[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
H.R. 2351, THE CREDIT UNION SHARE
INSURANCE STABILIZATION ACT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
MAY 20, 2009
__________
Printed for the use of the Committee on Financial Services
Serial No. 111-35
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina RON PAUL, Texas
GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California WALTER B. JONES, Jr., North
GREGORY W. MEEKS, New York Carolina
DENNIS MOORE, Kansas JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts GARY G. MILLER, California
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
WM. LACY CLAY, Missouri Virginia
CAROLYN McCARTHY, New York JEB HENSARLING, Texas
JOE BACA, California SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia RANDY NEUGEBAUER, Texas
AL GREEN, Texas TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois JOHN CAMPBELL, California
GWEN MOORE, Wisconsin ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota THADDEUS G. McCOTTER, Michigan
RON KLEIN, Florida KEVIN McCARTHY, California
CHARLES A. WILSON, Ohio BILL POSEY, Florida
ED PERLMUTTER, Colorado LYNN JENKINS, Kansas
JOE DONNELLY, Indiana
BILL FOSTER, Illinois
ANDRE CARSON, Indiana
JACKIE SPEIER, California
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Financial Institutions and Consumer Credit
LUIS V. GUTIERREZ, Illinois, Chairman
CAROLYN B. MALONEY, New York JEB HENSARLING, Texas
MELVIN L. WATT, North Carolina J. GRESHAM BARRETT, South Carolina
GARY L. ACKERMAN, New York MICHAEL N. CASTLE, Delaware
BRAD SHERMAN, California PETER T. KING, New York
DENNIS MOORE, Kansas EDWARD R. ROYCE, California
PAUL E. KANJORSKI, Pennsylvania WALTER B. JONES, Jr., North
MAXINE WATERS, California Carolina
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
CAROLYN McCARTHY, New York Virginia
JOE BACA, California SCOTT GARRETT, New Jersey
AL GREEN, Texas JIM GERLACH, Pennsylvania
WM. LACY CLAY, Missouri RANDY NEUGEBAUER, Texas
BRAD MILLER, North Carolina TOM PRICE, Georgia
DAVID SCOTT, Georgia PATRICK T. McHENRY, North Carolina
EMANUEL CLEAVER, Missouri JOHN CAMPBELL, California
MELISSA L. BEAN, Illinois KEVIN McCARTHY, California
PAUL W. HODES, New Hampshire KENNY MARCHANT, Texas
KEITH ELLISON, Minnesota CHRISTOPHER LEE, New York
RON KLEIN, Florida ERIK PAULSEN, Minnesota
CHARLES A. WILSON, Ohio LEONARD LANCE, New Jersey
GREGORY W. MEEKS, New York
BILL FOSTER, Illinois
ED PERLMUTTER, Colorado
JACKIE SPEIER, California
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
C O N T E N T S
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Page
Hearing held on:
May 20, 2009................................................. 1
Appendix:
May 20, 2009................................................. 29
WITNESSES
Wednesday, May 20, 2009
Bedinger, Jim, Chief Operations Officer, Chicago Patrolmen's
Federal Credit Union, on behalf of the National Association of
Federal Credit Unions (NAFCU).................................. 20
Fryzel, Hon. Michael E., Chairman, National Credit Union
Administration (NCUA).......................................... 7
Lavage, William, President and Chief Executive Officer, Service
1st Federal Credit Union, on behalf of the Credit Union
National Association (CUNA).................................... 22
Reynolds, George, Chairman, National Association of State Credit
Union Supervisors (NASCUS), and Senior Deputy Commissioner,
Georgia Department of Banking and Finance...................... 8
APPENDIX
Prepared statements:
Kanjorski, Hon. Paul E....................................... 30
Bedinger, Jim................................................ 31
Fryzel, Hon. Michael E....................................... 46
Lavage, William.............................................. 68
Reynolds, George............................................. 83
Additional Material Submitted for the Record
Lavage, William:
Comment letter to the National Credit Union Administration,
dated April 6, 2009........................................ 92
H.R. 2351, THE CREDIT UNION SHARE
INSURANCE STABILIZATION ACT
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Wednesday, May 20, 2009
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:30 p.m., in
room 2128, Rayburn House Office Building, Hon. Luis V.
Gutierrez [chairman of the subcommittee] presiding.
Members present: Representatives Gutierrez, Sherman,
Kanjorski, McCarthy of New York, Baca, Green, Scott;
Hensarling, Royce, Neugebauer, Marchant, Paulsen, and Lance.
Chairman Gutierrez. This hearing of the Subcommittee on
Financial Institutions and Consumer Credit will come to order.
Good afternoon and thanks to all of the witnesses for
agreeing to appear before the subcommittee today.
Today's hearing is a legislative hearing on a piece of
legislation that is vital to maintaining the safety and
soundness of our financial system, H.R. 2351, the Credit Union
Share Insurance Stabilization Act.
The subcommittee has asked our witnesses to discuss recent
developments in the seizures of U.S. Central Federal Credit
Union and Western Corporate Federal Credit Union in March, as
well as the stability of the National Credit Union Share
Insurance Fund.
We will be limiting opening statements to 10 minutes per
side, but without objection, all members' opening statements
will be made a part of the record.
I yield myself 5 minutes.
The 4,900 Federal credit unions and almost 3,000 federally-
insured, State-chartered credit unions in the United States
play a vital role in our economy by providing access to credit
for nearly 82 million Americans with the total credit union
assets exceeding $800 billion. Maintaining the continuous
stability of these institutions is vital to the economic health
of the Nation and even that of the global financial systems.
