In a closed session last Thursday, the NCUA board voted on the plan, which would supplement the NCUSIF. The NCUA would pay back the Treasury Department over seven years and natural person credit unions would pay the additional premium to the NCUSIF over that time period.
The NCUSIF must be replenished if its equity ratio falls to 1.2% or below. It was 1.28% at the end of February.
The NCUA wants to create a separate entity because if the NCUSIF borrowed the money directly, the loan would become a liability for all federally insured credit unions that they would have to keep on their books. The agency would use the $6 billion borrowing authority it has already requested from Congress to finance the stabilization fund.
The increased funds are needed because when the NCUA took over U.S. Central and Wescorp, it revised the costs of the corporate credit unions' problems to the NCUSIF upward to $5.9 billion from the original estimate of $4.7 billion.
Those funds are needed because some of the other funds that the government has made available to help financial institutions-the Troubled Asset Relief Program and the Public-Private Investment Program aimed at buying illiquid assets-have not been made available to credit unions.
NCUA Chairman Michael E. Fryzel and the trades have long sought to make TARP funds available to credit unions, but the Treasury Department under both the Bush and Obama administrations has declined to take actions that would allow it.
The NCUA said it is still reviewing the applicability of the plan to buy CU toxic assets, which Treasury Secretary Timothy Geithner unveiled last week.
Under the plan, the government will offer low-interest loans to private funds wanting to buy these assets-loans and mortgage-backed securities-to encourage funds to buy assets. Private equity firms and hedge funds are likely to be the main purchasers of these assets. Geithner said the government would initially offer $500 billion in loans and eventually might offer up to $1 trillion.
Officials of both CUNA and NAFCU said that the plan as written probably couldn't be used by credit unions.
"Under the plan, the FDIC is taking commitment to provide value to the assets, and it is not clear if the NCUA would be given the authority so credit unions could access it in the same manner,'' said NAFCU Senior Counsel and Director of Regulatory Affairs Carrie Hunt.
During his testimony before the Senate Banking Committee last week, CUNA President/CEO Dan Mica expressed his frustration about the possible exclusion of credit unions.
"We shouldn't be discriminated against if there are opportunities to offload some of those assets. We shouldn't be left with the remnants of everybody else's problems," he said.
The NCUA's actions on U.S. Central and Wescorp caused some to question whether the agency had not acted fast enough when it first got wind of the problems last year.
Mica expressed frustration that the agency hasn't been sufficiently transparent about the data used to make the decision to place the two corporates into conservatorship. He wrote Fryzel that credit unions "have lost confidence and trust in their regulator."
NAFCU President Fred Becker wrote Fryzel that additional transparency will "quell the suspicion and anger that exists among many of our members."
NCUA Director of Public and Congressional Affairs John McKechnie said the PIMCO report was one of many pieces of information used to make the decision on U.S. Central and Wescorp.
When asked about the criticisms of the agency's handling of the problems of the corporates, he replied, "We've been criticized for acting too quickly and for not acting fast enough. We acted prudently.''