NCUA Deputy Executive Director Larry Fazio provided a few more clues yesterday regarding progress toward separating so-called legacy assets from corporate credit union balance sheets.
"The basic plan is to isolate and fund them," Fazio told yesterday's Town Hall webinar audience. In order to isolate the assets, they must be funded, and he said the NCUA is exploring various ways to do it.
The FDIC's structured note programs are one strategy the NCUA is considering, he said. Another option is to obtain market based funding that would allow the NCUA to hold the investments, and absorb only additional credit losses, rather than face "the greater expense of selling into the marketplace."
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One big challenge the NCUA faces is determining to what extent legacy assets can be isolated from corporates before incurring losses based on market value, Fazio said. Additionally, the NCUA wants to ensure if legacy assets suffer any further losses, they are covered by what remains of contributed member capital before putting the share insurance fund at further risk.
When asked to define legacy assets, Fazio said they will include investments that may not suffer any losses, but "would be out of compliance with regulatory reform." The legacy assets plan will "encompass both issues," he said, referring to both corporate investment losses and new Part 704 regulations.
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