On June 25 during a briefing on NCUA Guaranteed Notes Program, the President of the National Credit Union Administration’s Asset Management and Assistance Center stated that the capital holders of Southwest Corporate Federal Credit Union will receive a distribution of $171.3 million in July.
This payout equals 42 percent of $403.5 million in claims of capital account holders of the failed corporate credit union.
The Southwest Corporate asset management estate has 1,120 member capital account holders, including 1,092 credit unions. After accounting for mergers, purchases and acquisitions, and liquidations, almost 900 active credit unions will receive a distribution.
Southwest Corporate Federal Credit Union was liquidated on October 31, 2010.
Showing posts with label Corporate Credit Unions. Show all posts
Showing posts with label Corporate Credit Unions. Show all posts
Friday, June 26, 2020
Wednesday, May 13, 2020
11 Corporate CUs Joined the CLF as Agent Member
The National Credit Union Administration (NCUA) announced on May 11 that all eleven corporate credit unions had joined the Central Liquidity Facility (CLF) as agent members for a subset of their members.
As agent members, the corporate credit unions have purchased the CLF capital stock for their member credit unions with assets less than $250 million.
This means that all credit unions with assets less than $250 million that are members of a corporate credit union are now eligible to apply for a loan from the CLF.
According to NCUA, this action has extended CLF coverage to more than 3,700 credit unions and increased the CLF’s borrowing capacity by over $13 billion.
This arrangement was made possible by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. However, it is temporary and will sunset on December 31, 2020.
Read more.
As agent members, the corporate credit unions have purchased the CLF capital stock for their member credit unions with assets less than $250 million.
This means that all credit unions with assets less than $250 million that are members of a corporate credit union are now eligible to apply for a loan from the CLF.
According to NCUA, this action has extended CLF coverage to more than 3,700 credit unions and increased the CLF’s borrowing capacity by over $13 billion.
This arrangement was made possible by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. However, it is temporary and will sunset on December 31, 2020.
Read more.
Wednesday, May 3, 2017
Credit Suisse Settles with NCUA over Toxic Mortgage Securities
The National Credit Union Administration (NCUA) announced that it received $400 million from Credit Suisse for claims arising from losses related to purchases of toxic residential mortgage-backed securities by U.S. Central Federal Credit Union, Southwest Corporate Federal Credit Union, and Western Corporate Federal Credit Union.
As a result of the settlement agreement, NCUA will dismiss its pending lawsuit against Credit Suisse, which does not admit fault as part of the agreement.
NCUA announced that aggregate gross legal recoveries by the NCUA on behalf of five failed corporate credit unions that purchased residential mortgage-backed securities have reached $5.1 billion.
Read the press release.
As a result of the settlement agreement, NCUA will dismiss its pending lawsuit against Credit Suisse, which does not admit fault as part of the agreement.
NCUA announced that aggregate gross legal recoveries by the NCUA on behalf of five failed corporate credit unions that purchased residential mortgage-backed securities have reached $5.1 billion.
Read the press release.
Monday, January 9, 2017
NCUA Makes Case for NCUSIF Premium, Says Impact on CUs Will Be Minimal
National Credit Union Administration (NCUA) Chairman Rick Metsger in a January 6, 2017 letter to Rep. Sean Duffy (R -WI) stated "a premium of 3 to 6 basis points would have a minimal impact on credit unions in the aggregate."
Based upon September Call Report data, the impact of a 6 basis point premium assessment would cause:
However, the base case assumption does not assume an economic downturn or the unexpected failure of one or more large credit unions. NCUA's analysis shows that the NCUSIF equity ratio of 1.32 percent would allow the NCUSIF to withstand two consecutive years of stress and still maintain an equity ratio of at least 1.20 percent. Under the Federal Reserve's severe economic stress scenario, the equity ratio would have to be at 1.44 percent to avoid falling below 1.20 percent over a five-year period and an equity ratio of 1.27 percent to keep the NCUSIF equity ratio from falling below 1.00 percent. It should be noted that by statute NCUA must charge a premium if the equity ratio falls below 1.20 percent and if the equity ratio falls below 1 percent, credit unions would be required to expense a portion of its NCUSIF capitalization deposit.
Chairman Metsger further noted that NCUA's operating expenses charged to the NCUSIF would have the smallest impact in altering the trend in the NCUSIF equity ratio. Chairman Metsger wrote that NCUA would have to cut its operating expenses charged to the NCUSIF by 50 percent ($100 million) to increase the NCUSIF equity ratio by 1 basis point. NCUA charges the NCUSIF almost $200 million to fund its current operating budget of $298.2 million.
