Monday, September 12, 2011

NCUA Strategically Defaults...

The senior management staff of the NCUA, apparently with the full support of the NCUA Board, has decided to "strategically default" on America's credit unions.

NCUA has publicly declared in a letter from its senior legal officer, that it has decided to "walk away" from reason, reality, and from its fiduciary responsibility to 90 million credit union members. 

In the future when the "Whatever Happened To Credit Unions?" history is written, of these chaotic financial times; this public, official declaration of financial obtuseness, legal disdain, and moral impotence will be universally cited as the last straw, the final nail, the stark - irrefutable - confirmation of unfettered malignancy... 

You can find a copy of NCUA's Pontius Pilate letter here.

The letter was written on August 29, 2011 by NCUA's General Counsel Michael J. McKenna to Mary Martha Fortney, CEO of the National Association of State Credit Union Supervisors (NASCUS), in answer to State credit union regulators' concerns over critical "unintended consequences" which are arising from NCUA's corporate credit union stabilization program.

Here are the key points:
  • CUs leaving the share insurance fund due to charter conversion or a move to private share insurance are not required to pay the future corporate stabilization assessments due over the next 11 years. ( Q #4 - page 4, paragraph 17; and page 4, pgh 14).
  • The high end of the stabilization bill that you owe is $6.2 billion (page 3, pgh 12).
  • The approximate cost to you over the next 11 years will be 105.06 basis points (page 3, pgh 5) or 80 basis points (page 3, pgh 12) if you exclude this year's 25 bp payment.
  • CUs that have already left via conversion or private insurance have removed assets from the Fund of $695.9 million (page 1, pgh 3) increasing your assessment cost by about $7 million.  The total amount owed remains the same as folks leave; your share of the bill increases!
  • NCUA is aware of an additional group of CUs seeking a charter/insurance change with insured shares of $3.2 billion (page 2, pgh 6).  At 80 basis points, these departures will cost you an additional $25.6 million in assessment premiums.  The more that go; the more you owe!
  • NCUA feels that having you pay an extra $26.3 million is not material. (page 1, pgh 2; page 2, pgh 5; page 2, pgh 9.)  Perhaps it's not material to NCUA since they do not pay anything; they supervise but apparently have no other accountability.
  • "You asked about NCUA's contingency plans to mitigate the potential for increased Stabilization Fund assessments if too many credit unions exit the NCUSIF system. NCUA has opted against developing a formal contingency plan at this time.  Conversions from NCUSIF coverage, either by charter or insurance conversions, are relatively rare."(page 4, pgh 18)
Q: If having you pay $26.3 million is not material to the NCUA, what amount is? 

Q: If just 10% of the largest 250 credit unions (which hold about 90% of all CU shares) chose to "make a change", your assessment cost will increase by approximately $500 million.

Q: Personally I have direct knowledge of credit unions with shares approaching $30 billion which are actively and earnestly researching the charter/conversion options.  Would an additional assessment cost to you of $250 million be material?

Q: Is Mr. Peter Duffy of Sandler O'Neill accurate when he says he has met with over 100 large CUs which are currently researching options for leaving the NCUSIF?  If 100 large CUs withdrew, would the extra cost to you of $2 billion be material? 

Q: Does NCUA really believe that it can legally "pick and choose" when to stop allowing CUs out, without paying what is already owed? (page 5, pghs 18/19).  Wouldn't a competent lawyer cite "precedence" - a defense which grows in strength with each new departure?  Or use a phrase such as "arbitrary and capricious" to which so many CUs can confirm NCUA's regular abuse and guilt?

Q: What will you tell your Board if you wait and end up being "the last one out of the door"?  Have you met your fiduciary responsibility by trusting in NCUA's judgment or in trusting your members' future to a "hear no evil, see no evil, speak no evil strategy" that "it will all work out"? 

Q: Hasn't NCUA always felt it didn't need a contingency plan for the corporates?  Do you? 

Q: Did you know that the FDIC in the 1990's, when confronted with this same situation - solvent S&Ls trying to flee from SAIF assessments to the FDIC - acted decisively, required the assessments be honored, and then worked with a very willing Congress to make sure that the law was changed to make their actions stick? 

Q: Aren't you pretty sure, given the above, that history and human nature will repeat themselves?  Ready for "deja vu all over again"?


  • Call the NCUA Board and tell each of them this is material.  If Board members happen to be pontificating in your area in the next few weeks, ask them specifically why this issue is not a problem - and specifically when it will become problem $50/$100/$250/$500 million?  Staying or leaving you deserve a straight answer.  NCUA may not need a plan; you do! 
  • Call your State and National trade association leaders and ask them to address this issue publicly now - withdraw if they don't. The State regulators ought not to be having to "carry the water" for CUNA and NAFCU on this issue! 
  • Call your Congressional representatives and let them know that due to a lack of contingency planning by a federal agency you and your members are being forced to pay over $26 million more than is far... and the bill is going higher.  Send them a copy of Mr. McKenna's letter!
  • If all else fails, better call Mr. Duffy...before he's all booked up! 
NCUA has opted out, has "opted against", has decided to strategically default on its fundamental responsibility to protect the insurance fund.  You are required by law to "ante up" to the NCUSIF for every CU which leaves the system until it bankrupts your CU.  NCUA has decided that you must pay your fair share and pay some other folks fair share - until you fail. 

NCUA could have done what was reasonable, could have done what was right - said publicly that these unintended consequences were neither just nor fair.  Said that they felt their hands were tied and that they needed your help with Congress to correct the situation. FDIC knew what to do when the chips were down.  But NCUA seems to believe that you are their adversary.... guess they have become too proud (or "too something") to ask.  They would rather risk taking the whole ship down .... guess they think it's just some sort of "tough love".

"What Ever Happened To Credit Unions?" 

..... will be cited as the last straw, the final nail, the stark - irrefutable - confirmation of unfettered malignancy...

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