Bipartisan Legislation Creates Stabilization Fund to Sensibly Rebuild Reserves after $5.9 Billion Rescue of Corporate Credit Unions

WASHINGTON - Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, today announced that he introduced H.R. 2351, the Credit Union Share Insurance Stabilization Act.  Chairman Kanjorski's bipartisan bill aims to recapitalize the credit union deposit insurance system to ensure the long-term stability of the credit union system.

"Unless Congress takes quick action to change the law, two-thirds of credit unions will have negative earnings in 2009 as a result of the need to rebuild deposit insurance reserves after the $5.9 billion rescue of corporate credit unions," said Chairman Kanjorski.  "As members of a cooperative movement, credit unions are willing to help one another and to pay their fair share to recapitalize the system, but we shouldn't ask them to do the impossible.  The swift enactment of my bipartisan legislation will allow credit union managers to focus on their most important mission - providing credit to their members - rather than worrying about how they will pay for an excessive one-time charge and paring back lending during these difficult economic times."

Congressman Luis V. Gutierrez (D-IL), Chairman of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit; Congressman Ed Royce (R-CA), a senior Member of the House Financial Services Committee; Congressman David Scott (D-GA), an active Member of the House Financial Services Committee; and Congressman Steven C. LaTourette (R-OH), the chief Republican sponsor of the Credit Union Membership Access Act of 1998, all joined Chairman Kanjorski in introducing H.R. 2351.

"I am pleased to join Chairman Kanjorski in cosponsoring this important legislation for the credit union community," said Congressman Royce.  "Considering the losses experienced at the corporate credit union level, structural changes are essential going forward. I think this bill is a step in the right direction. By giving the National Credit Union Administration this much needed authority, we are ensuring that the corporate credit unions and the broader credit union system can weather these tough economic times."

"Ensuring that consumers have access to credit at reasonable rates remains a fundamental priority for the Financial Institutions Subcommittee," said Chairman Gutierrez. "Credit unions are a vital resource for American consumers, and they play an important role in community development.  Congress has an obligation to ensure the success of stable financial institutions. I commend Chairman Kanjorski for taking the lead on this important step in maintaining a strong credit union system in the United States."

America's credit unions are the latest industry sector affected by the problems related to mortgage-backed securities that have roiled the financial markets for nearly two years.  Earlier this year, the National Credit Union Administration (NCUA) Board decided to place two corporate credit unions into conservatorship and to extend protection to the deposits held at all corporate credit unions.  These decisions resulted in an estimated $5.9 billion in losses for the National Credit Union Share Insurance Fund (NCUSIF), the deposit insurance program for credit unions.

Current law requires the recapitalization of the NCUSIF in the year in which the losses occur.  The sizable losses resulting from the corporate credit union rescue, however, would result in the majority of credit unions losing money in 2009.  Moreover, approximately 225 of the nation's 7,800 credit unions would fall below limits where they would be deemed adequately capitalized. 

To address this problem, Chairman Kanjorski introduced H.R. 2351.  Specifically, H.R. 2351 would:

• Create a Temporary Corporate Credit Union Stabilization Fund that would eventually merge with the NCUSIF after paying for the costs of the recent rescue;
• Permanently increase the authority of the NCUA to borrow from the Treasury Department up to $6 billion (up from the current $100 million limit);
• Provide short-term emergency authority until December 31, 2010 for the NCUA to borrow up to $30 billion under certain circumstances and procedures; and
• Allow the NCUA to establish a restoration plan and period of up to 8 years to pay back the deposit insurance funds when they fall below desired levels.

"In sum, H.R. 2351 represents a viable, effective, and appropriate response to the problems now facing the credit union movement," concluded Chairman Kanjorski.  "I look forward to the hearing that Chairman Gutierrez will soon convene to examine this legislation and to moving swiftly to consider these matters in the House.  I am confident that we will enact this legislation into law this year."

###