In addition, the letter stated that credit unions cannot directly receive a rebate from the Temporary Corporate Credit Union Stabilization Fund (TCCUSF). Rather when the TCCUSF is closed, the residual assets will be transferred to the NCUSIF. If the residual assets push the NCUSIF equity ratio above its normal operating level at the end of the calendar year, then insured credit unions could be entitled to a rebate. Based upon information from September 2016, the closure and transfer of the TCCUSF would raise the NCUSIF equity ratio by as much as 15 basis points. However, the agency cautions that closing the TCCUSF early and transferring the corporate system resolution program assets and obligations to the NCUSIF could introduce significant volatility to the NCUSIF equity ratio.
NCUA estimated that the range of a potential TCCUSF assessment rebate would be between $1.9 billion and $2.4 billion. This assessment rebate would be paid out after recoveries are paid to depleted capital holders.
Based upon September Call Report data, the impact of a 6 basis point premium assessment would cause:
- the aggregate net worth ratio to fall 4 basis point to 10.81 percent;
- the average return on average assets would fall from 0.78 percent to 0.73 percent;
- the aggregate cash-to-asset ratio to decline from 8.56 percent to 8.52 percent;
- the number of credit unions reporting negative earnings would rise from 1,174 credit unions to 1,388 credit unions;
- eight credit unions to slip from adequately capitalized to undercapitalized and 12 credit unions would drop from well-capitalized to adequately capitalized; and
- credit union lending would be reduced by 0.04 percent.
However, the base case assumption does not assume an economic downturn or the unexpected failure of one or more large credit unions. NCUA's analysis shows that the NCUSIF equity ratio of 1.32 percent would allow the NCUSIF to withstand two consecutive years of stress and still maintain an equity ratio of at least 1.20 percent. Under the Federal Reserve's severe economic stress scenario, the equity ratio would have to be at 1.44 percent to avoid falling below 1.20 percent over a five-year period and an equity ratio of 1.27 percent to keep the NCUSIF equity ratio from falling below 1.00 percent. It should be noted that by statute NCUA must charge a premium if the equity ratio falls below 1.20 percent and if the equity ratio falls below 1 percent, credit unions would be required to expense a portion of its NCUSIF capitalization deposit.
Chairman Metsger further noted that NCUA's operating expenses charged to the NCUSIF would have the smallest impact in altering the trend in the NCUSIF equity ratio. Chairman Metsger wrote that NCUA would have to cut its operating expenses charged to the NCUSIF by 50 percent ($100 million) to increase the NCUSIF equity ratio by 1 basis point. NCUA charges the NCUSIF almost $200 million to fund its current operating budget of $298.2 million.
In addition, the letter stated that credit unions cannot directly receive a rebate from the Temporary Corporate Credit Union Stabilization Fund (TCCUSF). Rather when the TCCUSF is closed, the residual assets will be transferred to the NCUSIF. If the residual assets push the NCUSIF equity ratio above its normal operating level at the end of the calendar year, then insured credit unions could be entitled to a rebate. Based upon information from September 2016, the closure and transfer of the TCCUSF would raise the NCUSIF equity ratio by as much as 15 basis points. However, the agency cautions that closing the TCCUSF early and transferring the corporate system resolution program assets and obligations to the NCUSIF could introduce significant volatility to the NCUSIF equity ratio.
NCUA estimated that the range of a potential TCCUSF assessment rebate would be between $1.9 billion and $2.4 billion. This assessment rebate would be paid out after recoveries are paid to depleted capital holders.
Thursday, December 22, 2016
Metsger: Contingent Legal Fee Was the Best Available Option
In a December 20th letter to Rep. Mick Mulvaney (R - SC), National Credit Union Administration (NCUA) Chairman Metsger wrote that "the decision to pursue legal action using a contingency fee arrangement was the best available option" for the agency over the failure of five corporate credit unions that had bought faulty mortgage-backed securities.
The letter was in response to a November 21 letter from Rep. Mulvaney.
NCUA has paid more than $1 billion in legal fees on $4.3 billion in recoveries from legal settlements.
In pursuing its contingent fee arrangement, Chairman Metsger stated that NCUA did not have the in-house resources or expertise to independently pursue its legal strategy.
He also noted that the agency lacked resources to hire law firms on a hourly basis. Therefore, an hourly fee arrangement would have required increased assessments on credit unions, which credit unions would have had difficulty paying.
Metsger contended that a contingency fee arrangement insulated credit unions from most expenses, if the lawsuits failed, and provided significant upside benefit to credit unions, if the agency's legal strategy was successful.
Metsger claimed that the agency could not have brought these complex lawsuits without the contingency fee arrangement.
