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Federation advocates CDRLF as secondary capital
ALEXANDRIA, Va. (4/7/09)--The National Federation of Community Development Credit Unions sent a letter Thursday to the National Credit Union Administration (NCUA) to “urge swift action to assist low-income credit unions at a time of unprecedented challenge to their survival.” The federation requests that NCUA amend the regulations of the Community Development Revolving Loan Fund (CDRLF) to permit the issue of secondary capital loans to low-income designated credit unions, which will enable them to:
* Maintain and expand their services in distressed communities; * Increase their regulatory net worth; * Avoid prompt corrective action (PCA); * Minimize the need for mergers and liquidations; and * Provide an added layer of financial insulation for the National Credit Union Share Insurance Fund.
The CDRLF, established by Congress in 1979, makes non member deposits and loans at a rate of 1% for five-year terms. Shifting the CDRLF from providing liquidity deposits and loans to provide secondary capital loans “will provide a source of vitally needed net worth to low-income credit unions, helping to ensure that they can maintain or expand their role in revitalizing their communities,” the federation said. The federation estimated that NCUA’s corporate stabilization plan will cost community development credit unions $55.7 million. About 87.6% of CDCUs will not be profitable this year, and 20% will have a net worth less than 6%. The Credit Union National Association wishes to work with the federation to pursue its request of secondary capital for low-income credit unions from NCUA.
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