US Credit Union Trade Groups Praise NCUA Rescue Plan

WASHINGTON (Dow Jones)--Two major trade associations for the credit union industry tentatively praised the rescue plan unveiled by federal regulators Friday for the nation's so-called wholesale credit unions.
The National Credit Union Administration announced the plan, which aims to stabilize a crucial part of the credit-union industry battered by losses on risky subprime mortgage-backed securities. As part of the effort, the regulator announced a plan to manage $50 billion of troubled assets inherited from failed institutions. NCUA plans to issue $30 billion to $35 billion in government-guaranteed bonds, backed by the shaky mortgage-related assets.
Federal regulators also seized three wholesale credit unions, bringing to five the number of wholesale institutions deemed by the government to be not financially viable.
Fred Becker, president of the National Association of Federal Credit Unions, called the seizure of the three corporate credit unions "very unfortunate."
But he praised the final version of new rules governing the corporate credit unions, also approved Friday, and the plan announced by NCUA to deal with troubled assets.
Both items were "not only as we expected, but as we had advocated on behalf of federal credit unions," Becker said.
On the troubled asset plan, NAFCU's members were particularly interested to have the bonds backed by the troubled assets backed by the government and for credit unions to be able to buy the bonds, he said.
"There are some potentially positive aspects for credit unions in the actions that NCUA has taken, the biggest being that credit unions will only have to cover the actual, eventual credit losses--and nothing else, including market losses," said Bill Cheney, president and chief executive of the Credit Union National Association.
Both officials said they needed time to digest the news fully.
NCUA estimates that total future assessments on the credit union industry to recoup losses from the troubled assets will range from $7 billion to $9.2 billion, which will be spread out over about 10 years.
That's a longer timeframe than credit unions originally expected, and it was approved by Treasury Secretary Timothy Geithner as part of the overall rescue plan.
"While nobody wants to pay the assessments, [the longer timeframe] will make the assessments much more palatable for the industry as a whole," said NAFCU's Becker in an interview.
"Credit unions can and will absorb the expense," said CUNA's Cheney. "They have the resources to do so, as they are generally well capitalized. Consumers will not feel any impact."

-By Victoria McGrane, Dow Jones Newswires; 202-862-9267; victoria.mcgrane@dowjones.com.