Metsger pointed out that the recoveries from NCUA's lawsuits "enabled the agency to stop assessing credit unions the cost of the repayment of the Stabilization Fund since 2012."
Metsger also stated that the agency created a website for credit unions to get information regarding the legal settlements.
The letter also addressed the agency's efforts to control expenses and to increase budget transparency.
The letter appears below (click on image to enlarge)
The letter was in response to a November 21 letter from Rep. Mulvaney.
NCUA has paid more than $1 billion in legal fees on $4.3 billion in recoveries from legal settlements.
In pursuing its contingent fee arrangement, Chairman Metsger stated that NCUA did not have the in-house resources or expertise to independently pursue its legal strategy.
He also noted that the agency lacked resources to hire law firms on a hourly basis. Therefore, an hourly fee arrangement would have required increased assessments on credit unions, which credit unions would have had difficulty paying.
Metsger contended that a contingency fee arrangement insulated credit unions from most expenses, if the lawsuits failed, and provided significant upside benefit to credit unions, if the agency's legal strategy was successful.
Metsger claimed that the agency could not have brought these complex lawsuits without the contingency fee arrangement.
Metsger pointed out that the recoveries from NCUA's lawsuits "enabled the agency to stop assessing credit unions the cost of the repayment of the Stabilization Fund since 2012."
Metsger also stated that the agency created a website for credit unions to get information regarding the legal settlements.
The letter also addressed the agency's efforts to control expenses and to increase budget transparency.
The letter appears below (click on image to enlarge)
Wednesday, December 21, 2016
Corporate CUs Are Required to Disclose Executive Pay, Then Why Not All FCUs
It is time for the National Credit Union Administration (NCUA) to require natural person federal credit unions to disclose senior management compensation.
Let's look at the facts, state-chartered credit unions are required to disclose senior management compensation via Form 990s. Also, NCUA requires a corporate credit union to annually prepare and maintain a disclosure of the dollar amount of compensation paid to its most highly compensated employees, including compensation paid to the corporate credit union's chief executive officer (read the regulation).
NCUA's corporate credit union regulation states that a corporate credit union "must distribute the most current disclosure to all its members at least once a year, either in the annual report or in some other manner of the corporate's choosing."
The regulation also states that "[a]ny member may obtain a copy of the most current disclosure, and all disclosures for the previous three years, on request made in person or in writing. The corporate credit union must provide the disclosure(s), at no cost to the member, within five business days of receiving the request."
The rule allows a corporate credit union to provide supplemental information to add context, such as salary surveys.
If NCUA believes that it is appropriate for corporate credit unions to disclose compensation information to its members, then why hasn't NCUA required natural person federal credit unions to do the same thing.
Clearly, requiring such a disclosure would improve accountability and transparency and would promote good corporate governance.
Let's look at the facts, state-chartered credit unions are required to disclose senior management compensation via Form 990s. Also, NCUA requires a corporate credit union to annually prepare and maintain a disclosure of the dollar amount of compensation paid to its most highly compensated employees, including compensation paid to the corporate credit union's chief executive officer (read the regulation).
NCUA's corporate credit union regulation states that a corporate credit union "must distribute the most current disclosure to all its members at least once a year, either in the annual report or in some other manner of the corporate's choosing."
The regulation also states that "[a]ny member may obtain a copy of the most current disclosure, and all disclosures for the previous three years, on request made in person or in writing. The corporate credit union must provide the disclosure(s), at no cost to the member, within five business days of receiving the request."
The rule allows a corporate credit union to provide supplemental information to add context, such as salary surveys.
If NCUA believes that it is appropriate for corporate credit unions to disclose compensation information to its members, then why hasn't NCUA required natural person federal credit unions to do the same thing.
Clearly, requiring such a disclosure would improve accountability and transparency and would promote good corporate governance.
Thursday, October 20, 2016
Corporate CU Lawsuit Legal Contingency Fees Tops $1 Billion
The National Credit Union Administration (NCUA) today disclosed that it has so far paid legal contingency fees to two law firms of $1,003,029,479.
As of Oct. 11, 2016, the NCUA Board has recovered more than $4.3 billion from its lawsuits filed over the failure of five corporate credit unions.
These legal contingency fees represent 23.2 percent of total recoveries from the lawsuits.
Read the press release.
As of Oct. 11, 2016, the NCUA Board has recovered more than $4.3 billion from its lawsuits filed over the failure of five corporate credit unions.
These legal contingency fees represent 23.2 percent of total recoveries from the lawsuits.
Read the press release.
