Questions for the House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit to discuss NCUA efforts to stabilize corporate credit unions
Wednesday, May 20, 2009 2:00 PM
Credit unions are demonstrating their unique role by providing funding for mortgage, consumer and student loans at a record pace despite ongoing economic uncertainty. However, NCUA's approach to the Corporate Credit Union Network situation, which requires credit unions to record expenses based on estimated future losses, imposes an unnecessary burden on credit unions' ability to continue meeting the needs of their members and communities. Imposing such a burden at this time will only inhibit the economic recovery
NCUA spokespersons have used widely varying estimates of the potential losses from the Corporate Credit Union Network. These have ranged from $40-$50 billion (John Kutchey- Acting Director of Examination and Insurance in a NAFCU webinar), to $7, $10, or $16 billion depending which PIMCO scenario is used (Dave Marquis, NCUA’s Executive Director), to $4.7 billion (NCUA’s initial system costs on January 28, 2009).
- Have any actual losses been incurred to date on WesCorp's or U.S. Central's securities?
- What are the "modeling" details that are the basis for these various loss estimates?
- How can NCUA be certain that their "final" estimate of losses is correct?
- Why is NCUA directing credit unions to incur these expenses, which will inhibit their ability to continue maximizing the services they provide to members, based on projections at all? Why not assess insurance premiums as losses are actually incurred?
If the NCUA draws upon the full $30 billion borrowing authority allowed by the legislation, the indebtedness would be equivalent to over 12 times the total 2008 net income for all credit unions. As passed, all borrowings would be repaid by NCUSIF premiums in future years, further encumbering the earnings of credit unions.
- What steps is NCUA going to take to ensure that the lowest cost outcome is pursued? What checks will be in place to validate that this is occurring?
- Earnings are credit unions' only source of capital. If NCUA's borrowings go beyond initial estimates, it could put credit unions in the position of potentially having no capital creating capability for years into the future. Do credit unions need legislative authority to issue a new class of shares to members that would function as capital?
In March 2008, WesCorp management classified a portion of its 'available-for-sale' portfolio as 'held-to-maturity'. Last month, NCUA disclosed in WesCorp's financial release that this decision is being reversed effective December 31, 2008. However, the very same footnote goes on to state, "it is our intent to hold these securities to maturity."
- Why did the classification of these securities change if the investment intent did not change?
- The decision to reclassify means that an other-than-temporary impairment (OTTI) charge, estimated at $5.6 billion, be recorded in the year-end audit. This decision will extinguish all member capital at WesCorp, further hindering their ability to meet consumer needs. Why was this approach taken by NCUA?
What Can You Do for Wednesday's Hearing?
1. Call the Subcommittee and voice your concerns:
Capitol Hill Office
Address: 2266 Rayburn House Office Bldg.
Washington, D.C. 20515
Address: 2201 W. North Ave.
Chicago, IL 60647
Email Us Your Questions for Addition
3. Contact One of the Committee Members:
Chairman: Rep. Luis V. Gutierrez (IL)
Rep. Carolyn Maloney (NY)
Rep. Melvin L. Watt (NC)
Rep. Gary Ackerman (NY)
Rep. Brad Sherman (CA)
Rep. Dennis Moore (KS)
Rep. Paul Kanjorski (PA)
Rep. Maxine Waters (CA)
Rep. Rubén Hinojosa (TX)
Rep. Carolyn McCarthy (NY)
Rep. Joe Baca (CA)
Rep. Al Green (TX)
Rep. William Lacy Clay (MO)
Rep. Brad Miller (NC)
Rep. David Scott (GA)
Rep. Emanuel Cleaver (MO)
Rep. Melissa Bean (IL)
Rep. Paul W. Hodes (NH)
Rep. Keith Ellison (MN)
Rep. Ron Klein (FL)
Rep. Charles A. Wilson (OH)
Rep. Gregory W. Meeks (NY)
Rep. Bill Foster (IL)
Rep. Ed Perlmutter (CO)
Rep. Jackie Speier (CA)
Rep. Travis Childers (MS)
Rep. Walt Minnick (ID)