Puerto Rico Cooperativas Can Withstand Fiscal Crisis
Puerto Rico’s cooperativa system—state insured credit unions—can withstand the island’s fiscal crisis even though the financial institutions heavily invested in government bonds, regulators said Friday.
Puerto Rico has more than 100 cooperativas insured by the territory's Corporation for the Supervision and Insurance of Cooperatives (COSSEC). That is in addition to the island's credit unions that are insured by the NCUA.
Some cooperativas have a high concentration of island “special investments” and could face solvency issues, the regulators and fiscal experts said.Island regulators estimated that five of the cooperativas could face liquidity issues, but they added that COSSEC and larger credit unions would cover all the credit unions’ obligations.
Officials from the COSSEC and the island’s fiscal agency presented their fiscal plan Friday to the oversight board created by Congress last year.
While officials representing cooperative executives have said the system will remain healthy, the fiscal plan represents an assurance from regulators that the institutions can weather the crisis.
The oversight board approved the fiscal plan with amendments.
“COSSEC has adequate capital to perform its regulatory and insurance duties under ordinary and relatively stressed scenarios,” the regulators said.
The document states that COSSEC strongly encouraged cooperativas to invest in island bonds during the past several years—investments that have proven to be highly risky.
“While these bonds may have appeared to be safe investments at the time the circular was written, these bonds have since performed poorly and could suffer substantial losses due to a Government debt restructuring,” the fiscal plan states. “Several of the co-ops feel they were unduly pressured into purchasing these bonds at the encouragement of the Government and that the Government has an obligation to address this issue.”
Last year, an attorney representing 25 cooperativas said in a memo to the House Natural Resources Committee accused government regulators of threatening prubitiuve taxation if they did not purchase government bonds.
COSSEC also has been plagued by allegations of conflicts of interest since there is a high concentration of cooperativa representatives on the agency’s board, according to the fiscal plan.
The fiscal board said a new committee with greater independence will be formed to ensure confidence in the cooperative system and to ensure the long-term financial health of the system.
The committee will include officials from financial institutions, regulators and government fiscal experts.
COSSEC also has requested technical assistance from the NCUA, including details on how to better structure the agency to regulate the island’s credit unions.
The fiscal report also states that the cooperative system has a loyal following on the island. They are viewed as important institutions in many communities, with the president of the cooperative recognized as one of the leaders in many municipalities.
They have nearly $7.9 billion in assets and shares, compared with about $45 billion of deposits in banks on the island.