Wednesday, August 17, 2016
Appeals Court: NCUA Filed Complaint in Timely Manner
United States Court of Appeals for the Ninth Circuit reversed a lower court decision that stated the National Credit Union Administration (NCUA) had not filed its lawsuit in a timely manner.
According to the Appeals Court opinion, the Extender Statute of the Financial Institution Reform, Recovery and Enforcement Act of 1989 supplants the requirement that a lawsuit be brought with 3 years after the security was offered or sold under the Securities Act.
The decision will allow NCUA to pursue its lawsuit against Wachovia Trust and Nomura Home Equity over making false and misleading statements in their offerings of residential mortgage-backed securities purchased by the failed Western Corporate Federal Credit Union.
Read the opinion.
According to the Appeals Court opinion, the Extender Statute of the Financial Institution Reform, Recovery and Enforcement Act of 1989 supplants the requirement that a lawsuit be brought with 3 years after the security was offered or sold under the Securities Act.
The decision will allow NCUA to pursue its lawsuit against Wachovia Trust and Nomura Home Equity over making false and misleading statements in their offerings of residential mortgage-backed securities purchased by the failed Western Corporate Federal Credit Union.
Read the opinion.
Monday, July 18, 2016
CUNA's Alternative Reality
Once again, the Credit Union National Association (CUNA) has removed all doubt that it lives in a different reality from the rest of us.
In CUNA's July 12 testimony before the House Financial Service Committee, Jim Nussle, president and CEO of CUNA, stated that during the financial crisis the National Credit Union Share Insurance Fund (NCUSIF) remained well funded -- as the NCUSIF fund ratio was above 1.20 percent of insured deposits over that time period.
However, CUNA is not allowed to rewrite history about what happened during the financial crisis.
CUNA's testimony neglected to mention that the NCUSIF was bailed out by Congress in 2009 with the creation of the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund). This shifted the cost of the corporate credit union debacle from the NCUSIF to the Stabilization Fund.
Without the creation of the Stabilization Fund, the NCUSIF ratio was going to drop to 0.31 percent for 2009 with the failures of two corporate credit unions, WesCorp and U.S. Central.
Moreover, the NCUSIF ratio would have fallen further, maybe going into the red, because three other corporate credit unions failed.
CUNA also conveniently forgot to mention that the Stabilization Fund borrowed billions of dollars from the U.S. Treasury to help resolve these five failed corporate credit unions. In fact, the Stabilization Fund still has $1 billion in borrowings outstanding.
So, the reality is that the NCUSIF was bailed out during the financial crisis and the industry tapped the Treasury to help resolve the corporate credit union debacle.
In CUNA's July 12 testimony before the House Financial Service Committee, Jim Nussle, president and CEO of CUNA, stated that during the financial crisis the National Credit Union Share Insurance Fund (NCUSIF) remained well funded -- as the NCUSIF fund ratio was above 1.20 percent of insured deposits over that time period.
However, CUNA is not allowed to rewrite history about what happened during the financial crisis.
CUNA's testimony neglected to mention that the NCUSIF was bailed out by Congress in 2009 with the creation of the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund). This shifted the cost of the corporate credit union debacle from the NCUSIF to the Stabilization Fund.
Without the creation of the Stabilization Fund, the NCUSIF ratio was going to drop to 0.31 percent for 2009 with the failures of two corporate credit unions, WesCorp and U.S. Central.
Moreover, the NCUSIF ratio would have fallen further, maybe going into the red, because three other corporate credit unions failed.
CUNA also conveniently forgot to mention that the Stabilization Fund borrowed billions of dollars from the U.S. Treasury to help resolve these five failed corporate credit unions. In fact, the Stabilization Fund still has $1 billion in borrowings outstanding.
So, the reality is that the NCUSIF was bailed out during the financial crisis and the industry tapped the Treasury to help resolve the corporate credit union debacle.
Tuesday, May 24, 2016
Net Recoveries from Corporate CU Lawsuits -- Who Knows?
National Credit Union Administration (NCUA) has boasted in press releases that its gross recoveries from settlements associated with its corporate credit union lawsuits are $3.1 billion.
However, the agency has failed to disclose its net recoveries from these lawsuits.
Publishing information about net recoveries would enable the public to estimate how much NCUA has paid in contingency fees to outside law firms with respect to its litigation over the failure of five corporate credit unions.
On April 8, I filed a Freedom of Information Act request regarding the agency's net recoveries associated with its litigation over the failure of five corporate credit unions.
On May 20th, NCUA denied my request.
However, the agency has failed to disclose its net recoveries from these lawsuits.
Publishing information about net recoveries would enable the public to estimate how much NCUA has paid in contingency fees to outside law firms with respect to its litigation over the failure of five corporate credit unions.
