Sometimes you need a simple solution to a complex problem.
But first I want to remind you what Jim Blaine, CEO of State Employees Credit Union in Raleigh once said, something like the following" "My biggest concern is my credit union's unlimited contingent liability to the National Credit Union Share Insurance Fund."
The opening round of costs as proposed by NCUA will probably not be the last. Carver's Simple Plan is based upon my soon-to-be 44-year career in the credit union industry and a "sleepless night." There are four simple steps:
1. OK, NCUA, you got our attention!
2. Immediately place U.S. Central Credit Union into federal conservatorship and do the following:
a. Charter a New U.S. Central Federal Credit Union whose officials are comprised of NCUA appointed persons.
b. Have the Central Liquidity Facility borrow money on their existing line of credit from the US Treasury in an amount needed to purchase all of the U.S. Central Credit Union's investments at book value. I understand that 99% of the investments were AAA when purchased, are performing and will pay par at maturity. It is only because they are following the dictates of the American Institute of Certified Public Accountants that this is a problem. If you don't watch out the "good news" is we complied with the AICPA, the "bad news" it helped caused the demise of the credit union industry.
c. Give the present U.S. Central Credit Union one year in conservatorship to let its natural-person credit union members find new vendors or other corporates to provide those services presently available from U.S. Central. Natural-person credit unions might pay more for services, but it is a darn sight cheaper then the first installment of 50 to 60 basis points being paid to the NCUSIF.
d. After one year, liquidate the present U.S. Central. In the meantime, we can determine what NCUA means by "all deposits guaranteed." Let all of the reserves, if any, remaining when U.S. Central liquidates be transferred to the new U.S. Central Federal Credit Union.
e. The New U.S. Central Federal Credit Union holds their purchased securities (from U.S. Central Credit Union) and allows them to mature and be redeemed. The NCUSIF pays the new U.S. Central Federal Credit Union's operating expenses (meaning eventually the natural person credit unions will pay). So its balance sheet will consist of cash, investment and notes payable to the CLF.
f. The New U.S. Central Federal Credit Union simply ignores the AICPA's various FASB rules. The new U.S. Central Credit Union will be a government-owned and operated facility. They don't need a Certified CPA Audit. Just ignore the AICPA. What are they going to do, sue? I don't think so and if they do, so what?
g. Once the New U.S. Central Credit Union has "cashed in" all of the investments at their maturity then determine a final loss, if any.
h. Natural-person credit unions would then either pony up the deficit, after enjoying the time value of money for years, or NCUA could charge say five basis points to those credit unions on an annual basis starting whenever and then settle up. Another option would be to charge that loss to the NCUSIF and then have them bill additional premiums that will surely be less costly then the current proposal.
3. To Make Sure This Never Ever Happens Again:
a. Reduce the number of corporates back to the number authorized in NCUA's initial rules and regulations back in the 1970s, which was one corporate per NCUA region for a total of six. NCUA has five regions, but five or six is not a big issue.
b. Let other present corporates continue to run, but NCUA gives notice that in 12 months shares in those corporates will not be federally insured.
c. Other corporates might chose to merge into one of the five or six remaining corporates.
d. Let the officials of those corporates know that any losses experienced by Federally insured natural person credit unions, caused by those corporates, will be collected personally from those officials.
4. Here are other issues that eventually need to be eventually resolved:
a. The current NCUSIF deposit model never ever contemplated our current economic situation and should be modified to an annual premium and NCUA refunds the deposit in an appropriate time based upon available funds.
b. Credit union should quit supporting trade associations that are unable to give the credit union industry "political clout" on the Hill. Obviously, we do not have any political clout, as I cannot remember any significant pro credit union laws being passed in recent years. Yea, we got a "few crumbs," but nothing significant. All I read about are "sponsors" of our bills who always have their hands out for PAC money.
I am sure that in one sleepless night I did not present all of the issues or think of all of the ramifications, but now is the time to think out of the box and offer your plan because the "same o plans" no longer work. You can either like the plan, in part or in its entirety, or not at all, but it is a plan. NCUA now has your attention and you have until September when they propose to take your money to work something out!
Allen Carver is president of Allen Carver & Associates, Cumming, Ga., and a former regional director with NCUA. He can be reached at email@example.com.
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