Congress acted recently to increase the amount of an
insured deposit at these institutions from $100,000 to
$250,000, but we must also take steps to maintain the health of
the insurance funds themselves.
On March 20, 2009, the National Credit Union Administration
seized controls of U.S. Central Corporate Federal Credit Union
and Western Corporate Federal Credit Union, one of the largest
wholesale credit unions in the Nation. The NCUA made its
decision based on mounting losses at the two corporate credit
unions from their investments in mortgage-backed securities.
The combined weight of the $57 billion in assets of the two
credit unions forced a substantial drawdown in the National
Credit Union Share Insurance Fund, which now must be re-
capitalized at a cost of nearly $6 billion. However, attempts
to re-capitalize this fund by immediately increasing
assessments on retail credit unions would constrain lending at
these institutions at a time when the exact opposite is what is
needed.
To address the re-capitalization and continued health of
the Share Insurance Fund, Representative Kanjorski, along with
myself and Representatives LaTourette, Royce, and Scott
introduced the Credit Union Share and Stabilization Act. This
legislation would authorize the NCUA to establish a
stabilization fund which would allow the credit unions to pay
back the nearly $6 billion over 8 years and eventually merge
this fund with the Share Insurance Fund. The legislation would
also permanently increase the Fund's borrowing authority from
its current $100 million to $6 billion and allow for up to $30
billion in emergency circumstances.
While similar language was included in S. 896, which passed
the House yesterday and is scheduled to be signed into law
today, this legislative hearing is necessary to establish a
legislative record on this issue in the House. Additionally, I
believe that this committee should hear from the stakeholders
about the steps that they are taking to ensure--and this I
think is vitally important--that similar losses to the Share
Insurance Fund can be avoided in the future.
I believe this legislation is vital to maintaining the
health and stability of our financial systems, and I am proud
to be an original cosponsor. I commend Mr. Kanjorski for his
work on this bipartisan legislation and I look forward to
hearing from our witnesses.
I yield 5 minutes to the ranking member, Mr. Hensarling.
Mr. Hensarling. Thank you, Mr. Chairman. In a complete
breach of tradition, I do not intend to take the full 5
minutes, but I thank you for yielding the time nonetheless. I
want to thank you for holding this hearing. I want to thank the
gentleman from Pennsylvania and the gentlemen from California,
Mr. Royce, and Mr. LaTourette, for their participation and I
thank you for your leadership, Mr. Chairman, for your work on
the bill and for your work on this matter.
It is important I think that we establish for the record
that the failures we are discussing today are of corporate
credit unions and not the natural-person credit unions that
serve so many of our constituents each and everyday.
Credit unions, along with community banks, play an
incredibly important role in the communities they serve. I know
how they important they are in the Fifth District of Texas. And
along with you, Mr. Chairman, I believe it is critical that we
keep them lending at this challenging period in our Nation's
economic history.
Clearly, without the benefit of the underlying legislation,
our credit unions would be forced to need a very heavy and
immediate assessment that one could argue ultimately subsidizes
their competitors' failures. And so I think it is important
that at this time of a national credit crunch, that certainly
not be done.
As important as this legislation is though, it does remind
us of another important fundamental concern about our financial
markets and that is the Federal Government cannot continue
making great promises of funding guarantees to everyone who has
or expects to have a funding problem. We have already extended
funding promises to banks via the FDIC, banks via the Fed,
banks via TARP, life insurance via TARP, ABS lending via TARP,
automakers via the TARP, homeowners via FHA, not to mention our
liabilities under the Federal Flood Insurance Program, TRIA,
and the list goes on and on and on.
After passing a budget that will triple our national debt
in just 10 years, and create more debt in the next 10 years
than was created in the previous 220, as we look at
legislation, we need to always be very, very mindful about the
implications of future generations, and we must be looking to
create more economic opportunity and competitiveness in our
land because the greatest anecdote to our funding problems is
certainly a robust and healthy economy.
Again, Mr. Chairman, I thank you for your leadership on
this issue, and I thank you for holding this hearing. I yield
back the balance of my time.
Chairman Gutierrez. I thank the ranking member. Mr. Sherman
is recognized for 3 minutes.
Mr. Sherman. Thank you, Mr. Chairman. As a result of
legislation that has passed the Senate, I know this hearing is
a little broader than originally conceived. And I want to focus
on an effort of mine for a long time to allow credit unions to
issue alternative capital.
Now, let's look at other sectors of the banking and
depository world. We are now begging the banks to issue
preferred stock and common stock. We wanted the big banks to
issue preferred stock so much, we bought it. Credit unions also
need capital. With capital, they can achieve the purposes,
including lending to their members and to business members.
Instead of talking about how much money are we going to spend
or risk, the first thing we should do is say, why don't we
allow the credit unions to issue alternative capital,
subordinated debt, whatever term you want to use for it. Allow
them to go to investors and say, ``You invest, you take a
risk.'' With that risk, we can then accept deposits without
that risk falling onto the Federal Government or onto the
stabilization fund or insurance entity.
We ought to allow this. It is the one thing we can do to
help the economy now at zero risk to the Federal Government and
at zero cost to the Federal Government. And I, for the life of
me, cannot figure out why we have not done so promptly.
Now, if credit unions were allowed to issue subordinated
debt, that debt could be purchased with TARP funds. Whether
that is a good idea or not, a better way to ask it is, is that
a better use of TARP funds than anything else that might be
used with them? But my proposal to allow credit unions to raise
capital by issuing alternative capital is independent of the
existence of TARP and was made long before anybody imagined
that the Federal Government would be investing in the capital
of depository institutions.