On April 8, I filed a Freedom of Information Act request regarding the agency's net recoveries associated with its litigation over the failure of five corporate credit unions.
On May 20th, NCUA denied my request.
Friday, April 15, 2016
UBS to Pay $69.8 Million to NCUA
The National Credit Union Administration will receive $69.8 million from UBS in damages and interest for claims arising from losses to Members United and Southwest, two corporate credit unions that failed during the financial crisis, related to purchases of residential mortgage-backed securities.
In February, NCUA accepted UBS's offer of judgment of $33 million in damages. With the addition of prejudgment interest determined by the court, the amount to be paid by UBS increased to $69.8 million. UBS will also be liable for attorneys' fees and expenses in an amount to be determined.
To date, NCUA has obtained more than $3.1 billion in legal recoveries in litigation related to the sale of faulty securities to corporate credit unions.
Read the press release.
In February, NCUA accepted UBS's offer of judgment of $33 million in damages. With the addition of prejudgment interest determined by the court, the amount to be paid by UBS increased to $69.8 million. UBS will also be liable for attorneys' fees and expenses in an amount to be determined.
To date, NCUA has obtained more than $3.1 billion in legal recoveries in litigation related to the sale of faulty securities to corporate credit unions.
Read the press release.
Thursday, April 14, 2016
NCUA Will Receive $50.3 Million from Credit Suisse
Credit Suisse will pay the National Credit Union Administration (NCUA) $50.3 million in damages and interest for claims arising from losses to Members United and Southwest corporate credit unions related to purchases of residential mortgage-backed securities.
In March, NCUA accepted Credit Suisse’s offer of judgment of $29 million in damages. With the addition of prejudgment interest determined by the Court, the amount to be paid by Credit Suisse increased to $50.3 million. Credit Suisse will also be liable for attorneys’ fees and expenses in an amount to be determined.
Read the press release.
In March, NCUA accepted Credit Suisse’s offer of judgment of $29 million in damages. With the addition of prejudgment interest determined by the Court, the amount to be paid by Credit Suisse increased to $50.3 million. Credit Suisse will also be liable for attorneys’ fees and expenses in an amount to be determined.
Read the press release.
Monday, April 11, 2016
NCUA Recovers $575 Million in Goldman Sachs Settlement
The National Credit Union Administration (NCUA) recovered $575 million from Goldman Sachs $5 billion settlement with the U.S. Department of Justice over faulty mortgage-backed securities sold to failed corporate credit unions.
The settlement resolves two lawsuits filed by NCUA as liquidating agent for three corporate credit unions — U.S. Central, WesCorp and Southwest — against Goldman Sachs.
Gross recoveries from NCUA's lawsuits over faulty mortgage-backed securities sold toe five failed corporate credit unions now surpass $3 billion.
Read the press release.
The settlement resolves two lawsuits filed by NCUA as liquidating agent for three corporate credit unions — U.S. Central, WesCorp and Southwest — against Goldman Sachs.
Gross recoveries from NCUA's lawsuits over faulty mortgage-backed securities sold toe five failed corporate credit unions now surpass $3 billion.
Read the press release.
Friday, February 26, 2016
UBS Settles MBS Lawsuit with NCUA, Judge Tosses Lawsuits Against Trustee Banks
Reuters is reporting that UBS AG has agreed to pay $33 million to resolve claims that it sold toxic mortgage-backed securities (MBS) to two corporate credit unions that later failed.
The lawsuit dealt with MBS underwritten and sold by UBS to Southwest Corporate Federal Credit Union and Members United Corporate Federal Credit Union.
The National Credit Union Administration (NCUA) alleged that the securities' offering documents contained untrue statements that the loans were originated in accordance with underwriting guidelines
The deal, disclosed in a filing in Manhattan federal court, will settle one of several lawsuits by NCUA over the sale of mortgage-backed securities before the 2008 financial crisis.
The deal boosts to nearly $2.46 billion the amount the NCUA has recovered from banks through lawsuits it began filing in 2011.
The court filing would not have any effect on a separate lawsuit by the NCUA against UBS pending in Kansas.
In related news, U.S. District Judge Katherine Forrest in Manhattan rejected claims by NCUA that the banks failed in their roles as trustees for 98 residential mortgage-backed securities trusts.
Forrest said the NCUA lacked standing to sue over 89 trusts because the right to sue had been previously assigned, leaving the regulator with only an interest in payment streams.
The judge also dismissed claims that the banks breached their fiduciary duties or acted in bad faith with the other nine trusts. The only surviving claims are those of breach of contract on the nine trusts, which the banks did not seek to dismiss.
