Federal credit unions, including those serving millions of military patrons, are fighting to keep off their books nearly $5 billion in charges that regulators have assessed to bail out their largest “corporate” credit union.
The U.S. Central Federal Credit Union was in danger of insolvency due to losses on mortgage-backed securities until regulators adopted a bailout plan Jan. 28 that would be financed by 7,900 member-based credit unions.
“If we were to allow something to happen to U.S. Central, the impact on the industry would have been devastating,” said Michael E. Fryzel, board chairman of the National Credit Union Administration (NCUA).
But Fred Becker, chief executive for National Association of Federal Credit Unions in Arlington, Va., said NCUA’s “premiums” on member credit unions, unless lowered by September when scheduled to take effect, “would drive most of the industry’s income into the red” for calendar 2009.
Fryzel conceded that some smaller credit unions have warned their part of the “bailout tax,” as some call it, would leave them undercapitalized, threatening their viability. Fryzel said none of these credit unions serve military populations. In any case, NCUA will “work with them,” he said, to ensure the special assessment doesn’t have such a dire effect.
Credit union officials say there is no reason for members to fear for their deposits. Individual accounts are insured by the government for up to $250,000. Military credit unions contacted for this column said they don’t even expect the bailout tax to force them to lower member interest rates paid on savings accounts or to raise interest charges for loans or mortgages.
However, other customer services could be affected. That might include, said one official, a smaller workforce to run customer call centers or delays in opening new branches or renovating old ones. Some credit union officers clearly were upset at the NCUA board for deciding on a bailout plan for U.S. Central before discussing alternatives with them.
“We do not believe that the federal agency has a moral and ethical right to steal our members’ capital,” said Frank Pollock, chief executive of the Pentagon Federal Credit Union. This credit union expects to take a $44 million hit, losing a third of earnings this year, if the bailout plan stands.
Cutler Dawson, CEO of Navy Federal Credit Union, the largest credit union in the country with 3.2 million members and $36 billion in assets, called the bailout plan “unacceptable and untenable.” Dawson estimates his credit union would see return on assets fall by $80 million this year and by $280 million over three years.
Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at: firstname.lastname@example.org