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Media Release - Board Approves Corporate Stabilization Efforts

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http://web.archive.org/web/20110721055537/http://www.ncua.gov/news/...

National Credit Union
Administration
1775 Duke Street
Alexandria, VA 22314-3428
Fax: 703.518.6409

FOR IMMEDIATE RELEASE

Alexandria, Va., January 28, 2009 – The National Credit Union Administration
Board today approved a series of actions designed to enhance and support a
corporate credit union system facing unprecedented strains on liquidity and capital
due to extraordinary market disruptions and the current economic climate.
Corporate credit unions provide investment and liquidity services to
consumer-owned natural person credit unions.
Through these actions, natural person credit union members are provided
important safeguards by drawing upon the significant aggregate levels of capital
already within the credit union system.
NCUA is acting to add stability to and strengthen corporate credit unions utilizing a
three-pronged approach designed to: 1. maintain liquidity, 2. strengthen capital
and 3. restructure the corporate system.
Using all available resources to achieve these objectives, the NCUA Board
approved the following:
Guarantee uninsured shares at all corporate credit unions through February
2009, and establish a voluntary guarantee program for uninsured shares of
all corporate credit union through December 31, 2010;
Issue a $1 billion capital note to U.S. Central Corporate Federal Credit Union
(U.S. Central);
Issue an Advance Notice of Public Rulemaking (ANPR) on restructuring the
corporate credit union system; and
Declare a premium assessment to restore the National Credit Union Share
Insurance Fund (NCUSIF) equity ratio to 1.30 percent, which will be collected
in 2009.
The NCUSIF is issuing a temporary guarantee of member shares in corporate
credit unions through February and will extend the guarantee on a voluntary basis
to all corporate credit unions through December 31, 2010. (This guarantee is in
addition to the temporary corporate credit union liquidity guarantee program
announced on October 16, 2008.)
Additionally, to immediately stabilize the corporate credit union system, the NCUSIF

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Media Release - Board Approves Corporate Stabilization Efforts

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is issuing a capital note injecting $1 billion into U.S. Central, thereby providing
reserves to offset anticipated realized losses on some of the mortgage- and
asset-based securities held by U.S. Central.
Corporate credit unions are restricted to investing in highly rated securities, and
their interest rate risk exposure is constrained by net economic value limits.
Historically, these securities could be readily sold in the market or used for
collateralized borrowing to obtain liquidity, and the value of securities experienced
little or no loss. However, credit markets are disrupted world-wide, resulting in
depressed pricing, inactive trading of debt securities, and a severe contraction of
wholesale lending. Like financial institutions worldwide, corporate credit unions are
not immune to the effects of these conditions. Corporate investment portfolios have
diminished significantly as a basis for collateralizing borrowings, increasing liquidity
pressures.
Beginning in 2007, NCUA implemented supervisory actions for affected corporate
credit unions to restrict purchases of mortgage-related securities, restrict terms of
investments to not exceed four months, establish commercial paper and
medium-term note programs, and acquire third-party stress test modeling of their
mortgage related securities.
Previous NCUA actions to address the situation include approval of USC’s
conversion of membership capital to paid-in capital, implementing a temporary
corporate credit union liquidity guarantee program on new unsecured debt
obligations, obtaining a temporary lifting of the appropriations cap on the Central
Liquidity Facility (CLF), negotiating assistance from both the Federal Reserve and
Treasury, and sending letters of support to the Federal Home Loan Banks. Using
CLF lending authority in concert with the Treasury, NCUA also initiated the Credit
Union System Investment Program (CU SIP) and Credit Union Homeowners
Affordability Relief Program (CU HARP). These programs provide additional
liquidity resources to CCUs, with the first offering funding nearly $5 billion in
January 2009. The next offering is scheduling to fund in early February 2009.
Restructuring the corporate system
Today, the NCUA Board also issued an ANPR, with a 60 day comment period, that
includes the entire range of areas of potential reform and restructuring related to
the Corporate Credit Union system. Simultaneously issuing the ANPR with the
announcement of the guarantee program demonstrates NCUA’s commitment to
reform the system and achieve proper accountability.
Documents relating to the Board actions concerning NCUA’s Corporate
Stabilization Program are available online at http://www.ncua.gov/Resources
/CorporateStabilization/index.aspx
“The corporate credit union system is an integral part of the credit union industry
for over three decades, and has enabled credit unions to better provide services to
almost 90 million consumers. I call upon the credit union industry to work with
NCUA in this important cooperative effort, and remain confident of our ultimate
success in creating a more viable and stable corporate network,” commented
NCUA Chairman Michael Fryzel.
The National Credit Union Administration charters and supervises federal credit
unions. NCUA, with the backing of the full faith and credit of the U.S. government,
operates and manages the National Credit Union Share Insurance Fund, insuring
the accounts of nearly 89 million account holders in all federal credit unions and
the majority of state-chartered credit unions. NCUA is funded by credit unions, not
federal tax dollars.

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-NCUA-

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