WASHINGTON — Frustrated by the inaction of the Treasury Department, NCUA Chairman Michael E. Fryzel asked Congress for money to help his agency set up a program for the agency to buy troubled assets from credit unions.
In a letter to key senators and representatives, he noted that since the Treasury Department is not using the troubled asset relief program to buy assets, the NCUA should be given the resources to do so.
"Recent credit union examination data indicates that a TARP-like program, which creates a market for certain distressed assets, would be of significant and tangible benefit to credit unions," he wrote.
Fryzel did not put a dollar amount on his request.
He noted that while he appreciates the "complexity and expense" of such an asset-purchase program, eliminating it as an option "removes an important potential avenue of relief for financial institutions."
In his letter he mentioned other steps his agency was taking to help soften the effect of the economic crisis. He singled out the $2 billion mortgage relief program (financed by the Central Liquidity Facility) that he had previously unveiled.
Although Treasury Secretary Henry Paulson originally told Congress that TARP money would be used to buy illiquid assets, he later said the funds would only be used to buy preferred shares of financial institutions.
The NCUA, CUNA and NAFCU have all said they did not know how many credit unions might take advantage of an asset-purchase plan, though all have said it should be available.
"We agree with NCUA Chairman Fryzel that the Treasury Department should adhere to the original intent of the Emergency Economic Stabilization Act and use the funds as congressionally mandated. Throughout this process, NAFCU has sought parity for credit unions as well as a mechanism for credit union relief should it be needed. Chairman Fryzel's leadership in this regard is greatly appreciated," said NAFCU President/CEO Fred Becker.
When Congress passed the EESA last month at the request of the Bush administration, Paulson said the funds were necessary to save troubled financial institutions by injecting capital so they could make more credit available to jumpstart the economy. But, he said, some of the funds would be used to buy preferred shares of banks and lawmakers included that provision in the bill.
Since then, however, the enactment of the measure has not gone as planned.
Several banks have used the additional capital to finance the purchase of other banks (such as Wells Fargo's purchase of Wachovia). Also several companies, such as American Express and Goldman Sachs, have converted to depositor institution charters so they can avail themselves of TARP funds.
The legislation provided for credit union parity, but since credit unions don't issue stock, the government can't infuse capital in them that way. And the government hasn't bought any troubled mortgages, so credit unions have not been able to take advantage in that manner either.
There is a division within the credit union movement about whether credit unions would be tainted by taking government funds, even if they were made available.
Teresa Halleck, president/CEO of The Golden 1 Credit Union in Sacramento, Calif., said credit unions are at a disadvantage by not taking the same funds banks do. "It has increased their (banks') strength as competitors in the marketplace. They are using the money to buy other banks and compete against credit unions. By participating, credit unions can attain a more competitive landscape."
Charles Bruen, president/CEO of First Entertainment Credit Union in Hollywood, Calif., said taking the money would tarnish credit unions' reputation. "It's a bad idea for credit unions to have their hands out. Credit unions should be self-contained and not get money from taxpayers," he said.
Paulson's decision not to use money to buy troubled assets came under bipartisan criticism when he appeared before the House Financial Services Committee last Tuesday.
"The bill is replete with authorization to you, not simply to buy up mortgages, but in effect to do some spending," House Financial Services Committee Chairman Barney Frank (D-Mass.) told Paulson. "Clearly part of this was not just to stabilize but to reduce the number of foreclosures for good macroeconomic reasons."
Spencer Bachus (R-Ala.), the panel's senior Republican, said Paulson was unclear about the goals of the program.
–cmarx@cutimes.com

Instant Insights /

Fryzel Bypasses Treasury, Takes Pitch For TARP Funds Directly to Congress

Related Stories

Recommended For You