$830 Million Surplus In Corporate AMEs Puts Resolution Plan In New Phase

Three critical questions about the corporate resolution plan to be addressed at this Thursday's board meeting.

 
 

Seven years after the corporate credit union system takeover amidst the worst financial crisis since the Great Depression, the NCUA says it could be six more years before it returns money to credit union shareholder-owners.

According to the NCUA, it has recovered $3.1 billion from the Wall Street bankers who sliced and diced their way to financial disaster for millions of Americans. But that money remains in the NCUA coffers, minus the hundreds of millions of dollars the NCUA spent paying lawyers and other advisers.

Each time the NCUA announced a settlement, it issued a chest-pounding press release. And when longtime board chair Debbie Matz made her exit, she and the agency took credit for saving the corporates and the entire credit union industry.

What she leaves behind are serious questions. Although its actions were shrouded in secrecy, analysis shows the regulator made the situation much costlier than necessary.

There is some positive news out of this. Shareholders for three of the liquidated corporates — Southwest, Members United, and US Central — and all the remaining corporates will receive payback, close to 100% in one case. But there are still unanswered questions: the cost, how much benefit it provided, and how much and when the NCUA will compensate the credit unions that paid more than $5 billion in for these “investments.”

The serious questions include what were the added costs of the resolution plan; how does the outcome compare with the state of the corporates when conserved; and how do credit unions monitor the critical allocation decisions NCUA is now making regarding surplus funds and legal recovery allocations?

Question 1: What are the sources and uses per each Asset Managed Estate (AME) of all the legal recoveries?

The NCUA claims there have been $3.1 billion in legal recoveries but has not provided the details of what happened to these funds. The agency has refused to answer questions about it. This should be the easiest of all cash flows to explain.

Question 2: What is needed to provide confidence that the NCUA is making decisions in shareholder-owners’ best interests?

Throughout the crisis, the NCUA has relied on outside consultants, financial modeling companies, and Wall Street bankers — everyone but the credit unions themselves. The NCUA has stated it developed aspects of the crisis plan internally and outsourced other functions at the cost of tens of millions of dollars. Cooperative governance relies on democratic representation of collective assets. That, to date, has been missing.

Question 3. How does the NCUA re-establish a liquidity solution with the Federal Financing Bank?

The resolution plan resulted in the dismantlement of the CLF-corporate cooperative liquidity safety net, it substituted more expensive Wall Street funding via the guaranteed notes program for the less-costly credit union-funded share holdings, and it mandated that credit unions seek liquidity outside the cooperative network.

Today the Central Liquidity Fund has Treasury access of $5.6 billion compared to $41 billion during the crisis. Only 259 credit unions with $88 billion in assets out of a $1.2 trillion cooperative system of 6,000 organizations belong today.

This miniscule participation undermines the independent cooperative financial system and creates systemic vulnerability. Can’t the regulator and the system design a better solution?

These questions arise from a full analysis of the past six years of Temporary Corporate Credit Union Stabilization Fund audits and reports. Learn more in “Now Is The Time To End The NCUA’s Secrecy Over The Corporate Bailout.”

 
 

May 17, 2016


Comments

 
 
 
  • a concern that I have is the lack of understanding that I believe most Board Members have relative to the past premiums paid and the recoveries that have been received . . . to date. The premiums reduced earnings and resulted in diminished dividends, among other actions. AND, I'm not sure how boards will be educated on the circumstances around this event . . .and what actions they may now take!
    Richard (Rick) Webb