Western Corporate FCU's decision to reclassify its securities available-for-sale is not a signal of a change in strategy, but only an accounting recognition, said John McKechnie, NCUA's Director of Public and Congressional Affairs.
McKechnie recalled comments by NCUA Chairman Michael Fryzel in the March 27 corporate update, in which he said the March 20 conservatorships of U.S. Central FCU and WesCorp will allow the regulator to "achieve a least cost resolution."
Fryzel's approach to "avoid incurring a larger market loss than the credit losses of holding the distressed assets to maturity" and to "preserve the ability to realize costs savings if credit losses are less than projected" remains unchanged, McKechnie said.
To that end, he said NCUA has been consulting with industry leaders to develop voluntary funding options within the credit union system to isolate and finance distressed assets, allowing credit unions to recoup better-than-expected gains.
Additionally, McKechnie said NCUA is contemplating a "good bank-bad bank" structure, and is also exploring using the Treasury's and the Federal Reserve's respective distressed asset purchase programs to sell some of the distressed assets, but with a share insurance fund guarantee that recognizes credit losses when incurred.