Today, Co-Ops for Change has posted spreadsheets that list all of the legacy assets by CUSIP number of the five corporates closed by NCUA, in 2009-2010 in the wake of the Great Recession.
The conservatorship of these assets was the single most significant event in the credit union system during the crisis. Until now, credit union owners have had to take the wisdom of this action on faith. The credit unions who owned those assets now will have the opportunity – as owners should – to review the performance of those assets. It is not clear that this type of crisis management has been studied, reviewed or improved upon, yet it is a tool that has been used many times.
We invite everyone with a stake in the credit union system to join the dialogue about what can be learned to improve our system and its regulatory process. Only from acting on this learning will credit unions earn a real return on the billions they invested in the takeovers.
Any investment security can be updated for current principal value or loss by any visitor to the site. Each proposed entry can be temporary until reviewed using Bloomberg or another expert market data for reasonableness. Having an open, “crowd-sourced” tracking system gives the credit union community access to the latest data on each corporate’s portfolio taken to collateralize the NCUA Guaranteed Notes (NGN). Where an actual or implied cash loss has occurred, these will be posted and totaled on an ongoing basis.
The spreadsheet information can be compared with the last available OTTI reserves, which each of the five corporates had established, and with expenses from capital, as of June 2010. The remaining capital as of the same date is also shown. By providing an ongoing, transparent, real-time tracking of these assets, the status of each corporate’s members’ remaining capital value can be tracked and the potential for recovery established.
Starting a Dialogue
This effort gives the credit union community the opportunity to contribute its collective expertise about the portfolio in very specific ways. This effort can establish, a common foundation to begin a dialogue about what can be learned from the corporate events.
Credit unions are the owners of the corporates; and in this capacity, they received the “claim certificates for member contributed capital” from NCUA for the balances remaining after the NGNs are paid. But to be able to act as owners, credit unions must have visibility about the status of their claim, based on shared knowledge of the facts for each corporate.
All Interpretations and Opinions are Needed
As the spreadsheets are completed, we will encourage all points of view about the data and what can be learned from the corporate experience. This information will be posted on the Co-Ops for Change site in an ongoing blog. A dialogue can then begin to evaluate answers to questions such as:
1. Did NCUA do a good job or not in its management of the corporate investment uncertainties?
2. What options could or should have been pursued that would have saved capital for the owner credit unions and the credit union system?
3. What can be learned about the adequacy and accuracy of the OTTI estimates that were imposed and expensed from capital on corporates at the peak of the crisis?
4. How can the cooperative model’s capabilities be better understood and utilized in future crisis?
5. How can the role of the regulator be enhanced in managing situations of potential loss that would affect the system’s collective resources?
The Owner’s Role in the Cooperative Model
The corporate system was the creation of its credit union owners. But NCUA’s actions cut off the ability of owners to participate in the development of solutions that would have saved capital and the liquidation of systems, capabilities and expertise that had served credit unions successfully for over a generation. Recreating an independent, cooperative system of liquidity management is a critical component of credit unions’ autonomy and soundness.
Designing a solution for the future that credit unions will view as valid will require a thorough understanding and open dialogue about what occurred in the last crisis, and a clear knowledge of paths not taken for whatever reason.
Completing the spreadsheets and tracking the actual losses will not provide all the answers, but it will give an important factual basis for developing common approaches for the future. Credit unions have invested billions of dollars in the corporate takeovers. Now is the time for the owners to get a return from this investment.