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SandP commends NCUA addressing liquidity capital
WASHINGTON (10/13/09)--Standard & Poor’s (S&P) Ratings Service recognized a fundamental shift in the landscape for corporate credit unions when it downgraded six corporate credit unions in April, and withdrew the ratings on two others, S&P said in a press release Friday. S&P said it believes that the National Credit Union Administration’s (NCUA) efforts to preserve confidence in the credit union system have stemmed a liquidity crunch that could have been precipitated by significant outflows from the corporate system. However, the release also highlights that the agency has not yet addressed some of the structural aspects of the system that are likely to evolve, and that could significantly alter the current framework. “Therefore, we believe that stand-alone evaluations of the corporate credit unions are in flux and will need to be re-evaluated in the context of the changing landscape,” S&P said. “Events of the past 18 months may shake members’ faith in the cooperative nature of the system, which had been a major factor supporting the corporates' creditworthiness,” S&P added. “Specifically, the burden of premium assessments on the members may appear too great when compared to the benefits of membership. Ultimately, we believe that the system will need capital to offset the increasingly likely losses stemming from mortgage-related structured securities.” “We believe that the NCUA has been proactive in addressing the needs of the system,” S&P continued. “The NCUA’s actions to assist corporate credit unions amidst a precarious environment include establishing the Temporary Corporate Credit Union Liquidity Guarantee Program, which guarantees participating corporates' debt, and establishing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) whose primary purpose is to absorb losses stemming from mortgage-backed securities investments in the corporate credit union system during a seven-year period. The TCCUSF is a $6 billion revolving facility provided by the Treasury. “We believe that the NCUA has the mandate, the authority, and the capacity to continue to address the liquidity and capital needs of the credit union system, which is a major factor supporting our current ratings,” S&P concluded. The S&P release helps to underscore the importance of NCUA’s review of the corporate system,” Mary Dunn, senior vice president and deputy general counsel for the Credit Union National Association (CUNA), told News Now. “While S&P notes that it downgraded six corporate credit unions and withdrew the ratings on two others earlier this year, it commends NCUA for acting to ‘preserve confidence’ in the credit union system, including addressing problems within the corporates. At the same time, S&P notes that NCUA has not yet addressed structural issues and indicates the corporates will need more capital,” Dunn said. “No one that I am aware of is disagreeing with that,” Dunn added. “NCUA is planning to address those structural issues, including capital standards, in the proposed corporate credit union rule that it is set to issue for comments in November. CUNA agrees with S&P that NCUA has the authority to address the liquidity and capital needs of the credit union system.”


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