NCUA’s Explanation for Corporate Insurance Premium Doesn’t Add Up…So What’s the Plan?

We know how the NCUA plans to repay an $810 million draw it took earlier this month. Unfortunately, still unanswered is what the agency plans to do with that loan.


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:

  1. 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?
  2. 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.




June 21, 2010


  • Good points, but obviously much more can be asked -- especially relative to the word transparency. Just finished our board meeting for the month. Trying to explain to board members that run businesses what we (as credit unions) are being exposed to is truly a challenge. They can't believe we're in the situation we are. I could not explain how the entity that placed representatives at the two (2) institutions that is causing the vast majority of all the credit union issues is the same entity that is now running the same two (2) institutions that they declared insolvent, and is the same entity that is allowing the failed institutions that they are now managing to pay dividends on deposits that are among the highest in the land, that is now the entity that is taking money from every other institution in our galaxy that calls themselves a federally insured credit union to continue to fund the ongoing cloak and dagger charade. Oh, and is the same entity that will be deciding what a "clean" balance sheet is to the possible future detriment of the entire industry . . . Tell me it ain't so. Lucy, someone's got some 'slpainin' to do! Frustrated? Does it show??
  • Good questions for Monday's NCUA town hall meeting.
  • So if it turns out that the NCUA is too pessimistic in their estimates, do we get the money back? How?
  • Many of these same comments and questions came out at the SW Corp Economic Forum yesterday. We certainly were not aware of a liqudity crisis among the corporates - nor are the corps aware of a problem - very peculiar.

    The same group who failed to note the 'risk' of what was going on is now the same entity who we are allowing to "fix" it without our knowing what the fix is - other than to shut up and pay it.

    Where are our leaders in all of this? why do we continue to sit back and allow our members via our cu's to be adversly affected. There's a lot of complaining but not a lot of solutions. the CUNA group - what happened? The large cu's group - did you give up too? Why all the secrets, have we really so much to hide that we can't get together and pull ourselves out?

    I am beyond frustrated. Each day I see an industry that I've devoted my life to slip away. Someone protect us from ourselves.
    A weak voice calls out
  • In thinking about the NCUA, the words incompetent, disfuntional, wanton, irresponsible, criminal, negligent, and ain't got a clue and ain't likely to get one come to mind. Is there any hope? I'm this far from concluding not.
    Larry B. Davis
  • For more then 28 years I have been in this business you always have to watch what NCUA does, not what they say. The NCUA Board says things, but the staff always does whatever they want and it is rarely what the board said and even more rarely in our best interest. This is all about conservatorship of Corporates so they can take the legacy assets, bundle them with a guarantee and then sell them at a major loss to the Pimco's of the world. NCUA will then say "we told you so" by locking in the loss just llike they did with CapCorp. If it's any more comforting, the Treasury is behind all of this. Dictating all of this to what they call the "Keystone Cops" of the financial world. Criminal is the only word for all of this!
  • So we all know that NCUA is doing a bad job dealing/handling the corporates both in the past and now but we also let corporate executives with big salaries including board members mismanage the corporates and unfortunately many of these so called "experts" are still around!
  • Great insight and comments. My question is...what can we do, at this point?. What action can we, as credit union executives, take that will make a difference? Sitting back and criticizing will not change the ultimate outcome. We have to come together, as a united group, and push the transparency issue....the question is what action can/should we take that will be the most effective?
    Marcia Harrison
  • As you all are aware, each credit union is being assessed a premium of

    13.4% for the corporate stabilization. They already have a loan of 690

    million but NCUA is going to give them another 810 million for seasonal

    liquidity issues. In the fall NCUA says they will take back 500 million of

    that to pay the 1.5 billion loan from the treasury (1 billion WILL HAVE

    BEEN paid by us). Why don't they take back the whole 810 million?

    At our small credit union the examiners asked us to pay dividends that

    were at or below market to reduce expenses. As a result shares dropped.

    This increased our net worth and reduces our share insurance premium.

    Why are the corporates still even paying dividends? If they reduced or

    stopped paying dividends shares would drop and net worth would increase.

    The share insurance premium that needs to be set aside would be less.

    If you go to the NCUA web site and read letter no: 10-CU-09 page 5 states

    in BOLD PRINT "Ultimately it is the credit unions - not NCUA - that

    control the amounts of their assessments."

    Who are they kidding? Since when has anything that I've done at this

    credit union effected any other credit unions' assessment?

    Read the bottom of page 3 where it talks about credit unions that will

    fall below 6% net worth and be required to prepare a Net Worth Restoration


    Their response - "NCUA will be as flexible as the law allows in reviewing

    and approving a Net Worth Restoration Plan for every credit union that

    falls into Prompt Corrective Action (PCA) due to assessments.

    As for having a plan to save the system, what will be left to save? The

    premium assessment for the NCUSIF this fall is predicted to be between 20

    - 25 percent.

    NCUA better come up with a better plan for helping the small credit union

    besides mergers or your 7,600 plus credit unions will become 5,000 in a

    few short years and then what?

    Jim neilsen
  • I wish I had the answers to fix all this mess. I have loved my credit union job for 31 years. The last two years have been torture for most of us. I know a CEO that died a few months ago with cancer, while still trying to keep his credit union running during this economic meltdown. What a pitiful way to spend the last few months of your life. Shame on NCUA.
  • I agree with comment #7 by Marcia Harrison. We need to take some sort of action versus sitting back and letting the NCUA destroy us. I am not sure exactly what we can do but maybe it is time that we ban together as the cooperatives that we are and pool some resources to fight this legally or determine if we can. We have to have answers to the NCUA for everything that we do, let's make them answer to us. Without us, they are not needed, or at least as many of them.
    Deidra M. Williams
  • If NCUA's reason for doing this is to turn FCU's into Mutual Banks, then they will succeed! They are the bacteria that only thrive because the host (CUs) is still healthy. If they continue to take our earnings in the form of assessments they will kill the host and they, in turn, will die.

    Maybe that's our answer. Maybe that is what we should do- threaten to leave en mass. That might get their attention.

    This whole thing is so frustrating to me. I, like so many other CU execs are experiencing the worst years in the industry. I really don't know how much longer I or any long term exec will be able to tolerate it.
    Cal Credit Union
  • Very good points about an arrogant federal agency that does not seem accountable to anybody. Was there any fallout from NCUA issuing its annual report a year late? NCUA may prove a regulator is needed for the regulators

    NCUA continues to deal blows to the industry, but CUNA and NAFCU need to be held accountable too. They pushed, prodded and cajoled NCUA on expanded investment authority. And, why is the only person named as a defendent in the two corporate CU lawsuits the best choice to run CUNA ? The industry is not serious about getting its house in order.
    under the radar
  • Regarding comments #7 and are absolutely right that out industry must engage our regulator. We have elected leaders and professional staff at our trade associations. What have they done and what are they doing? Are they simply sitting on the sidelines on this one? Perhaps they are too occupied with the long string of legislative "wins" we have experienced over the past fifteen years.