By Christian Mullins
Last month, the NCUA issued a letter stating that corporate credit unions needed an infusion of capital to the tune of $4.7 billion dollars ($1 billion in realized losses and $3.7 billion in expected losses) and, to the discomfort of credit unions everywhere, they were told they would be footing the bill. (Note: A comprehensive look at the events leading to this program as well as discussion can be found at the EverythingCU blog.)
Credit Union National Association (CUNA) has analyzed the NCUA proposal and determined that the total cost on insured shares to natural person credit unions would be 0.8079%. It is currently the position of CUNA that the NCUA program funding come from another source.
CUNA has asked Congress for access to TARP (Troubled Asset Relief Program) funds for months, and they’re asking for it now. While it’s clear that some credit unions would benefit from TARP money, the overwhelming majority do not need a government bailout to continue operations. However, how would that change if America’s credit unions were asked to pay $4.7 billion?
The graphs below, created from data provided by CUNA, assume the following:
1. Using the most conservative estimates of the U.S. Code, a credit union will be considered:
- Well Capitalized if its Net Worth Ratio exceeds 7.00%.
- Adequately Capitalized if its Net Worth Ratio falls between 6.00-6.99%.
- Undercapitalized if its Net Worth Ratio falls between 5.00-5.99%.
- Significantly Undercapitalized if its Net Worth Ratio falls between 3.00-4.99%.
- Critically Undercapitalized if its Net Worth Ratio is less than 3.00%.
2. All CUNA estimates are fundamentally sound. When CUNA released the results of their study, year end CU data had not been made available. CUNA has projected year end CU statistics.
Using data from the 7,905 CU information database provided by CUNA, the number of CUs falling into each capitalization category is as follows:
|Net Worth Ratio||# of CUs||% of Total||# of CUs (Adj)||% of Total|
|Critically Undercapitalized||3.00% <||23||0.29%||27||0.34%|
The NCUA Corporate Stabilization Program would increase the total number of Undercapitalized credit unions from 76 to 114. The 114 CUs represent 1.44% of CUs nationwide, with 0.78% falling into the Significantly or Critically Undercapitalized categories.
The graph below looks at the total assets of credit unions in each Net Worth Ratio category. All assets are listed in millions.
|Net Worth Ratio||Est CU Assets||% of Total||Adj CU Assets||% of Total|
|Crit. Undercapitalized||3.00% <||112||0.01%||125||0.02%|
Credit Unions with assets totaling almost $37 billion would be downgraded from Well Capitalized to Adequately Capitalized, however, even with the implementation of the NCUA program, only 0.20% of credit union assets would be Significantly or Critically Undercapitalized.
This is only a first look at the data and should be treated as such. While thousands of credit unions can afford the NCUA program at this stage without a fundamental, long term impact to their operations, some credit unions cannot. The other preferred option, asking for (and receiving) federal assistance, carries both short and long term conditions and consequences that are suspected but as yet undetermined. Whether it would mean an eventual revocation of a CUs non-profit status (leading to additional tax liability and less favorable rates for members) is unclear, though the banking industry would be able to make a stronger case for such an outcome than ever before.