I look forward to the credit unions being in a position to
help us get out of this mess and the least we ought to do is
untie their hands. It is a lot cheaper than anything else that
is being suggested.
I yield back.
Chairman Gutierrez. Mr. Royce is recognized for 3 minutes.
Mr. Royce. Thank you, Mr. Chairman.
Chairman Gutierrez. You are welcome, sir.
Mr. Royce. Since the 108th Congress, Representative
Kanjorski and I have co-authored the Credit Union Regulatory
Improvements Act, and last week, I was pleased to once again
join the chairman in introducing legislation, H.R. 2351, the
Credit Union Share Insurance Stabilization Act. As has been
noted, this legislation increases the NCUA's borrowing capacity
with the Treasury, it extends the repayment plan for natural-
person credit unions, and it creates a temporary corporate
credit union stabilization fund as put forward in a proposal by
the NCUA in March of this year.
With headlines over the last couple of years focused on
those financial institutions that were highly leveraged and
quick to underwrite risky loans, for the most part the natural-
person credit unions were conservative in loans they
originated, holding most of their mortgages they made on their
balance sheets. Clearly, however, there was a problem
experienced at the corporate credit union level. The exact
structure and function of the corporate credit union system is
not widely understood. The various corporate credit unions
throughout the country are owned in a cooperative fashion by
the natural-person credit unions. These corporate credit unions
supply liquidity to their members, as well as provide everyday
services, such as wire transfers, ATM processing, and bill
payment services for the natural-person credit unions.
The failures that led to this request for expanded
authority by the NCUA must be fully vetted. I believe
significant changes need to occur at the corporate level to
ensure future actions taken are consistent with the mission of
the credit union model. As this legislation moves closer to
becoming law, I am hopeful that this authority will be enough
to stabilize and in fact strengthen the broader credit union
system.
And, again, I thank you for holding this hearing, Mr.
Chairman. I look forward to hearing from our witnesses.
Chairman Gutierrez. Thank you very much, Mr. Royce, for
your work on the legislation and our joint efforts. And now to
my friend and senior colleague on this committee, on the full
committee, and the co-author, Mr. Kanjorski, for 3 minutes.
Thank you.
Mr. Kanjorski. Thank you very much, Mr. Chairman. And thank
you for convening this hearing to examine H.R. 2351, the Credit
Union Share Insurance Stabilization Act. Our bipartisan bill
allows the managers of retail credit unions 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 to rebuild deposit insurance reserves and
paring back lending during these difficult economic times.
As you know, Mr. Chairman, we first planned to convene this
hearing about 2 months ago. At the time, we had expected to
consider the legislative proposals to create a Temporary
Corporate Credit Union Stabilization Fund and adopt other
needed deposit insurance reforms. These plans respond to the
recent $5.9 billion rescue of the corporate credit unions by
permitting the re-capitalization of the credit union deposit
insurance system to occur over several years, rather than in a
matter of months. We have, however, been overtaken by events.
Several weeks ago, Mr. Chairman, you joined Chairman Frank
and me in sending a letter to Senator Dodd urging him to
incorporate the plan to create a Credit Union Stabilization
Fund into S. 896, the Helping Families Save Their Homes Act, a
bill that contains many important deposit insurance reforms. I
am pleased that Senator Dodd did as we asked. The House and
Senate have now passed the bill and President Obama will sign
it into law later today.
As a result of these events, the focus of today's hearing
has shifted from the need for this bill to ensuring the
efficient implementation of this law. Without this law, two-
thirds of the credit unions would have had negative earnings in
2009, as a result of the need to rebuild deposit insurance
reserves. Moreover, around 225 credit unions, through no fault
of their own, would have fallen below limits where they would
be deemed adequately capitalized.
As members of a cooperative movement, credit unions are
willing to help one another and to pay their fair share to
recapitalize their deposit insurance system. The provisions
found in H.R. 2351 and incorporated in S. 896 represent a
viable and appropriate response to the problems now facing the
credit union movement. The National Credit Union Administration
must tell us today how it will swiftly and effectively
implement this new law.
Mr. Chairman, I am particularly pleased Mr. William Lavage,
the president and CEO of Service 1st Federal Credit Union in
Danville, Pennsylvania, will testify today. I have worked
closely with him in the past and Service 1st has developed a
unique model program of educating school children about
financial matters. I look forward to his participation.
In sum, I am very pleased that our bill will become law
within a matter of hours and that we are convening this hearing
today to examine how the National Credit Union Administration
will work to implement these reforms quickly. The fact that we
have considered and resolved these problems within a matter of
weeks demonstrates that the Congress and the Administration can
work together to solve problems facing the American people in a
pragmatic way.
Thank you, Mr. Chairman. I yield back my time.
Chairman Gutierrez. Thank you, Mr. Kanjorski. Now, we have
Congressman Paulsen for 2 minutes.
Mr. Paulsen. Thank you, Mr. Chairman. It is abundantly
clear that the current financial crisis has exposed a number of
issues within deposit insurance that do need to be dealt with.
Credit unions provide an extremely valuable service to their
members and to all of our communities. Unfortunately, some
credit unions, just like some banks, have made some bad bets on
mortgage-backed securities. We need to make sure that the
credit unions which were more prudent are not unfairly
penalized from the resolution of those seized firms and
subsequent re-capitalization of the insurance fund. In this
time of very tight credit, it is important for Congress to act
quickly and swiftly and effectively in response to the problems
facing the credit unions so they can also stop worrying about
the losses resulting from premium increases and start extending
the badly needed credit to our small businesses again and
retaining the confidence of their membership.
So I thank you, Mr. Chairman, for holding this hearing
today, and I do look forward to hearing the witnesses'
testimony. I yield back.
