At its June 17 Board meeting the NCUA approved a 13.4 basis point insurance assessment to repay $1.5 billion in borrowings by the Corporate Stabilization Fund.
According to NCUA data, the assessment will go toward the $690 million balance due on the initial $1 billion capital deposited in U.S. Central. The assessment will also go toward a new draw taken on June 14 for $810 million. What is the $810 million for?
The only information the NCUA provided is the $810 million is being “deposited into the corporate credit unions this summer, in order to raise liquidity during a period when natural-person credit unions historically experience seasonal outflow of shares.”
No Need for Seasonal Funding in a System Awash in Liquidity
NCUA’s explanation doesn’t make sense for two reasons:
- No Corporate is short of shares. In fact, most would prefer to see their balance sheets smaller in order to meet the proposed new capital standards. The system has liquidity available from U.S. Central. The Corporate reported $10 billion in cash as of March 2010, an amount relatively unchanged over the past year. The next largest Corporate, WesCorp, has more than $11 billion cash. There is no shortage of liquidity let alone cash availability from traditional sources, even without taking into consideration the Central Liquidity Facility. So why the borrowing?
- If the $810 million is only for seasonal liquidity, then the return of liquidity would pay back the loan. So why are credit unions being assessed to pay off a liquidity draw?
On almost every data point included in the Corporates’ 5310 Call Reports through March, the system is improving its operating results, — including earnings — across the board. Yet the NCUA is still assessing natural person credit unions for the Corporates liquidity.
“The Agency is striving to be as transparent as possible,” explains the NCUA in its June 21 letter to credit unions. But in NCUA’s own Board Action Memorandum, the only statutory purpose for which stabilization funds can be used is “conservatorship, liquidation, or threatened conservatorship or liquidation of a corporate credit union.”
So which of the above is the planned use?
The NCUA and the Cooperative System
For almost a year, NCUA has said it would seek credit union cooperation, support, and input in drafting the rule for the corporate network. Similar promises have been made about the Agency’s “legacy plan” to “unbundled more than $50 billion of assets, repackage them into marketable bonds, and move them from the Corporates’ balance sheet without realizing losses,” said Chairman Matz at the Illinois Credit Union League on April 30, 2010.
If this is the plan, why, today, are we expensing losses of $811 million? No funds have been dispersed and no losses incurred.
Finally, the borrowing has a repayment date of September 30, 2010. But the law allows payments for up to six more years. Why the short time window if the funds are really intended to shore up a Corporate’s capital, as with the note placed in US Central?
What is the $810 Million Really For?
If any organization went to a financier and asked for $810 million, the first question would be, “what for?” The second would be, “how will you repay the loan?”
Unfortunately, we know the answer to the second question, but not the first. Will the NCUA’s opaque explanation build credit union trust or erode it, futher reducing the system’s confidence in its leaders?
Do not doubt what is at stake. As Martin Luther King stated on April 16, 1962: Injustice anywhere is a threat to justice everywhere.