$0.02 on Corporate CUs and the toxic economy

Listening to the news these days in relation to banking and finance is completely depressing. Toxic Assets are on the rise across the board and no one has a fail safe solution. Given the enormous size and complexity of this crisis that the world's major economies are going through, it would have been a miracle for credit unions to have escaped without taking a blow. This financial crisis is bigger than people really think it is. So it should not have come as a shock when last Friday, the National Credit Union Administration’s (NCUA) decided to place into conservatorship two wholesale corporate credit unions, US Central Federal Credit Union and Western Corporate Credit Union.


What is a Corporate CU and how is it different from a regular CU?

Corporate credit unions do not serve consumers. They are chartered to provide products and services only to the credit union system.


What does that mean?

The products and services the Corporate CU's provide will continue uninterrupted. Conservatorship means the corporate credit unions are still fully operational but that they are being overseen by our regulators, the NCUA as they continue to serve credit unions.


What does that mean to those of us who work in the every day Credit Union industry?

Nothing - It's business as usual.

Summary from SACU perspective:

· These two credit unions (US Central Federal Credit Union in Lenexa, KS and WesCorp Federal Credit Union in San Dimas, CA) are corporate credit unions, not regular credit unions. They are part of a very small number (26) of wholesale credit unions that do not serve consumers at all. These wholesale corporate credit unions provide services to credit unions like ours. It was two of these “corporate” credit unions that were placed into conservatorship.

· Conservatorship does not mean that these two corporate credit unions were put out of business. They are still fully operational and providing their services to credit unions like ours. It only means that they are being overseen on a daily basis by the US government regulators from the National Credit Union Administration (NCUA) as they continue to serve credit unions.

· Because of the nature of what they do, these corporate credit unions operate in the capital markets and hold highly rated investment-grade securities that regular credit unions like ours cannot purchase. But, like so many others that hold such investments, they have seen the value of their investments decline in the current economic downturn. The projected losses from these investments are why the government regulators chose to put these two corporate credit unions into conservatorship.

· The deposits that regular credit unions have in these corporate credit unions are fully guaranteed by the full faith and credit of the US government through the NCUA insurance fund.

· What does all this mean for members of a credit union? It’s business as usual. The same level of quality service you have always received from your credit union will continue. Our service to you is not impacted at all by these actions by the government regulators.

· Our credit union, and, in fact, no credit union, has ever cost the US taxpayer one cent to bail us out.

· As a member of a Federal Credit Union, your deposits are federally insured up to $250,000 by the NCUA’s insurance fund – an agency of the US government which carries the full faith and credit of the government as backing.

· No credit union member has ever lost a dime in a federally insured account at a credit union. That's not something you're going to see at a bank.

Final thoughts on the economy:

I am an optimist. I think that there is a way out of this financial mess, but it will take time. I am not a bean counter, just a programmer who writes bean counting algorithms. It's going to take creative solutions from all around to get us out of this mess. The government needs to take a radical approach like stimulating the economy by paying down student debt. Or how about those medical tech jobs we've been promised? Let's get people back to work, so we can all get back to shopping.

Granted the economy has taught me a few lessons in appropriate spending and saving money, and for that I am grateful. Instead of a victory garden, I have implemented a shoe shopping ban. That helps my personal economy, but poor Jimmy Choo is suffering a loss. I am looking forward to a compromised resolution. Anyone up for a trip to the outlet mall? Discounted Prada is still Prada, and the Kate Spade store is having a sale.