Chairman Gutierrez. Thank you. Thank you very much,
Congressman Paulsen. Next, we have--let's see who is on the
list, my friend, Congressman Green, for 1 minute.
Mr. Green. Thank you, Mr. Chairman. I would like to
associate myself with the comments of the chairman as well as
Chairman Kanjorski. Credit unions do play a vital role in our
communities, especially in my community in Houston, Texas, and
I think that this legislation was absolutely needed to give
credit unions the boost that they need so that they can
continue to fulfill their role.
Credit unions across the length and breadth of the country
have been a lifeline for many persons who were not able to
access the assets that they need or the financing that they
need from other sources. I am honored to say that I gladly
support this effort and look forward to the bill being signed
today. I yield back.
Chairman Gutierrez. Mr. Scott, you are recognized for 1
minute.
Mr. Scott. Thank you very much, Mr. Chairman. First of all,
I want to welcome from the State of Georgia, Mr. George
Reynolds, who is the commissioner of our banking system in
Georgia. It is good to have you here with us, and I look
forward to your testimony.
I do want to also add that I am pleased to be a co-sponsor
with Chairman Kanjorski on his bill, H.R. 2351, the Credit
Union Share Insurance Stabilization Act. This measure is
necessary and it is very important. Increasing the amount the
National Credit Union Administration may borrow from the
Treasury to $6 billion from $100 million is an effective way to
make sure credit unions are increasingly viable and that they
have the tools they need in these uncertain economic times.
These are indeed tough, trying economic times, and we have
to give our financial institutions the tools they need to
weather the storm and come out strong in the end. Of course,
there are many issues we will need to work on together in the
future, but I believe this measure is a good measure and it is
a strong measure that we can all agree on. And I look forward
to hearing the views and concerns of our distinguished
witnesses.
Thank you, Mr. Chairman.
Chairman Gutierrez. Thank you very much. And now we will go
to our witnesses. Mr. Michael Fryzel is the chairman of the
National Credit Union Administration. Mr. Fryzel has been
chairman since July of 2008. Prior to that appointment, he has
served in both private practice and in numerous capacities for
the State of Illinois.
Mr. George Reynolds is the chairman of the National
Association of State Credit Union Supervisors. And, as we heard
earlier from Mr. Scott, he is senior deputy commissioner of the
George Department of Banking and Finance.
I thank you both for appearing before the committee, and I
would like to ask Mr. Fryzel to begin his testimony. Each of
you will be limited to 5 minutes. The light will turn--when you
have 30 seconds left, it will turn yellow, and then red means
stop, like in most other situations. I really do not mind using
this gavel with that side of that aisle, much more with this
side, so watch the clock.
Thank you so much for coming.
STATEMENT OF THE HONORABLE MICHAEL E. FRYZEL, CHAIRMAN,
NATIONAL CREDIT UNION ADMINISTRATION (NCUA)
Mr. Fryzel. Thank you, Chairman Gutierrez, Ranking Member
Hensarling, and members of the subcommittee. I appreciate this
opportunity to provide the NCUA's views on H.R. 2351, the
Credit Union Share Insurance Stabilization Act, and the
situation in the corporate credit union system in general.
The 28 corporate credit unions have been a vehicle for
investments, liquidity, and payment system services for retail
credit unions for 3 decades. They were created and directed by
the credit unions themselves and are a valuable component of
the overall industry.
Beginning last summer, unrealized losses from investments
in mortgage-backed securities placed significant pressure on
corporate liquidity. I had just taken office as NCUA chairman
in late July and had begun a review of all NCUA activities.
When the seriousness of this situation became apparent, as a
first step, I immediately asked Congress for full borrowing
authority from the Central Liquidity Facility, a seldom-used
liquidity backstop administered by NCUA.
In the last 7 years, the CLF had made $20 million in loans
to credit unions. In September 2008 alone, the CLF received
requests for almost $2 billion. Congress granted our request to
have full CLF borrowing authority of approximately $41.5
billion and in turn, NCUA has infused almost $21 billion into
the credit union system, stabilizing a very tenuous situation.
The good news was that the liquidity situation had been
addressed. The bad news was that the distressed investments
remained on the corporate books and continued to deteriorate.
In January, the declining financial condition of U.S. Central,
the wholesale corporate that provides services to other
corporates, prompted the NCUA board to infuse $1 billion into
that corporate, and guarantee deposits in all corporates
through at least September 2011. Without swift and direct
action, the corporate system would have been placed in jeopardy
and service to members throughout the system would have been
disrupted.
It has always been my objective to do everything necessary
to protect the nearly 90 million consumers who are members of
credit unions. I could not permit the corporate system to cease
functioning, for the impact on retail credit unions and
consumers would have been devastating.
In March, NCUA placed U.S. Central and West Corp., the
second largest corporate, into conservatorship. This action
preserved retail credit union deposits, enabled NCUA to gain
more information about the portfolios at these two
institutions, and allowed us to take necessary steps to
mitigate future losses.
The impact of these stabilizing actions on the Credit Union
Insurance Fund was considerable. The cost of the Fund is $5.9
billion, which translates to a 99 basis point assessment for
each natural-person credit union. While industry capital stands
at over 10 percent, it is undeniable that this cost, taken all
at once, would come at a time of economic difficulty, a time
when Americans need the kind of fairly priced financial
services that credit unions provide.
