatives will be able to absorb losses arising from Puerto Rico bonds.

According to carribbeanbusiness.com, four credit unions are experiencing liquidity problems, but said options are being explored to take care of these, including a possible takeover by a large co-op.

COSSEC’s fiscal plan includes a capital injection program that would see roughly $533 million into the system to help address possible losses resulting from the restructuring of Puerto Rico’s debt. The amount would come from $383 million in capital and $155 million from the sale of certain loan portfolios, according to the document.

The fiscal plan also recommends changing the governance structure of COSSEC to eliminate conflicting regulatory and insurance mission. This could involve having the island's credit unions move to a federal charter and be regulated and insured by the National Credit Union Administration or another agency with expertise in financial regulation.

In addition, the oversight board called for legislation to allow the sale of credit unions assets to other non-coop entities, if COSSEC determines that a liquidation is necessary. The fiscal plan is seeking legislation to allow credit unions to issue preferred shares.

The document can be found here.

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