New York Governor Andrew Cuomo on December 12 signed into law legislation, S.727-A/A.3320, that will allow credit unions to participate in the state Banking Development District (BDD) Program.
The BDD Program was created in 1997 to encourage financial institutions to establish branches in economically distressed communities throughout New York where there is a demonstrated need for banking services.
Institutions that are approved for a BDD designation are eligible to receive up to $10 million in subsidized public deposits and other benefits, including below market-rate deposits from New York state. These deposits are intended to lower the financial risk that the branch may incur when opening in an underserved community.
The legislation will mark the first time in state history that credit unions will be permitted to receive public deposits.
Read the memo on the legislation.
Showing posts with label Public Funds. Show all posts
Showing posts with label Public Funds. Show all posts
Tuesday, December 17, 2019
Thursday, July 25, 2019
Troubling Proposal from NCUA
The National Credit Union Administration is proposing that an FCU will be required to develop and maintain a written plan if its public unit and nonmember shares, taken together with borrowings, exceed 70 percent of paid-in and unimpaired capital and surplus.
This proposal ignores that the reliance on volatile and expensive nonmember deposits and borrowed funds could expose the National Credit Union Share Insurance Fund (NCUSIF) to a loss.
For example, Beehive Credit Union, which failed, held up to 18 percent of its deposits in high-cost nonmember deposits. The Material Loss Review of this failure noted that these high-cost nonmember deposits partially contributed to the $27.6 million loss to the NCUSIF.
According to the Material Loss Review of Chetco Federal Credit Union. the credit union's management failed to develop an adequate liquidity plan to address rapid loan growth. The report noted that management funded its rapid loan growth through a combination of borrowed funds and deposit products with above-market rate. But as Chetco's financial condition deteriorated, a corporate credit union reduced its line of credit, subjecting the credit union to liquidity risk. The failure of Chetco resulted in an estimated loss to the NCUSIF of $76.5 million.
The NCUA Board should require all FCUs to develop and maintain written plans when an FCU is relying on high-cost, volatile nonmember shares and borrowings to fund its operations above a de minimis threshold.
This proposal ignores that the reliance on volatile and expensive nonmember deposits and borrowed funds could expose the National Credit Union Share Insurance Fund (NCUSIF) to a loss.
For example, Beehive Credit Union, which failed, held up to 18 percent of its deposits in high-cost nonmember deposits. The Material Loss Review of this failure noted that these high-cost nonmember deposits partially contributed to the $27.6 million loss to the NCUSIF.
According to the Material Loss Review of Chetco Federal Credit Union. the credit union's management failed to develop an adequate liquidity plan to address rapid loan growth. The report noted that management funded its rapid loan growth through a combination of borrowed funds and deposit products with above-market rate. But as Chetco's financial condition deteriorated, a corporate credit union reduced its line of credit, subjecting the credit union to liquidity risk. The failure of Chetco resulted in an estimated loss to the NCUSIF of $76.5 million.
The NCUA Board should require all FCUs to develop and maintain written plans when an FCU is relying on high-cost, volatile nonmember shares and borrowings to fund its operations above a de minimis threshold.
Tuesday, July 23, 2019
Proposal Would Allow FCUs to Leverage Nonmember Funding
The National Credit Union Administration has proposed a rule that will allow a federal credit union (FCU) to leverage funding sources other than member shares.
The proposed rule will allow an FCU to receive public unit and nonmember shares up to 50 percent of the credit union's paid-in and unimpaired capital and surplus less any public unit and nonmember shares.
Also, the proposed rule would only require an FCU to develop and maintain a written plan if its public unit and nonmember shares combined with total borrowings exceed 70 percent of paid-in and unimpaired capital and surplus.
According to the transcript from the May 2019 NCUA Board meeting, the proposed rule would potentially allow an FCU to increase its funding from sources other than member shares, from 56 percent of assets to 65 percent of assets.
In other words, this proposal could potentially increase leverage for the entire credit union industry by 6 percent or $135 billion, based on current net worth levels.
Unfortunately, the proposal could erode the cooperative character of the credit union industry.
The hallmark of credit unions is that member savings fund member loans. This proposed rule would permit an FCU to finance a greater percentage of its loans to members with nonmember funds.
The proposed rule will allow an FCU to receive public unit and nonmember shares up to 50 percent of the credit union's paid-in and unimpaired capital and surplus less any public unit and nonmember shares.
Also, the proposed rule would only require an FCU to develop and maintain a written plan if its public unit and nonmember shares combined with total borrowings exceed 70 percent of paid-in and unimpaired capital and surplus.
According to the transcript from the May 2019 NCUA Board meeting, the proposed rule would potentially allow an FCU to increase its funding from sources other than member shares, from 56 percent of assets to 65 percent of assets.
In other words, this proposal could potentially increase leverage for the entire credit union industry by 6 percent or $135 billion, based on current net worth levels.
Unfortunately, the proposal could erode the cooperative character of the credit union industry.
The hallmark of credit unions is that member savings fund member loans. This proposed rule would permit an FCU to finance a greater percentage of its loans to members with nonmember funds.
Tuesday, May 28, 2019
NCUA Board Proposes Expansion in Nonmember Deposit Cap
The National Credit Union Administration (NCUA) Board on May 23 proposed a rule that would significantly expand the ability of a federal credit union (FCU) to use public unit and nonmember deposits to fund its operation.
The proposed rule increases the current nonmember deposit limit from 20 percent of total shares to 50 percent of paid-in capital and unimpaired capital and surplus less any public unit and nonmember shares.
