Responses for Member & Media Inquiries:
NCUA Conserving U.S. Central and Western Corporate Credit Unions

Four key points about credit unions:

• The overall credit union system is healthy and sound.
• Consumers can be assured their money is safe in their credit union.
• The action taken by the federal agency has no impact on the ability of credit unions to continue serving their members.  Credit unions can and will continue lending.  Credit unions offer a safe place for their members’ savings, and provide scores of additional services to their members at no or low-cost.
• The National Credit Union Administration action involves no taxpayer dollars.

Additional details important to credit union members and the media:

• The credit union system overall is healthy and sound, and consumers’ money is safe in a credit union.  
• Regular or everyday credit unions (“natural person”), the ones where 92 million Americans save and borrow, are well capitalized and strong (nearly 11% capital to assets).
• Credit unions are still actively extending credit and keeping the country’s lending wheels in motion when many other financial institutions have cut back.
• Credit unions are lending responsibly. Credit unions typically hold onto their loans.
• Deposits at all Delaware credit unions are federally insured to $250,000, the same as at FDIC-protected banks and with the same federal guarantee. The insurance fund protecting consumer savings (the National Credit Union Share Insurance Fund) is backed by the full faith and credit of the United States.

Some everyday (“regular”) credit unions are feeling the strain from what is now seen as the worst financial crisis to grip the nation since the Great Depression.

• The steep decline in the economy is having its impact. At year’s end, the delinquency ratio among credit unions was about 1.43%—well above the typical ratio of about 0.96% in the first seven months of 2008.
• In hard-hit states like CA, NV, AZ, FL, credit unions are experiencing particular “collateral damage” stemming from the economic crisis in those states (i.e., members with job losses or other changes related to the downturn have fallen behind on carefully made loans).
• A small number of credit unions have closed or are in conservatorship (16 out of 8,300). Though more are likely, credit unions overall are strong and will endure these difficult times.
• No one has ever lost a penny of federally insured deposits in a credit union.

Because the 28 “corporate” credit unions—where everyday credit unions invest—deal with large sums of money and operate in the open securities markets, the credit crunch in those markets affects the corporate credit unions.  

• The Wall Street Journal pointed out in its Jan. 29, 2009 edition how corporate credit unions provide financing, check-clearing and other tasks for regular credit unions. These “wholesale” credit unions are owned by regular credit unions—which are members of the corporate credit unions.
• Corporate credit unions hold mortgage-backed securities that generally are still performing and are “higher up the food chain” than those held by Wall Street banks that experienced so many troubles in the fall of 2008.
• Under fair value accounting rules, mortgage-backed securities have still lost value in today’s frozen-up financial markets.
• The majority of these securities give every indication of continuing to pay interest and principal until they mature.
• Further, corporate credit unions face keen competition for deposits from an increasing number of other institutions which have received guarantees from the U.S. government, such as through the Troubled Asset Relief Program, or TARP.

The Corporate Credit Union Plan announced by credit unions’ federal regulatory agency, the National Credit Union Administration (NCUA), is designed to give credit unions—the members and sole users of corporate credit unions—continued confidence in the wholesale institutions.

• NCUA has pointed out “the capital position of natural person credit unions remains a constant source of strength of the industry.”
• However, NCUA has also stated, “the corporate credit union system is now facing unprecedented strains on its liquidity and capital due to credit market disruptions and the current economic climate.”
• NCUA’s action is intended to add stability to and strengthen corporate credit unions utilizing a three-pronged approach designed to: maintain liquidity, strengthen capital and restructure the corporate system.
• No taxpayer dollars are being used for the corporate credit unions. It is only credit union money paid into the National Credit Union Share Insurance Fund (NCUSIF) —the insurance fund that is completely funded by credit unions to assist in this type of situation.

Most importantly: Credit unions are well-positioned to weather the economic storm.