The NCUA Board today asked Congress to create a stabilization fund so credit unions can spread out over seven years premiums to the NCUSIF for the $5.9 billion cost of placing U.S. Central Federal Corporate Credit Union and Western Federal Corporate Credit Union into conversatorship.
The agency would use the $6 billion borrowing authority it has already requested from Congress to set up the fund. The House approved the authority; it is pending in the Senate.
The Temporary Corporate Credit Union Stabilization Fund would be financed by a loan from the Treasury Department's Federal Financing Bank which NCUA would pay back over a seven-year period.
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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.
NCUA Chairman Michael E. Fryzel said new fund is needed because the credit union system and the share insurance fund remain strong but "the combination of these expenses taken all at once would undoubtedly result in a contraction of lending and other member services."
NAFCU President Fred Becker said he is pleased the NCUA is looking to extend the repayment period but hopes the legislation provides more flexibility.
"We have some concerns that the losses will be greater than they are projecting. And those losses could hurt credit unions in the sad states-Arizona, California and Nevada–some of which are already hurting and also are members of Wescorp. The bill should make provisions for contingencies."
CUNA said it is reviewing the plan and will issue a statement later.
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