NCUA Sets Emergency Guarantee For Debt Issued By Corporate CUs

ALEXANDRIA, Va. – The NCUA Board in closed meeting yesterday approved an emergency program that will help the strapped corporate credit unions by guaranteeing new unsecured debt they issue,a key source of liquidity for many corporates.

Under the program, similar to one being offered banks by the FDIC, the National CU Share Insurance Fund will guarantee 100% of new debt obligations issued before next June 30 and maturing on or before June 30, 2012. That will include promissory notes, commercial paper, inter-bank funding and any unsecured portion of secured debt.

As an emergency measure, all corporate are automatically covered for debt obligations issued through Nov. 17.

The emergency program comes as the corporates are struggling under unrealized losses of some $10 billion on their mortgage securities, hampering their liquidity. NCUA recently opened the spigots on its own emergency loan fund, known as the Central Liquidity Facility, but corporates are not eligible to borrow from the CLF.

In recent weeks NCUA has loaned out over $1.6 billion in emergency funds to natural person credit unions through the CLF.

Under the guarantee program, the NCUSIF will charge participating corporates a fee of 75 basis points per year on the outstanding balance of the guaranteed debt obligations.

The program is similar to the Temporary Liquidity Guarantee Program introduced by the FDIC for banks on Oct. 14 and is aimed at giving corporate credit unions competitive standing in the debt markets.

"While this new Board action is directed at addressing corporate liquidity issues, I think it is important that natural person credit unions be fully aware of all of their options in this very tight and difficult liquidity situation, including the Central Liquidity Facility," said NCUA Chairman Michael Fryzel, in a statement.

"The standards for CLF borrowing are stringent, and our evaluation of requests will be thorough, but credit unions should know that their short-term liquidity needs can be addressed through CLF borrowings. I encourage all appropriate use of the CLF as another means to maintain liquidity and confidence in the credit union system during these uncertain times."