Recognizing this, NCUA developed a plan to replenish the
Fund over 7 years. The plan, which was incorporated in the
recently passed legislation and is now the heart of H.R. 2351,
represents a real solution to the problem: It preserves the
strong and well-capitalized insurance fund that Congress, NCUA,
and the public demand. It enables credit unions to bear the
cost in a more manageable way and it complies with GAAP
accounting, which is mandated by the Federal Credit Union Act
and which must be adhered to if we are to maintain public
confidence in the industry.
This proposal also relies on increased borrowing authority
from the Treasury and it changes the time period on collection
of a premium, both of which are included in the bill.
I welcome and appreciate your support for this plan.
Congress has been a very responsive partner to NCUA during this
time of financial difficulty. And I am grateful that the House
and Senate have approved the plan and sent it to President
Obama for his signature. But this is not the end of the story.
NCUA has embarked on a broad set of corporate reforms that will
address such issues as: investment authority; risk
concentration; corporate governance; and other aspects of
corporate credit union operations. This new rule will yield a
stronger, more doable corporate network that will better serve
the needs of credit union members.
My commitment to you is to make certain that NCUA puts the
hard lessons we have learned to good use. I will look to the
industry for their input. I will look to the Congress for your
input. I will incorporate the best ideas that we, as the
Federal regulator, have at our disposal. Above all, I will keep
a clear focus on the central mission of protecting credit union
members. I appreciate this opportunity to provide testimony and
would be pleased to answer any questions.
[The prepared statement of Mr. Fryzel can be found on page
46 of the appendix.]
Chairman Gutierrez. Thank you very much.
Commissioner Reynolds, you are recognized for 5 minutes,
sir.
STATEMENT OF GEORGE REYNOLDS, CHAIRMAN, NATIONAL ASSOCIATION OF
STATE CREDIT UNION SUPERVISORS (NASCUS), AND SENIOR DEPUTY
COMMISSIONER, GEORGIA DEPARTMENT OF BANKING AND FINANCE
Mr. Reynolds. Thank you. Good afternoon, Chairman
Gutierrez, Ranking Member Hensarling, and distinguished members
of the subcommittee. I appear on behalf of NASCUS, the
professional association of State credit union supervisors.
We are pleased that Congress passed S. 896. The provisions
are consistent with the priority of State credit union
regulators to mitigate the impact of corporate credit union
losses on natural-person credit unions.
The NASCUS' testimony today will focus on four key points:
the State credit union system and its relationship to corporate
credit unions; mitigating the impact of corporate losses on
natural-person credit unions; preventing the current situation
from occurring again; and the future of corporate credit
unions.
State regulators monitor the corporate credit union system
and conduct ongoing dialogue with the NCUA. State regulators
are confident that by continuing to work closely with NCUA, we
will address the problems in the corporate credit union system
and ensure a vibrant, healthy, safe, and sound credit union
system in the future. Transparency between State and Federal
regulators is key to this relationship.
We support establishing a restoration plan period for
NCUSIF as provided in the legislation. Allowing 8 years would
provide the flexibility to credit unions that they need to re-
capitalize the NCUSIF, as well as continue to serve their
members. This provision also provides parity with the FDIC
Act's proposed 8 year restoration authority.
In addition, the legislation provides for the creation of a
Temporary Corporate Credit Union Stabilization Fund and other
provisions that allow solutions for credit unions to mitigate
the impact of the dislocated credit markets. This allows credit
unions to protect capital and liquidity so they can continue to
serve member needs.
Going forward, we must analyze the situation and seek ways
to ensure that it will not occur again. First, to identify
factors that resulted in material losses that led to the NCUA's
recapitalizing U.S. Central and then to the conservatorship of
U.S. Central and WesCorp, the NCUA inspector general should
conduct a material loss review. A review would provide
meaningful data for both State and Federal regulators. It would
suggest needed regulatory and supervisory changes and identify
weaknesses in the system.
Next, we want to ensure that NCUA and State regulators
share real time information to manage this fluid situation. We
encourage greater transparency between NCUA and State
regulators, the primary regulators of State-chartered
corporates. Furthermore, NASCUS proposes a process for NCUA to
work cooperatively with State regulators to identify corporates
that pose material systemic risk and jointly examine them. This
would help identify risk in an economic situation that is still
unfolding.
We must look beyond the structure of corporate credit
unions. We do not believe that structural issues caused the
conservatorship of U.S. Central and WesCorp. The problems at
these institutions centered on risk management, risk
mitigation, and supervisory issues. From a regulatory
perspective, we must identify contributing factors and
critically analyze each regulation to ensure proper policies
and procedures.
NCUA should work with NASCUS and State regulators to
develop more comprehensive capital requirements, including
risk-based capital. NASCUS has urged Congress, the NCUA, and
the credit union system that supplemental capital should be
enacted for natural-person credit unions. During the corporate
stabilization process, supplemental capital might have
mitigated some of the unintended consequences to net worth
categories and natural-person credit unions. Natural-person
credit unions would benefit from a risk-based capital system as
well.
In closing, we encourage Congress to consider the following
points: Improve regulatory oversight and require more prudent
risk management expertise for corporate credit unions;
recognize State authority and encourage transparency between
State and Federal credit union regulators; and improve capital
standards for credit unions by allowing supplemental capital
for all credit unions.
NASCUS appreciates the opportunity to testify, and we
welcome questions from subcommittee members.
[The prepared statement of Mr. Reynolds can be found on
page 83 of the appendix.]
Chairman Gutierrez. Thank you very much, Mr. Reynolds.
Chairman Fryzel, you state in your testimony that corporate
credit unions were allowed under NCUA rules to invest in
riskier mortgage-backed securities but that those corporates
with expanded corporate risk authority rarely exercised it.
