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March 26, 2009 - The National Credit Union Administration (NCUA) Board approved a legislative proposal that would establish a Temporary Corporate Credit Union Stabilization Fund to absorb losses associated with the agency’s actions to address the corporates.
The Fund would allow the costs to natural person credit unions to be spread over a longer period of time, possibly seven years, instead of all in the same year, as required by generally accepted accounting principles, or GAAP. NCUA briefed NASCUS about the proposal explaining that it would be funded by borrowings from the Treasury. The proposal would give the NCUSIF the ability to borrow up to $6 billion from the Treasury. The fund is restricted to losses from corporate credit unions; it is separate and distinct from the NCUSIF.
According to NCUA, the agency will seek changes to H.R. 1106, a bill that currently would provide NCUA with the flexibility to return the premium portion of NCUSIF equity ratio to the statutory minimum of 1.20% over a five-year period. The NCUA proposes that period be extended to seven years for natural person credit unions to recapitalize the fund.
“The credit union system and the share insurance fund remain strong overall in the face of unprecedented economic stress. Nonetheless, while the credit union system on the whole has the net worth to absorb these costs and remain well capitalized, the combination of these expenses taken all at once would undoubtedly result in a contraction of lending and other member services,” stated NCUA Chairman Michael E. Fryzel in a March 26 media advisory. “I encourage credit unions to do whatever they can to assist NCUA in securing passage of this plan into law, as soon as possible.”
The stabilization program would have a seven-year sunset period and it provides the NCUA Board discretion to determine timing and amount, including the end of the fund repayment with the Treasury concurrence. To read more, follow this link to the NCUA’s media advisory on the proposal.
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