NCUA Adopts Corporate CU Reforms

Regulator announces plan to address impaired assets, preserve stability.

September 27, 2010

The National Credit Union Administration (NCUA) assumed control of three undercapitalized corporate credit unions, announced a plan to isolate impaired assets in the corporate credit union system, and finalized a set of stronger regulations as part of its efforts to resolve the financial challenges facing corporate credit unions without disrupting consumer service.

“The steps NCUA has taken represent a comprehensive solution to the problems afflicting the corporate credit union system,” said NCUA Chairman Debbie Matz. “Just as important, this plan puts consumers first and ensures that there will be no loss to taxpayers.

“This plan also provides an orderly transition to a new regulatory regime for corporates. In addition, we are affording local credit unions greater choice in selection of their liquidity and back office provider.”

The Temporary Corporate Credit Union Share Guarantee Program remains in effect for the entire corporate system through Dec. 31, 2012. In addition, the agency continues to insure credit union and consumer deposits up to $250,000 per account.

NCUA says setting the plan into motion required conservatorship today of three additional corporate credit unions: Members United Corporate Federal Credit Union Warrenville, Ill.; Southwest Corporate Federal Credit Union, Plano, Texas; and Constitution Corporate Federal Credit Union, Wallingford, Conn.

In 2009, U.S. Central Corporate Federal Credit Union, Lenexa, Kan., and Western Corporate Federal Credit Union, San Dimas, Calif., were placed into conservatorship.

NCUA’s plan to address the impaired assets and resolve these troubled institutions involves several steps:

  • Isolating the impaired securities (legacy assets) held by these five corporate credit unions;
  • Repackaging the legacy assets into new securities with an NCUA guarantee backed by the U.S. government;
  • Issuing the new securities to investors on the open market;
  • Transferring the corporates’ still-valuable assets to newly created “bridge banks” that will allow for continued operations; and
  • Transitioning operations now under NCUA conservatorship over a target of 24 months to other service providers.

NCUA consulted with the Treasury Department, Federal Reserve, and other federal financial regulators in developing these plans.

In particular, the life of the Temporary Corporate Credit Union Stabilization Fund has been extended to June 30, 2021. This will give the NCUA Board flexibility in mitigating the impact of the annual assessments to credit unions for the costs over this period.

Costs will be borne exclusively by the credit union industry and will not result in any loss to taxpayers.

New regulatory reforms

NCUA adopted a new set of regulatory reforms aimed at strengthening the corporate credit union system. The new corporate regulation (NCUA Rules and Regulations, Part 704):

  • Implements stronger capital requirements and establishes prompt corrective action measures for corporate credit unions;
  • Establishes clear concentration limits on investments that will require corporate credit unions to better diversify their portfolios;
  • Improves asset/liability management requirements to avoid liquidity and interest-rate risks; and
  • Raises governance standards to improve levels of experience and expertise on corporate boards.

“NCUA’s action to deal with the troubled institutions and the impaired securities on the corporates’ books—together with reforms to the NCUA regulation that governs the corporate system—will create stronger safeguards for the nation’s entire credit union system,” Matz said.

“The leaders of the nation’s consumer credit unions must make the strategic business decisions about whether to recapitalize some of the remaining viable corporates, switch to a different corporate, or seek services at some other type of institution,” she added. “NCUA is confident that the new framework will enable the choices ahead to be made in the context of strong and safe credit union operations. The credit union industry, and the 90 million consumers it serves, deserve nothing less.”

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