WASHINGTON – A 25 basis point spread isn't worth writing home about, but the NCUA is hoping the Credit Union System Investment Program's lack of credit risk, and a little bit of guilt, will attract participants.
"They're borrowing from the CLF for one year, and investing it in an asset guaranteed by the SIP for the full term, so that 25 basis points is essentially the fee to corporate for renting that borrowing capacity," said CLF Vice President Steve Sherrod, adding, "It's credit-risk free, and that's not a bad deal."
NCUA Spokesman John McKechnie said Chairman Michael Fryzel has publicly stated that natural person credit unions created the corporate system and have benefitted from it, so they have an interest in it.
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"We're giving credit unions an opportunity to take advantage of this existing liquidity vehicle, and I feel very strongly that credit unions should consider participating, if they care about their own credit union and the network," McKechnie said. "But, we are not going to mandate it."
Though the program will increase a credit union's asset size, and reduce capital ratios, Sherrod said he's confident that won't be a roadblock. He said the average credit union net worth ratio is 10%, so plenty will easily meet the post-advance 6% net worth ratio requirement.
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