Does not the seizure and subsequent rescue of both U.S. Central
and WesCorp, as a result of their exposure to mortgage-back
securities show that the NCUA has allowed corporates to hold
more high-risk investments than they should? And are you
evaluating and reconsidering this policy?
Mr. Fryzel. Mr. Chairman, at the time these investments
were made by U.S. Central and WesCorp, they were considered to
be sound and good investments. They were mortgage-backed
securities, and at that time, mortgage-backed securities were
yielding a good return on the investments. I think the major
problem occurred when these corporates were allowed to invest
too heavily in those mortgage-backed securities. They did not
diversify their investments as they should have, and perhaps if
that would have been picked up earlier and perhaps the
regulators would have said, ``Start to diversify,'' some of
these problems would not have occurred.
Chairman Gutierrez. So picking up on--so I grant you that
point, that no one might have been able to foresee that. So
what are you doing to make sure that things that look good
today, that turn out to be really bad tomorrow in terms of
regulation that you were talking about, that they bought too
much and that their portfolio was not balanced, explain that,
what steps you are taking there?
Mr. Fryzel. Congressman, what we have asked is we have
asked the industry and interested individuals to come to us to
provide the changes that they believe will be needed in the
corporate system going forward. We put out a request for
rulemaking, and we have had almost 500 responses to that
request, which we are now going through. And it varied from one
end of the spectrum to the other in regards to what corporates
should be doing in the future, what type of services they
should provide for the credit unions, the natural-person credit
unions.
And certainly one of the major things we will be looking at
is the type of investments that they will be allowed to make.
And, again, that will probably be a limitation that will be
placed at some point in time on the corporates as to just what
they could invest in so that we do not get into these
situations where we have the high concentration in one end that
there could be a problem occur and, as a result, we will be
faced with what we are facing with today.
Chairman Gutierrez. So, Mr. Reynolds, in your view, what
changes in the NCUA regulatory structure should be made so that
we prevent this situation from happening again?
Mr. Reynolds. Well, I have to agree with Chairman Fryzel, I
think we need to look at the concentration limitations on
investments. We need to look at the possibility of establishing
limitations in terms of individual types of investments,
obligor type limits. We need to look at the reliance on
external rating agencies. Like a lot of other financial
institutions, U.S. Central relied extensively on credit rating
agencies that turned out to be overly optimistic. We need to
look at the use of credit enhancement features in insurance
products that were used to make mortgage-backed investments
that had underlying subprime mortgages, into higher rate
investments. And I think we need to also look at the internal
risk management processes in place at corporates, including--
all corporates--and also corporate governance procedures in
place at those institutions. All those areas need to be a part
of a comprehensive analysis as one of the reasons I think that
we think there needs to be a thorough independent review of
this issue.
Chairman Gutierrez. Thank you. I see my time--just so at
least I follow my own instructions to the panelists, I see my
time is coming up, so I will wrap up. Chairman Fryzel, we will
not have another--unless it is unnecessary--the subcommittee
will not have another hearing around the credit unions so I
will be calling you and members of your board to come in so we
can talk a few months from now and see how things are going and
follow up because I think it is very, very important that we
have some continuity and oversight in terms of just how the
regulations and the changes that you are going to be making,
regulatory decisions are made.
Thank you both so much for coming this afternoon.
Mr. Fryzel. Thank you.
Mr. Reynolds. Thank you.
Chairman Gutierrez. My colleague, the ranking member, Mr.
Hensarling, is recognized for 5 minutes.
Mr. Hensarling. Thank you, Mr. Chairman. Commissioner
Reynolds, in answer to Chairman Gutierrez's question, you
mentioned the role of the rating agencies. Can you go into a
little more detail as far as your opinion on precisely what
role they played in the demise of these corporate credit
unions, if you had to rate it on a scale of 1 to 10, and what
do you do going forward?
Mr. Reynolds. Well, personally, I think it was a fairly
significant issue. In my experience, and I regulate different
types of financial institutions, a number of which have
invested in private label CMO type securities, and a lot of
them have bought investments based on the rating of the
particular security. If it was rated a triple A or a double A
rating, they considered it to be a safe investment. And one of
the things that we found in the current environment with the
changes in the residential real estate market is that the
security that was initially rated a triple A or a double A can
drop to a sub-investment grade security with changes in the
marketplace, increasing defaults, and other changes in terms of
the portfolio composition. And I think what is needed is more
stress testing of the underlying security, not taking for
granted the rating that is assigned, but looking at the
underlying composition of the mortgages that back up that
security.
Mr. Hensarling. Chairman Fryzel, the same question for you,
the role credit rating agencies played in the demise of these
corporate credit unions and what do we do going forward?
Mr. Fryzel. Well, Congressman, as I said previously, all of
these securities when purchased were highly rated and sound
investments at the time. I agree with Chairman Reynolds in
regards to the fact that perhaps the corporates, the investing
firms have to do a little more due diligence in regards to
accepting whether or not these ratings are true, looking at the
securities in a little more detail and going deeper as to just
what they are all about. I think if we have those type of
regulations in place, we are not going to experience and we are
not going to have worry about what the rating companies say if
the due diligence is done by the corporate investment firm.
Mr. Hensarling. Another question, Chairman Fryzel, do you
see any correlation between the national field of memberships
and increased risk-taking by the corporate credit unions?
Mr. Fryzel. Congressman, I think that the theory behind the
national fields of membership was basically for competition, in
order for the corporates to compete against one another to
obtain the natural-person credit unions. Now, certainly when
you get that type of competition, you get corporates going for
the higher rate to get the greater number of natural-person
credit unions coming to them for their investments, so we do
face that problem. But I think if we have in place the proper
regulations to monitor the corporates, a national field of
membership should not be a problem.