Public units include the federal government, states and territories, counties and municipalities and tribal entities.
NCUA acknowledged in its proposal that the 20 percent cap dates to the late 1980s and was imposed “because of the asset/liability management problems related to public unit and nonmember shares that arose at certain FCUs, which resulted in material losses for the National Credit Union Share Insurance Fund.”
Under the proposal, designated low-income FCUs, which account for 57 percent of all FCUs, would be able to accept deposits from any nonmember up to the 50 percent level.
The proposal would require a federal credit union to develop a specific use plan if its nonmember shares, combined with its borrowings, exceeds 70 percent of paid-in and unimpaired capital and surplus.
Comments on the proposal are due 60 days after publication in the Federal Register.
Read the proposed rule.
The proposed rule increases the current nonmember deposit limit from 20 percent of total shares to 50 percent of paid-in capital and unimpaired capital and surplus less any public unit and nonmember shares.
Public units include the federal government, states and territories, counties and municipalities and tribal entities.
NCUA acknowledged in its proposal that the 20 percent cap dates to the late 1980s and was imposed “because of the asset/liability management problems related to public unit and nonmember shares that arose at certain FCUs, which resulted in material losses for the National Credit Union Share Insurance Fund.”
Under the proposal, designated low-income FCUs, which account for 57 percent of all FCUs, would be able to accept deposits from any nonmember up to the 50 percent level.
The proposal would require a federal credit union to develop a specific use plan if its nonmember shares, combined with its borrowings, exceeds 70 percent of paid-in and unimpaired capital and surplus.
Comments on the proposal are due 60 days after publication in the Federal Register.
Read the proposed rule.
Monday, March 11, 2019
Bill Would Allow CUs to Accept Public Funds
Legislation (SB257) has been introduced in Arkansas Senate that would allow credit unions insured by the National Credit Union Administration to serve as depositories of public funds.
The Arkansas Bankers Association is opposed to the bill.
In an op-ed appearing in Arkansas Business, Lorrie Trogden, president and CEO of the Arkansas Bankers Association, wrote: "Allowing credit unions to take public deposits would only work against the state by reducing the state’s tax base as well as leaving less capital in community banks for lending to small businesses and consumers."
She further wrote: "If credit unions want to stray from their mission and act like banks, they should be taxed like banks."
Read the op-ed.
The Arkansas Bankers Association is opposed to the bill.
In an op-ed appearing in Arkansas Business, Lorrie Trogden, president and CEO of the Arkansas Bankers Association, wrote: "Allowing credit unions to take public deposits would only work against the state by reducing the state’s tax base as well as leaving less capital in community banks for lending to small businesses and consumers."
She further wrote: "If credit unions want to stray from their mission and act like banks, they should be taxed like banks."
Read the op-ed.
Tuesday, April 3, 2018
Washington Municipalities Can Invest Unlimited Public Funds in CUs
Washington Governor Jay Inslee on March 22 signed a bill into law granting local governments the ability to invest unlimited public funds deposits in credit unions.
Currently, municipal governments’ deposits in credit unions are capped at $250,000.
Under the new law, municipalities will be able to deposit unlimited public funds above the $250,000 insurance limit, into credit unions located in counties populated by 300,000 or fewer people.
However, the uninsured portion of public funds needs to be secured with eligible collateral.
The new law will allow municipalities in 34 of Washington's 39 counties to place public funds in excess of the insured deposit limit in credit unions.
Read the bill.
Currently, municipal governments’ deposits in credit unions are capped at $250,000.
Under the new law, municipalities will be able to deposit unlimited public funds above the $250,000 insurance limit, into credit unions located in counties populated by 300,000 or fewer people.
However, the uninsured portion of public funds needs to be secured with eligible collateral.
The new law will allow municipalities in 34 of Washington's 39 counties to place public funds in excess of the insured deposit limit in credit unions.
Read the bill.
Tuesday, April 2, 2013
Oregon CUs Can Accept Public Funds In Excess of Deposit Insurance Limit
Yesterday, qualified Oregon credit unions could start accepting public deposits in excess of the federal deposit insurance limit through the Oregon Credit Union Public Funds Collateralization Program.
Legislation passed in 2010 and clarified in 2011 authorized the State Treasury to establish a collateralization program to protect public deposits at credit unions.
Participating institutions protect public deposits above the insured threshold by posting securities as collateral against the uninsured balances.
Ten credit unions will initially participate in the program. The credit unions are Unitus, Pacific Crest, OSU Federal Credit Union, OnPoint, Advantis, MAPS Credit Union, Northwest Community, Old West, Wauna Federal Credit Union, and Oregon Community.
The cities of Portland, Beaverton, Corvallis, Independence, and Klamath Falls have signed letters pledging to deposit funds in excess of $250,000 in one or more of the participating credit unions.
Read the announcement.
Legislation passed in 2010 and clarified in 2011 authorized the State Treasury to establish a collateralization program to protect public deposits at credit unions.
Participating institutions protect public deposits above the insured threshold by posting securities as collateral against the uninsured balances.
Ten credit unions will initially participate in the program. The credit unions are Unitus, Pacific Crest, OSU Federal Credit Union, OnPoint, Advantis, MAPS Credit Union, Northwest Community, Old West, Wauna Federal Credit Union, and Oregon Community.
The cities of Portland, Beaverton, Corvallis, Independence, and Klamath Falls have signed letters pledging to deposit funds in excess of $250,000 in one or more of the participating credit unions.
Read the announcement.
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