Read the Reuters' article.
Read article on Judge Forrest's decision.
The lawsuit dealt with MBS underwritten and sold by UBS to Southwest Corporate Federal Credit Union and Members United Corporate Federal Credit Union.
The National Credit Union Administration (NCUA) alleged that the securities' offering documents contained untrue statements that the loans were originated in accordance with underwriting guidelines
The deal, disclosed in a filing in Manhattan federal court, will settle one of several lawsuits by NCUA over the sale of mortgage-backed securities before the 2008 financial crisis.
The deal boosts to nearly $2.46 billion the amount the NCUA has recovered from banks through lawsuits it began filing in 2011.
The court filing would not have any effect on a separate lawsuit by the NCUA against UBS pending in Kansas.
In related news, U.S. District Judge Katherine Forrest in Manhattan rejected claims by NCUA that the banks failed in their roles as trustees for 98 residential mortgage-backed securities trusts.
Forrest said the NCUA lacked standing to sue over 89 trusts because the right to sue had been previously assigned, leaving the regulator with only an interest in payment streams.
The judge also dismissed claims that the banks breached their fiduciary duties or acted in bad faith with the other nine trusts. The only surviving claims are those of breach of contract on the nine trusts, which the banks did not seek to dismiss.
Read the Reuters' article.
Read article on Judge Forrest's decision.
Thursday, December 10, 2015
Morgan Stanley Settles Lawsuit with NCUA over Failed Corporate CUs
The National Credit Union Administration (NCUA) announced a settlement with Morgan Stanley for $225 million to resolve claims arising from losses related to corporate credit unions’ purchases of faulty residential mortgage-backed securities.
The settlement covers claims asserted in 2013 by the NCUA Board on behalf of U.S. Central Federal Credit Union, Western Corporate Federal Credit Union, Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union.
NCUA will dismiss pending lawsuits against Morgan Stanley in federal district courts in New York and Kansas. Morgan Stanley does not admit fault in the settlement.
Read the press release.
The settlement covers claims asserted in 2013 by the NCUA Board on behalf of U.S. Central Federal Credit Union, Western Corporate Federal Credit Union, Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union.
NCUA will dismiss pending lawsuits against Morgan Stanley in federal district courts in New York and Kansas. Morgan Stanley does not admit fault in the settlement.
Read the press release.
Tuesday, December 8, 2015
CUs Received More Than $120 Billion in Emergency Liquidity and Guarantees During Financial Crisis
Testifying before the House Financial Services Committee on December 8, National Credit Union Administration (NCUA) Chairman Debbie Matz provided information about the extraordinary measures that were taken by NCUA to support the credit union system during the financial crisis and Great Recession.
Chairman Matz noted consumer-oriented, member-owned credit union system suffered sizable losses, as a result of the financial crisis. Ninety retail credit unions failed because they were not holding sufficient capital to cover their risks.
Chairman Matz went on to state that the failure of five corporate credit unions had near-catastrophic consequences for all surviving credit unions, causing Congress to create the Temporary Corporate Credit Union Stabilization Fund.
Furthermore, she stated NCUA injected more than $120 billion of emergency liquidity and guarantees to stabilize the credit union system - more than $20 billion in liquidity assistance through the Central Liquidity Facility and over $100 billion in guarantees.
She also pointed out that NCUA borrowed $5 billion from the U.S. Treasury to support the credit union system.
Read the testimony.
Chairman Matz noted consumer-oriented, member-owned credit union system suffered sizable losses, as a result of the financial crisis. Ninety retail credit unions failed because they were not holding sufficient capital to cover their risks.
Chairman Matz went on to state that the failure of five corporate credit unions had near-catastrophic consequences for all surviving credit unions, causing Congress to create the Temporary Corporate Credit Union Stabilization Fund.
Furthermore, she stated NCUA injected more than $120 billion of emergency liquidity and guarantees to stabilize the credit union system - more than $20 billion in liquidity assistance through the Central Liquidity Facility and over $100 billion in guarantees.
She also pointed out that NCUA borrowed $5 billion from the U.S. Treasury to support the credit union system.
Read the testimony.
Wednesday, September 16, 2015
RBS Settles Mortgage-Securities Lawsuit with NCUA
Bloomberg is reporting that Royal Bank of Scotland Group Plc has agreed to pay $129.6 million to resolve a lawsuit claiming it sold toxic mortgage-backed securities to two failed corporate credit unions.
The offer by two RBS units is not an admission of liability, according to a filing late Tuesday in a New York federal court.