Mr. Hensarling. Have there been any actual--what are the
actual losses incurred to date on the securities of these two
corporate credit unions?
Mr. Fryzel. Well, the actual number, Congressman, 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 asked for the amount of $5.9
billion, that is the best estimate as to 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.
Mr. Hensarling. Thank you, Mr. Chairman. I yield back the
balance of my time.
Chairman Gutierrez. You are very welcome. Mr. Sherman, you
are recognized for 5 minutes.
Mr. Sherman. Thank you. I may have to disagree slightly
with our witness on credit unions--credit rating agencies
because we had hearings in this room of another subcommittee
just yesterday, and there was a division of opinion. There were
some who said, ``Well, just don't rely on the credit rating
agency,'' and there were others who thought, well, maybe you
ought to make the credit rating agencies more reliable. I do
not think there is ever going to be a way that you are going to
tell people not to rely on the credit rating agencies because
if one bond analyst puts together a portfolio and says, ``My
yield is 3.8 percent and my average rating is double A,'' that
person is going to look better to their boss than somebody who
comes in and says, ``My average rating is lower than double A
and my interest rate is the same.'' I would hope that we would
move toward credit rating agencies that are selected from a
panel by the SEC, so you would not have credit rating agencies
having to lean a little bit to the left for the issuer's
benefit in order to get the next issuer to pay them another
half million or $1 million.
A lot of disputes about TARP, but I would think sitting
where you do, Mr. Chairman, that you would want credit unions
not to be the only part of the depository institutional world
that does not benefit from TARP. Now, it is my understanding
that even if the Treasury deposited money with credit unions
for the purpose of supporting their capital, you would not
count it as capital. So I would like to know what interaction
your agencies had with the Treasury Department in support of
what I think was congressional intent and that is that credit
unions would be included along with the other depository
institutions? Did you meet with Treasury Department officials
in the past Administration or the current Administration to
facilitate credit union participation? And can you share with
the committee your correspondence with Treasury? And are you
going to change your rules so that if Treasury puts in money at
risk for the purpose of serving as capital for a credit union,
that you will count it as capital?
Mr. Fryzel. Thank you, Congressman. We have always felt
that it was congressional intent that credit unions be allowed
into the TARP program, and we have asked for that since the day
that legislation passed from former Secretary Paulsen. We wrote
numerous letters to him but Secretary Paulsen did not believe
apparently that credit unions should be included in that
program. But that did not stop us from continuing to ask for
it. We have asked now Secretary Geithner and we met with
Treasury last week, and it appears that credit unions may be
eligible to participate in the Troubled Asset Purchase Program,
which is now being developed.
Mr. Sherman. But not the capital infusion?
Mr. Fryzel. Not the capital infusion.
Mr. Sherman. Is that a matter of your rules blocking your
intent, that is, if the Federal Government put some money into
a credit union and said, ``We mean this to be risk capital,''
would you count it as capital?
Mr. Fryzel. We interact frequently with Treasury,
Congressman. We have to consult with them on a number of things
that NCUA does before we can move forward, so if Treasury--
Mr. Sherman. I was asking a simple yes/no question.
Mr. Fryzel. If Treasury says to us, ``Here is a bundle of
money, use it for what you want.''
Mr. Sherman. No, no, they would invest in the credit unions
obviously, they would expect to get it back but they would want
you to count it as capital.
Mr. Fryzel. Well, actually, that is what we are going to be
doing with these loans they are going to be giving us. They are
going to be getting money back, they are going to be getting
interest back with the Corporate Stabilization Plan, but they
have not told us that they are ready to give us money to invest
into credit unions.
Mr. Sherman. If they were, would you count it as capital?
If they put the money in the credit union, it is supposed to be
capital, would you count it as capital?
Mr. Fryzel. I do not believe the Credit Union Act allows us
to do that at this time, Congressman.
Mr. Sherman. I would hope that you would immediately submit
whatever statutory language you would think is necessary to
achieve that goal.
Now, you took into conservatorship the two corporate credit
unions, and I have a number of questions for the record that I
will be asking you about that, but one to ask orally is, given
that there were NCUA examiners stationed permanently at both
U.S. Central and WesCorp well before the credit unions were
taken into conservatorship, why did not the agency take the
action sooner to forestall the problems and possibly prevent
the conservatorship?
Mr. Fryzel. Congressman, the last thing any Federal agency
wants to do is place an institution into conservatorship, so
that is a decision that is not made very easily. We had been
monitoring U.S. Central and WesCorp for a long period of time
with always the consideration being that if at any point in
time we had to take that action, we would be prepared to do so.
Again, like I had mentioned, when these investments were
originally made--
Mr. Sherman. Excuse me, my time has expired. I hope you
would answer for the record, and I am sorry I did not leave you
enough time to answer the question.
Chairman Gutierrez. The chairman should know before I touch
this, it was 38 seconds over, I want to make sure that all the
members of the committee. And I would ask that the members also
look at the colors, so you ask your last question when we are
in yellow, that way the witnesses do not have to be called out
of order.
Mr. Neugebauer, for 5 minutes, sir, you are recognized.
Mr. Neugebauer. I thank the chairman. We have had a lot of
people come and testify about banks and now for credit unions
and many of those were people responsible for regulating and
overseeing those entities, and the overriding term that keeps
being used, ``Well, if we had known this, if we had known that,
we would have done things differently.'' I think the American
people are kind of to the point that, well, why did you not
know? Who was watching? Who was asleep at the switch? And I
think they are ready for Donald Trump to come over and say to
most of them, ``You are fired,'' because what has happened is
the American taxpayers are going to have to pick up the tab for
those people who did not know or did not do their jobs.
