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While I am no fan of the NCUA's recent actions, I respectfully disagree with the assertions in the article. Firstly, by participating in the prefunding I do not think our credit union is showing confidence in the NCUA's handling of the corporate situation, but rather taking a step back to evaluate a proposal that may be beneficial to our industry at this point in time. Secondly, while the NCUA's handling of the corporate crisis is debatable, surely the demise of the corporates was not entirely the fault of the regulator. Nice read but more interested in positive approaches to new challenges.
I'm not advocating participation but thank you 'nm' for stepping up and saying something contrary to the nearly 2 dozen other commenters. While the NCUA has not done the industry justice of late, participation in the voluntary prepayments should be a business decision and not an emotional--dare I say kneejerk?--one. The agency should have come up with a prepayment program 2 years ago for starters. But I've spoken with several CEOs who've said their modeling shows the savings better than the lost opportunity. Additionally, the NCUA has said it needs 25 bp; the prepayment participation, now up to $500M, will save all credit unions 6.4bp this year in stabilization assessments. My understnading is the NCUA is still taking 25 bp if they don't reach the $500M.
Sarah Snell Cooke
You always hit the nail on the head. NCUA creates more problems than they solve with poorly thought out knee-jerk reactions.
And people wonder why the "Tea Party" movement is growing... It is because proposals like this coming from our Government/NCUA!
NCUA did the same thing with the demise of Capital Corporate years ago. You would think they could learn from their own history. They have a Chicken Little attitude and we all would be a lot better off if they would not be so quick on the draw.
NCUA cannot be ompared with the President and his sidekicks. The president inherited
this financial situation.
Funny, before his election,was there concern pertaining to the economy?
Thanks for the additional insight into the prepayment option. The additional overhead to manage this program has not been made clear. It just seems like a big shell game with all the various funds. You are correct, the transparency is lacking in every way! I will not support this option.
Chip ... keep up the good work. The management in NCUA appears to fit very well with the President and his sidekicks. Neither know what they are doing. Turn up the heat.
We should start using the term "gov-amony" because its startinig to feel a lot like alimony. You get nothing for the privelege of paying, again and again, and you don't even get to know what you are paying for.
Chip-Thanks for an informative piece - as mentioned a real "eye opener". I have run numerous scenarios to model opportunity costs lost, future assessment probabilities and corresponding net income impact. Of course, I'm assuming a raising rate environment (IRR must be addressed) and modeling deposit growth. The result is that we pay less now to pay more later - I don't trust them.
Thank you for the excellent article, I was actually thinking about funding the pre-payment. Thanks again for opening my eyes!
Thanks Chip for pulling the curtain back to reveal NCUA's bumbling shenanigans. NCUA's actions do fit in well with the current President's much touted regime of "tranparency". It is sad to see George Orwell prescient's descriptions of our own government and regulator.
Great article. Through 2013, the NCUA has a cashflow problem due to poor ALM planning as you described and so they are asking CUs to take money out of the CU sytem that is earning 3.25% at the margin and send it to NCUA to temporarily invest in treasuries at 20bps! They just can't seem to make decisions that are in the best interest of the CU industry.
I truly wish "everyone" in our industry would read and become aware of these facts...especially everyone at NCUA.
I hope you consider placing this on CU Times.
Thanks, Chip - an excellent, well researched, and informative article. I've lost all confidence in NCUA management's ability to achieve the Agency's stated mission to "serve and maintaine a safe, secure credit union community." We need a champion now more than ever. Unfortunately, both CUNA and NAFCU seem to be unable to step into that role. It's good to know you're out there.
It is obvious that our regulator is broken, yet we are seemilgy powerless to find solutions because the NCUA Board is either ignoring or incapable of performing their ownership or leadership roles.
Regardless, the lack of transparency, boardering on criminal negligence, is destroying the long-term viability of the entire system and we should not be bullied into enabling this death spiral.
The entire credit union system should say no to this current attempt at extortion and demand accountabilty for the system that our members own, not that the regulator thinks they own.
In their dog and pony show explaining the prepayment program, didn't NCUA say they were just responding to the requests of numerous Credit Unions (and our trade associations)? I don't remember asking for this "solution" to our "problem."
Thank you, Mr. Filson, for your knowledgable analysis of the situation.
After being hammered by examiners for years for ALM deficiencies, it is interesting to see the proverbial shoe on the other foot!
I wonder what NCUA would rate themselves on the "L" of their CAMEL ratio? Or, what my examiner would say if I had a liquidity shortfall of similar proportions?
Technical Knock Out. Your head is spinning after you get punched, your dazed,confused, disoriented, and need to sit it out. The official calls the fight. This article is a TKO for the agency. They need to regroup, put on their creative cap and get this right. Liquidity abounds, at credit unions and at Corporates, use the massive liquidity pool to solve the problem.
Chip this is a well thought out analysis. It describes a seious failure, which if at the CU level would raise red flags with examiners.
Also, I do not think the NCUA can be ompared with the President and his "sidekicks". The president inherited the financial situation, which until his election no one cared about. It appears the NCUA caused their cash flow shortfall by not understanding ALM.
This sounds like GM's CEO Akerson pushing for a gas tax because GM can't provide a product people want to purchase; so they charge a "gas" premium to force Americans
to purchase something they'd never purchase voluntarily. NCUA pushes a 30BP
"management" premium on credit unions for "managing" a solution the credit unions never wanted. The result is an "invisible solution" we can't evaluate, nor would we endorse voluntarily. Like most government entities - the NCUA is self-serving and grossly incompetent.
As usual, the NCUA is out of touch just like the Obama administration.
Chip, It is really amazing that there seems to be no accountability from NCUA and their massive bumbling decisions. They continually have used this philosophy of selling investments at their lowest prices and making all other pay the price for that decision. Will they ever get it together?
great article, frustrating to watch the NCUA in action these past few years.
And, the Prez and his circle ought to step up and lead, instead of blaming the ones who came before - leadership 101.
You are right on the money with your commentary. The NCUA is in essence asking for a 0% interest loan because they messed up the sources of funds to pay for the so called 'toxic' legacy assets. The nationalized corporates kept the deposits funding those assets.
I want to see a cash flow statement from the NCUA showing actual losses on the legacy bonds to date as well as the IPO expenses to place those bonds in to the trust fund and bring them to market. How much revenue was made by the sale of those bonds via the NGN notes and how much will the guarantee cost? What assumptions are going into the estimated losses of the bonds going forward? Why are they not tapping into the TCCUSF and the CLF as a funding source for the nationalized legacy assets?
The bottom line is who is regulating the regulator? We would get hammered by our examiners if we made a $1mm 0% interest loan to any entity based on the scanty amount of information we are getting from the NCUA. Our credit union did not request a prepayment (i.e. loan) to the Stabilization fund. We will not support this request until their is much more financial transparency of the stabilization fund from the NCUA.
Great article. Continue to shed the light on the truth of what is really going on at the NCUA regarding this topic.
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