The National Credit Union Administration (NCUA) Board sued the units on behalf of the now-defunct Southwest Corporate Federal Credit Union and Members United Corporate Federal Credit Union in 2013. NCUA claimed that RBS distorted the quality of mortgage loans backing securities bought by the defunct corporate credit unions.
Read the story.
Read the NCUA press release.
The offer by two RBS units is not an admission of liability, according to a filing late Tuesday in a New York federal court.
The National Credit Union Administration (NCUA) Board sued the units on behalf of the now-defunct Southwest Corporate Federal Credit Union and Members United Corporate Federal Credit Union in 2013. NCUA claimed that RBS distorted the quality of mortgage loans backing securities bought by the defunct corporate credit unions.
Read the story.
Read the NCUA press release.
Wednesday, January 14, 2015
Seeking to Water Down Corporate CU Capital Rules
Credit Union Journal (subscription required) is reporting that the Credit Union National Association (CUNA) and some corporate credit union officials are trying to water down the corporate credit union capital rules that were finalized in 2010 following the corporate credit union debacle.
Specifically, they are objecting to the requirement from the National Credit Union Administration (NCUA) that corporate credit unions when calculating their Tier 1 capital must deduct beginning on October 20, 2016 any amount of perpetual contributed capital (PCC) that causes PCC minus retained earnings, all divided by moving daily net average assets, to exceed two percent. After October 20, 2020, corporate credit unions must deduct any amount of PCC that causes PCC to exceed retained earnings, when calculating Tier 1 capital.
For example, CUNA wrote: "NCUA should eliminate the deduction of PCC from Tier 1 capital allowing PCC to be counted for all regulatory capital requirements as currently allowed by the corporate regulation until next year."
This means that a corporate credit union could fully meet its Tier 1 capital requirement through PCC.
However, this also makes the credit union system potentially less stable as the system becomes more interconnected.
As the corporate credit union meltdown illustrated, losses at corporate credit unions cascaded down to natural person credit unions, which caused natural person credit unions to write down equity investments in corporate credit unions.
NCUA argued in 2010 that without some minimum retained earnings requirement, corporate credit unions "would be a continued source of instability to the credit union system as a whole."
Maintaining the retained earnings requirement is good public policy. It would ensure that there is a sufficient loss absorbing buffer at corporate credit unions. This should improve the resiliency of the credit union system.
However, a better solution would be to require credit unions to deduct from their reserves some portion of any nonperpetual capital accounts at a corporate credit union and all perpetual contributed capital issued by a corporate credit union. But this would require congressional action.
Specifically, they are objecting to the requirement from the National Credit Union Administration (NCUA) that corporate credit unions when calculating their Tier 1 capital must deduct beginning on October 20, 2016 any amount of perpetual contributed capital (PCC) that causes PCC minus retained earnings, all divided by moving daily net average assets, to exceed two percent. After October 20, 2020, corporate credit unions must deduct any amount of PCC that causes PCC to exceed retained earnings, when calculating Tier 1 capital.
For example, CUNA wrote: "NCUA should eliminate the deduction of PCC from Tier 1 capital allowing PCC to be counted for all regulatory capital requirements as currently allowed by the corporate regulation until next year."
This means that a corporate credit union could fully meet its Tier 1 capital requirement through PCC.
However, this also makes the credit union system potentially less stable as the system becomes more interconnected.
As the corporate credit union meltdown illustrated, losses at corporate credit unions cascaded down to natural person credit unions, which caused natural person credit unions to write down equity investments in corporate credit unions.
NCUA argued in 2010 that without some minimum retained earnings requirement, corporate credit unions "would be a continued source of instability to the credit union system as a whole."
Maintaining the retained earnings requirement is good public policy. It would ensure that there is a sufficient loss absorbing buffer at corporate credit unions. This should improve the resiliency of the credit union system.
However, a better solution would be to require credit unions to deduct from their reserves some portion of any nonperpetual capital accounts at a corporate credit union and all perpetual contributed capital issued by a corporate credit union. But this would require congressional action.
Wednesday, May 14, 2014
Too Interconnected to Fail
Credit unions have had a history of being too interconnected to fail.
Whenever a corporate credit union got into financial trouble, NCUA has stepped in to bailout credit unions.
In January 1995, Capital Corporate Federal Credit Union (CapCorp) failed because of a sharp rise in interest rates in 1994. To prevent a run on CapCorp and a fire sale liquidation of CapCorp's assets, which would have magnified CapCorp's losses, NCUA guaranteed the $700 million of uninsured deposits for 483 credit unions that were members of CapCorp.
