Oct. 12, 2009


  • I do not believe credit unions should use alternative capital to grow. At the present time a credit union cannot grow faster than retained earnings can be accumulated. This allows a profitable credit union the ability to grow. Unprofitable credit unions should not be growing. A credit union with alternative capital that fails will harm the reputation of all credit unions. The current system allows for long term sustained moderate growth. I have been in the credit union system since 1972. There has been plenty of growth in both members and assets during that time.
    Wayne Langei
  • Chip,

    You are the voice of reason in these uncertin times, We really do need to get back to the fundementals of what Credit Unions are about our common bonds and Members helping Members!
  • Your focus on the NCUSIF is interesting. Currently, CU's have sent money to NCUSIF who earns about 2.3% on those funds in goverment securities. CUs could earn, at the margin, about 3.5% if that money was left in the natural person CU system to help members with loans.

    120bps on $8.024 billion at NCUSIF is worth about $96 million more a year!
    Bill Before
  • Very moving article. I recall not too long ago Mike Fryzel, when asked about using NCUSIF funds for this purpose, said definitely not and claimed the funds were exclusively for credit union member deposit insurance even though it is indeed used for other purposes. Perhaps this hard line can be challenged to address the short term and then look at alternative capital for the long term?
  • I’m a big proponent of alternative capital, but I think Chip's right – it won’t solve today’s most pressing problem.

    Alternative Capital protects the Share Insurance Fund and helps credit unions position themselves for growth opportunities. However, it isn’t a viable solution to help a credit union who has hit some black-ice and is moving into a danger zone. Unfortunately, for these credit unions the cost would be prohibitive or the market non-existent.

    There seems to be a sweet spot for alternative capital: When you don’t need it today - but you plan to need it in the future. But it isn’t going to help those in need right now.

    However, if we don’t get alternative capital now – we may never see it. There has never been a bigger stage and momentum for reform and legislative changes to get alternative capital passed today. So if we miss the window, I don’t know when we’ll ever get the chance.

    I like your thinking ideas to use the NCUSIF to protect itself with short-term investments into credit unions in need. I think the days of NCUA using mergers at par as a solution to troubled credit unions is approaching an end. The accounting rules and more educated buyers will make this harder and harder for NCUA to find merger partners.

    Let’s hope we get action on both strategies.

    Tom Ryan
  • There are differenct types of struggling credit unions. Those with negative equity, and those with negative cash flows. A credit union with positive cash flow, or one that could be brought to a positive cash flow, could easily survive if this type measure were used, even with falling equity or liquidity. Such is the case with the Corporates. With some assistance for equity and liquidity, they will always be a good bet for positive cash flows. When a credit union, corporate or natural person, has negative cash flows, even with high net worth, it is only a matter of time.

    If credit unions were only looked at as an investment, an ongoing business, we would have far fewer disappearing, and less costs for all of us to cover.
    Bill Wade