The agency is taking a three-pronged approach with corporates to maintain liquidity, strengthen capital and restructuring. The guarantee might help with the perception of stability, but what will serve as the aspirin for all the credit union CEO and CFO's headaches in trying to come up with the 56 basis points the NCUA is requiring they pony up is another story.
Credit unions' ROA has fallen fairly dramatically over the last couple of years and could be entirely wiped out by this move. According to NAFCU, half of credit unions could see their ROA evaporate. Smaller credit unions or those with damaged net worth in the states we all keep hearing about could very well be decimated. How is that supporting a cooperative movement?
Industry response has run the gamut from understanding and believing the NCUA is doing the right thing to bolster the corporates to grumbling acceptance to pointed questioning. For example, not all credit unions employ the corporate network and expected to be immune from having to help prop it up.
So if there are some credit unions that are not using the corporates, are they necessary to credit unions' survival and is this bailout-as The Washington Post rightly termed it-worth it?
That depends upon two things: executives' commitment to the credit union movement's cooperative philosophy and practical reality. Corporates were started to keep the credit unions' money within the cooperative movement, to pool resources for better returns and to provide payment systems and other services. Many credit unions could obtain these services elsewhere. But, with most credit unions maintaining at least one relationship with corporate credit unions, those with their sleeves rolled up in the trenches everyday placing their trust (aka members' money) in corporates may see something I don't.
The cooperative model that the credit union movement was founded on is crucial to maintain, but in a time of absolute economic despair, the reality of the day takes hold. Credit unions can still maintain a cooperative structure-note that initially the cooperation was among credit union members-with a significantly remodeled system.
Hopefully this is what the NCUA has in mind with the third prong of its reform plan. Thus far, the agency seems to be merely seeking suggestions as to what shape the restructuring should take. However, the NCUA chairman's statement called the corporates "an integral part" of the credit union industry and "call[ed] upon the credit union industry to work with NCUA in this important cooperative effort and remain confident of our ultimate success in creating a more viable and stable corporate network." Only time and the agency's actions will tell its final rejiggering.
The agency's moves garnered major press from The Wall Street Journal, The Washington Post and Bloomberg. While the mainstream press did generally appear to have a handle on this inside baseball, readers may not put so fine a point on it and just see yet another industry bail out. Though several paragraphs in, the Post noted that the federal aide was through a premium assessment on the industry, we all know who is really going to be paying for it-the member. It also noted that U.S. Central is "running out of money, endangering the financial health of many of the nation's 8,400 credit unions." Bloomberg highlighted the credit union losses and failures. The WSJ headline screamed: "U.S. Moves to Bail Out Credit Union Network." That ain't pretty.
If I'm a new administration heading into office and read these headlines, I'm thinking, well, why can't credit unions just use the Federal Reserve for these services. And as long as we're doing that, why do they have a separate insurer and regulator from the banks? I
While the corporate credit union network as it stands served credit unions well for a few decades, in economic crisis like this, credit unions must seriously weigh their duty to their members to continue to provide services against their duty to the movement.
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