According to a 1995 study on CapCorp's failure, the Government Accountability Office wrote:
Fast forward to 2008 and 2009, once again the credit union industry teetered on the abyss as five corporate credit unions failed. The interconnectedness between corporate credit unions and natural person credit unions caused NCUA to take decisive action to stabilize the industry.
As NCUA Chairman Debbie Matz stated in a 2010 speech,
Debbie Matz further stated:
While NCUA has put in place more stringent regulations with regard to corporate credit unions, natural person credit unions and corporate credit unions still remain too interconnected.
It is only a matter of time before a corporate credit union gets into financial trouble and NCUA will guarantee all uninsured deposits of a corporate credit union's members to prevent a run.
Whenever a corporate credit union got into financial trouble, NCUA has stepped in to bailout credit unions.
In January 1995, Capital Corporate Federal Credit Union (CapCorp) failed because of a sharp rise in interest rates in 1994. To prevent a run on CapCorp and a fire sale liquidation of CapCorp's assets, which would have magnified CapCorp's losses, NCUA guaranteed the $700 million of uninsured deposits for 483 credit unions that were members of CapCorp.
According to a 1995 study on CapCorp's failure, the Government Accountability Office wrote:
"Up to $70 million of Cap Carp's losses, originally projected to be $100 million, would be borne by its member credit unions through the loss of Cap Corp's total capital-- approximately $33 million in retained earnings and $37 million in MCSDs held by its members. NCUA's analysis indicated that these losses could be absorbed by the member credit unions without causing any of them to fail. The losses to the member credit unions could have been even larger if NCUA had decided not to cover the approximately $700 million in uninsured member deposits because, in the absence of this support, a run on Cap Corp could have forced the sale of assets at lower than expected prices." (emphasis added)
Fast forward to 2008 and 2009, once again the credit union industry teetered on the abyss as five corporate credit unions failed. The interconnectedness between corporate credit unions and natural person credit unions caused NCUA to take decisive action to stabilize the industry.
As NCUA Chairman Debbie Matz stated in a 2010 speech,
"[a]bout 90 percent of natural-person credit unions had investments in corporates. If the corporate system had collapsed, natural-person credit unions would have suffered huge and insurmountable losses – shattering confidence in all of America’s credit unions. Natural-person credit unions would have lost about $30 billion in net worth – about one-third of their net worth at the time. At least 800 natural-person credit unions would have collapsed.
On top of all that, your federal Share Insurance Fund would have had to levy huge assessments on the surviving credit unions, to cover the remainder of the losses. Many of those remaining credit unions might not have withstood the strain."
Debbie Matz further stated:
"To stabilize the system, NCUA placed guarantees on shares at all corporates. As a result, credit union investments in the corporates are backed by the full faith and credit of the United States government." (emphasis added)
While NCUA has put in place more stringent regulations with regard to corporate credit unions, natural person credit unions and corporate credit unions still remain too interconnected.
It is only a matter of time before a corporate credit union gets into financial trouble and NCUA will guarantee all uninsured deposits of a corporate credit union's members to prevent a run.
Tuesday, February 4, 2014
Mid-Atlantic Corporate Gets Ratings Notch Uplift from Government Support
In a January 31 press release, Fitch affirmed Mid-Atlantic Corporate FCU's Long-term Issuer Default Rating (IDR) and Short-term IDR ratings at ‘A+‘/’F1+’, respectively. In addition, Fitch has upgraded Mid-Atlantic's Viability rating (VR) to 'bb-' from 'b+’.
As the press release points out, the high likelihood of government support accounted for the ratings notch uplift, as its support rating floor was above its standalone or Viability rating.
According to Fitch, Mid-Atlantic Corporate FCU "will continue to benefit from the government support provided to Corporate Credit Unions (CCUs) through the National Credit Union Association (NCUA). Fitch attributes an extremely high probability of support to CCUs from regulatory authorities, as reflected in its high support rating and support rating floor. This view is underpinned by the NCUA’s past actions and the U.S. Treasury’s additional assistance to credit unions by extending the operation of the Temporary Corporate Credit Union Stabilization Fund through 2021."
Read the press release.
As the press release points out, the high likelihood of government support accounted for the ratings notch uplift, as its support rating floor was above its standalone or Viability rating.
According to Fitch, Mid-Atlantic Corporate FCU "will continue to benefit from the government support provided to Corporate Credit Unions (CCUs) through the National Credit Union Association (NCUA). Fitch attributes an extremely high probability of support to CCUs from regulatory authorities, as reflected in its high support rating and support rating floor. This view is underpinned by the NCUA’s past actions and the U.S. Treasury’s additional assistance to credit unions by extending the operation of the Temporary Corporate Credit Union Stabilization Fund through 2021."
Read the press release.
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