Recap of May 20, 2009 House Subcommittee Hearing on H.R. 2351

Wednesday’s hearing by the House Financial Services Subcommittee on Financial Institutions and Consumer Credit hearing, to discuss H.R. 2351 - the Credit Union Share Insurance Stabilization Act, took place as the bill was scheduled to be signed into law by President Obama that same afternoon. It was a well-timed opportunity for credit unions to have questions answered by the NCUA regarding the new legislation. Here are some key highlights from the hearing:

Two Credit Unions Rising questions were asked of the first panel, NCUA Chairman Michael Fryzel and Senior Deputy Commissioner of the Georgia Department of Banking and Finance, George Reynolds on behalf of NASCUS.

“Actual Losses”

One question by Congress…what are the actual losses incurred on the securities to date?…was answered by Fryzel. He explained, “The actual number, is actually a moving number and that is based on what occurs in the economy over time as to whether or not these investments could get better, or perhaps could get worse. With our best calculations, and this is why we ask for the amount of $5.9B, that is our best estimate of what we are going to have to deal with. Now there could be a lower or there could be a higher estimate and that could fluctuate over time. But that is what we are looking at right now.”

Actual losses on the securities have yet to be incurred; the $5.9B estimate is a future projection based on assumptions the economy and other economic variables.

The second question…how could NCUA allow losses to occur when federal regulators were working in-house?…went unanswered due to the five minute time constraint for member’s Q&A.

Membership Capital Option Raised

As the questions shifted towards the future of corporate credit union governance and structure, Subcommittee members struggled with the seemingly contradictory motives of a corporate system based on competition and high yields supporting a not-for-profit, people helping people model. Reynolds urged committee members to recognize the diversity of the corporate network, citing the $3B Georgia Central corporate credit union that had not made bets in toxic assets and continued to provide service to its member credit unions. He noted the importance of Membership capital and the need to recognize member’s right to determine the future of their institution.

When asked about the reaction of natural person credit unions to NCUA, Reynolds admitted that they were mixed and that some credit unions were unhappy that they would have to pay a higher premium for events outside natural person credit union sector.

Other subcommittee members cited access to alternative capital for credit unions as a dire need for the movement. One, Rep. Brad Sherman (CA) went so far as to site it as the “cheapest” option currently available to the government to stem the economic downturn.

Moving forward, it appears the focus will now shift largely to the future structure of the corporate network; how it will be regulated differently, how many corporate credit unions will survive, and what roles those entities will continue to play.