NCUA Moves to Stabilize Corporate Credit Unions

Actions Aimed at Bolstering Liquidity, Capital The National Credit Union Administration (NCUA) Board has approved a series of actions it says will help the nation's corporate credit union system during the country's current economic climate.

The NCUA says the system is facing liquidity and capital strains because of the "unprecedented and extraordinary" market disruptions. The board decided to act to add stability to and strengthen corporate credit unions to help them maintain liquidity, strengthen capital and restructure the corporate system.

To help natural credit unions that depend on corporate credit union resources, the NCUA Board approved the following measures:

Guarantee uninsured shares at all corporate credit unions through February 2009, and establish a voluntary guarantee program for uninsured shares of all corporate credit union through December 31, 2010;
Issue a $1 billion capital note to U.S. Central Corporate Federal Credit Union (U.S. Central);
Issue an Advance Notice of Public Rulemaking (ANPR) on restructuring the corporate credit union system; and
Declare a premium assessment to restore the National Credit Union Share Insurance Fund (NCUSIF) equity ratio to 1.30 percent, which will be collected in 2009.

The NCUSIF issued a temporary guarantee of member shares in corporate credit unions through February and will extend the guarantee on a voluntary basis to all corporate credit unions through December 31, 2010. (This guarantee is in addition to the temporary corporate credit union liquidity guarantee program announced on October 16, 2008.)

The NCUSIF has also moved to stabilize the corporate credit union system and will issue a capital note injecting $1 billion into U.S. Central. This will provide reserves to offset anticipated realized losses on some of the mortgage- and asset-based securities held by U.S. Central.

The Board notes that corporate credit unions are restricted to investing in highly-rated securities, and their interest rate risk exposure is constrained by net economic value limits. In the past, these securities could be readily sold in the market or used for collateralized borrowing to obtain liquidity, and the value of securities experienced little or no loss. Now credit markets are disrupted world-wide, resulting in depressed pricing, inactive trading of debt securities, and a severe contraction of wholesale lending. Corporate credit unions like all other institutions have not been able to avoid the effects of these conditions. Corporate investment portfolios have diminished significantly as a basis for collateralizing borrowings, increasing liquidity pressures.

The NCUA Board also issued an ANPR, with a 60-day comment period. The document includes the entire range of areas of potential reform and restructuring related to the Corporate Credit Union system. Documents about the Board actions concerning NCUA's Corporate Stabilization Program can be found on the NCUA website.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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