To help cover real and anticipated losses at corporate credit unions, the NCUA has proposed assessing all federally insured credit unions a premium estimated between 56 and 62 basis points to the NCUSIF, a move the National Federation of Community Development Credit Unions said highlights the cooperative nature of credit unions but puts scores of CDCUs at risk. The federation counts roughly 200 CDCUs around the country as members.
"Last year, CDCUs nationally posted approximately $12.75 million in net income," the federation reported. "Assuming all factors remain equal, a mandatory investment of 62 basis points translates into a $28 million assessment and would represent a net loss for CDCUs of $15.3 million in 2009, wiping out the modest gains made this year. The fallout from the economic downturn, coupled with the lack of capital, will result in a rapid reduction in community wealth, and for CDCUs, a crippling loss in earnings. We fear these challenges could permanently shutter dozens of CDCUs nationally."
Federation CEO Cliff Rosenthal wrote the NCUA about the impact of the move on CDCUs and suggested the corporates be allowed direct access to the Central Liquidity Facility instead.
In his Feb. 9 letter to the agency, Rosenthal said that the federation's review of data CDCUs reported to the NCUA indicated that the current proposal would force 62% of CDCUs to have negative income in 2009. The federation also reported that 18% of CDCUs would fall below the 7% standard for being considered well capitalized. Another 10.1% would fall below the line for adequately capitalized.
"The lack of access to the CLF seems to us an anomaly that can no longer be sustained. Infusing funds into the corporates directly from the CLF is a wholly appropriate use of the federal financing system, and is likely to prove far more effective than the indirect method that NCUA has employed recently," Rosenthal wrote.
In an interview Rosenthal said the federation was still talking to the agency as well as other trade associations seeking a solution to the problem. Possible solutions might include allowing credit unions to amortize the cost of the assessment over years to allowing qualified CDCUs more access to capital through the U.S. Treasury's Community Development Financial Institutions Fund.
The federation had been successful in helping the CDFI lobby the House of Representatives to include money for the CDFI fund in the Obama administration's economic stimulus package.
"We had a good number of qualified CDFI applications that could not be funded from the last round of CDFI grants," Rosenthal said. "We believe adding more money to the CDFI Fund would allow those to be funded immediately."
The federation has scheduled a Webinar to brief members on the premium situation for Feb. 18 and has urged individual CDCUs to write to the NCUA and the Treasury to let them know what the assessment would mean.
One, the $24 million Saguache County Credit Union headquartered in Moffat, Colo., wrote to let the NCUA and Treasury know that the proposed move would lower the credit union's earned capital by 12% and place it only marginally above the 7% net worth ratio floor for Prompt Corrective Action.
"In 1996, Saguache County, Colo. had no financial institutions," SCCU CEO Richard Wertz wrote. "It was then that our founders created a member/resident owned certified low-income, community development credit union. The Saguache County Credit Union now provides a complete range of financial services to over 3,500 members. We are infused into our membership in a symbiotic relationship. Our loss is theirs. Their loss is ours. Without SCCU, many of our members would again be without financial services within 50 miles."