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Oct. 18, 2010
The Administration, the Treasury, and The Federal Reserve should be aware that the NCUSIF and the remnants of the CLF are in no condition to handle any out of the ordinary liquidity demands and won't be for the foreseeable future. The NCUAB should reach out for Treasury assistance, but if the don't, the government needs to be aware that the credit union system is on the precipice of an unprecedented liquidity crisis.
Thanks (again) Chip for your critically important articles. This one is another important reminder and call to action to all of us. The CU system's future is on the line here and we are not just dealing with yesterday's issues.
I worry that this kind of open analysis at an urgent time in our system is sorely missing from our credit union industry press and trade groups. Seems so much of what we see is regurgitated NCUA press releases in the media and completely ineffective waste of time "task forces" from our trades. Can't we and our supposed industry leaders do better and stand up for our future? The future is being shaped now and I don't like what I'm seeing from NCUA. NCUA is not making sound decisions today, they are alienating credit unions on mass with their heavy handed actions, and limiting our system options in a way that is so tight that our future prospects are diminished -- they think they are reducing risk while in reality they are creating big long term risks for the health of the system.
I think they will only listen to political persuasion. I will be calling our congressman again. NAFCU and CUNA also need to take open public action to stop this out of control train wreck!
Chicken Little would be proud! What massive jumps of illogical conclusions drawn from pure air. The Corporates "saved" us from a liquidity crisis? NO... actually they caused it, along with NCUA.(and those cu dumb enough to put all their funds in the corporates in the first place... NCUA should have written them a check for $250K and wished them a nice day...) There was no liquidity issue for those who invested outside the corporates. Seems to me that cu's are awash in incoming funds and low loan demand... that spells liquidity last time I looked.
There are broken problems to fix... but we are nowhere near a precipice and the sky is firmly fixed above us.
We weren't in a crisis when the corporates were founded... we aren't in one now (except for the nasty $16.1 Billion fix-up needed).
I wonder how the suits against BofA etal regarding mortgage servicing will effect the 'ownership' of the losses on the loans owned by the Corporate Credit Unions - perhaps reduce the losses by transferring them to the servicing institutions - tax payers will probably carry the burden wherever - but perhaps not on the Corporate CU's Books, but back at the servicer
Great article. When I hear people, incluidng the NCUA Bridges, speak of a new coproate model that only needs a $2 billion dollar balance sheet for 2400 credit unions that tells me one thing... no lines of credit. The FHLB is a resource, but should not be the only liquidty tool we own as a network. Am I going to spend my entire day looking at my fed balalnce for fear of a overdraft? What cost is a line at a bank and what collateral do they require? Will it be there when I need it ? I am ashamed to say I do not know these answers and I need them soon.....
Bad News needs not to make noise during years; NCUA should imposed the stabilization quote to the Credit Unions one time, independently if this means one year of CU losses. Now we have an unstable System with unknowns CU stabilization quotes for the next five years with the possibility of more years of CU losses or poor net income.
Chip again brings up the very concerns that many of us have or should have with the changes that is occuring within the CU system. Over the past 30 years as CEO, I've been able to witness and testify the very essense of what he's talking about....liquidity. Without our Corporates (who truly understand CU needs)we as CU's will deal with FHLB or others, at a much higher price than what the corporates have been able to provide. Our Credit Union as well as many other have dealt with FHLB during this recession and have been alarmed at their reactions. They will immediately reduce your lines across all FI's and if there isn't enough collateral after they made their discount, the CU will forwards a capital deposit for this deficiency. However, during this same time, our corporate was there throughout these past 3 years so we as a credit union can make sure that we had the liquidity needs in the event of major events, etc. We never needed to excercise this line with our Corporate, but knew for prudent reasons, why it was so valuable. Now that we know that our Corporate will be dismantaled (bridge Corporate), we will be faced at looking for lines of credit at a very high cost to satisfy NCUA. We are very concerned about the future programs that may or may not be available for our industry, so we can effectively compete. I believe we will have a Corporate system of some kind, however, they will be so retricted in so many areas, that they will not be able to provide the type of services at the cost that we as Credit Unions have benefited over these many decades...this includes large lines of credit when you truly need it for disasters, etc.
Clearly, whoever responded to Chips article known as "chicken little" has limited experience in running a more complex type of CU or having any experience in dealing with outside entities such as FHLB, otherwise you'd know better than make the irrational and short sited remarks that you have.
Thank you Chip, as you continue to educate and bring awareness to the fundamental consequences of the actions that entities such as NCUA will have toward the LONG term viability of our industry.
Long time CU CEO
j l wagoner
". Credit unions are a way for members to organize, control, and direct resources, and meet the needs for which for-profit firms do not offer solutions or offer solutions on terms not in the consumer’s best interest."
This applies to both natural person CUs and corporates. Besides, without access to a cooperative liquidity solution, credit unions will be forced to obtain services from the very institutions fighting against us and what we stand for. How would that make sense?
The actions of NCUA recently have effectively remove the intermediation structures of the credit union's closed system of stocks and flows on liquidity. Like most central planning efforts, these will have effects on the efficient flow of liquidity through the system. Like a natural person credit union, we serve as a intermediary for the effective flows between savers and borrowers. So to restrict the the credit union industry flow structure will result in greater inefficiency of liquidity flow and therefore greater cost will be transferred into higher cost across the entire system.
It all gets back to Chip's point on effective design of the system. And so to restrict liquidity was the unintended consequences of NCUA efforts to restrict corporate from purchasing private label long-term securities. The system is highly complex and interconnected and so those that tinker with its design without understanding its resulting behavior run the risk of making the system perform less optimal than it was prior to the desing change.
We need to prepare for highly long-term cost of liquidity. And this will hurt already over-leveraged member households in our country.
Chip's accessment is correct in that NCUA either has a superior design that he are not willing to share for our understanding, or they don't have what they are doing at the broader system level of design. Either way, we will need to innovate the corporate intermediation structures back into existence. This will happen but it will take time. Leadership and courage by credit unions is now required more than ever.
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