The savings and loan bailout plan presented this week to the Senate Banking Committee by Treasury Secretary Nicholas Brady includes a "misguided attempt to deal with a non-existent problem" regarding credit unions, says the president of Credit Union National Association a credit union trade group.
Ralph Swoboda said Brady's testimony on the National Credit Union Share Insurance Fund is misguided for four reasons:- It weakens the credit union insurance fund.
- It increases the federal deficit.
- It does nothing to help fund the S&L bailout.
- It is done at the expense of the nation's 60 million credit union members, "who would ultimately pay the price."
Under the Bush administration's plan, said Swoboda, credit unions would have to write off, over an eight-year period, the deposit they now maintain in NCUSIF equal to 1 percent of their insured funds. Moreover, they would not continue to adjust their annual contribution to accommodate credit union growth.
Under the current law, passed in 1984 with the support of the credit union movement, credit unions deposit 1 percent of insured accounts into the NCUSIF. Under extraordinary conditions, credit unions can be required to make even larger deposits. Since the 1984 law has been in effect, credit union deposits have reduced the federal deficit by some $1.7 billion.
The NCUSIF is currently capitalized at $1.26 per $100 of insured savings, the highest equity ratio of the three federal insurance funds and already higher than the $1.25 level proposed by the Administration's bailout plan. If the Administration's proposal as presented by Brady were put into effect, the equity ratio would drop to about 75 cents per $100 of savings in eight years.
According to Swoboda, there are two key reasons the administration plan would weaken the fund. First, credit union funding of the NCUSIF is currently tied directly to savings growth. Second, it is a "pay as you go" system, set up to provide that funds will always be available from credit unions to pay off losses as they occur, on an annual basis.
"This attempt on the part of the administration to overhaul the federal insurance programs designed and developed in the 1930s for banks and savings and loans is commendable," Swoboda said. But it includes provisions that tamper with the credit union program recapitalized and revitalized in 1985, only four years ago, he said.
"Given the demonstrated success of the current credit union arrangement, it would be ludicrous to adopt a proposal that significantly weakens the credit union insurance fund itself while at the same time reducing credit union capital formation," Swoboda said.
"It is particularly ludicrous if the objective is to bring the one insurance fund that is working well into conformity with the two that are not.
Swoboda said the proposed plan clearly resulted from a misunderstanding of how credit unions and their insurance fund function.
He reiterated his support for the administration's quick action on the savings and loan crisis but said the credit union provisions in the proposal "appear to be a poorly conceived afterthought."