Many of my colleagues, we are going to start down a road of
looking at major regulatory reform. Well, I thought we had
regulators in place, and I thought those regulators were
supposed to be doing their job. And so before we add another
layer of regulators to this process, I think what we do owe the
American people is a pretty thorough vetting of exactly what
happened and whose responsibility it was to be watching this.
That is the editorial part.
But the question I have, I guess for both of our witnesses,
is do we need to look at the way we restructure the capital
requirements of these corporate credit unions? We use risk-
based capital structure for other financial institutions, and
that has not always worked, obviously, but is it time to
possibly, as part of this process, think about how we ask these
entities to be capitalized? Chairman, I will start with you?
Mr. Fryzel. Congressman, I think you are 100 percent right,
now is the time to ask those questions, now is the time to look
at how they are capitalized and what they should look like
moving forward, and that is what our intention is going to be
with the corporate stabilization plan in place and moving ahead
with the new rules pertaining to corporates. We are going to
look at everything. And you are 100 percent right; now is the
time for that to be asked.
Mr. Neugebauer. Commissioner?
Mr. Reynolds. Congressman, I would echo those comments.
NASCUS has testified previously that we are in support of
comprehensive capital reform for natural-person credit unions,
including risk-based capital, and including supplemental
capital. I think we also need capital reform for the corporate
system. We need to look not only at risk-based capital but also
ask if we need to increase core capital in corporates, and
increase the basic leverage capital for corporates. But we are
very much in support of that.
Mr. Neugebauer. I have actually had that same conversation
basically for the entire industry because I have a lot of
credit unions that come in and say, ``We have a much more
conservative portfolio, but we are being treated the same as
other credit unions that maybe have taken a more aggressive
approach.'' So if that is good for the corporates, is that
something--I know that is not the focus of this hearing today,
but I think the focus of this hearing, and hopefully in every
hearing we have in here, is how do we make this better? Is that
something that needs to be a part of the total industry?
Mr. Reynolds. Absolutely. I think it works both ways. For
institutions that have riskier loan portfolios, you have higher
capital requirements. For institutions that are plain vanilla
type institutions that do not take as many risks with their
lending and their investments, it is appropriate to recognize
that in terms of the capital requirements.
Mr. Neugebauer. Chairman?
Mr. Fryzel. I agree.
Mr. Neugebauer. What about the role of these corporates
with what I call the ``bread and butter credit unions,'' the
ones that are actually dealing with customers, the exposure
that some of those credit unions had with some of those
corporate entities, can you kind of walk me through what was--
have you observed something there that we need to think about,
making sure that we need to protect the assets or the
investments or the relationships that some of these smaller
credit unions have with the corporate ones?
Mr. Fryzel. Congressman, I think what we have seen at work
here is the Share Insurance Fund which Congress had put in
place to prevent a failure of the credit union system, and it
has worked. The smaller credit unions, the natural-person
credit unions were at risk certainly of the loss of their
capital that they had invested in the corporate credit unions
but that is the purpose of the fund, to protect that. And that
is the purpose of credit unions building up capital. And what
the credit unions have now said of course is that we are going
to solve this problem within the system.
We are going to borrow from the Treasury, we are going to
pay it back, and we are going to pay it back with interest, and
we do not need the capital infusion, we do not need a bailout
of any type. We are going to solve it within the system, and we
are going to go forward from there.
Chairman Gutierrez. Thank you. The time of the gentleman
has expired. The gentlelady from New York, Congresswoman
McCarthy, is recognized for 5 minutes.
Ms. McCarthy. Thank you, Mr. Chairman. I appreciate it, and
I thank the witnesses for testifying. A couple of things, under
the bill, the provision of S. 896 that are headed to the
President for his signature, many credit unions have spread out
insurance costs over several years, but some credit unions may
want to write down all of the expenses now, while others may
have already written down the expenses. When these provisions
become law, will credit unions that want to write down all of
the expenses right away, will they be permitted to do that? And
will credit unions that have recorded the expenses be able to
avail themselves of the new legislation? And I guess one of the
other questions too from what I had heard from my credit union
guys is, are you able to give the bridge loans to small
businesses, have your credit unions been doing that?
Mr. Fryzel. Congresswoman, to answer the first part of your
question, under GAAP accounting rules, once you write it off,
it is written off, so you can never get it back. And that is
why we have instructed credit unions to speak to their CPAs and
discuss with them how it is best to be handled for that
particular credit union.
In regards to member business loans, credit unions are
involved in member business loans, and some of them very
successfully, some of them not successfully. It is a very tight
field where you need expertise to know what type of businesses
to lend to and, unfortunately, some of our credit unions do not
have that expertise in-house and run into problems. But for
some of them, it has been very, very good.
Ms. McCarthy. And the second part as far as small business
loans?
Mr. Fryzel. Right.
Ms. McCarthy. Thank you.
Mr. Fryzel. Correct.
Chairman Gutierrez. Mr. Marchant is recognized for 5
minutes. Congressman?
Mr. Marchant. Thank you, Mr. Chairman. Commissioner, what
has been the reaction of the credit unions to the NCUA's
handling of the corporate credit union crisis?
Mr. Fryzel. In all frankness, I have to admit the reaction
has been mixed in terms of my credit unions. I think most of
them recognize that NCUA had some extremely serious issues to
deal with in the corporate system. They had some difficult
choices to make, but some of them are a little unhappy that the
natural-person credit unions are having to pay higher premiums
as a result of actions that did not occur in natural-person
credit unions. That being said, I think they are very much in
support of S. 896 and the relief that is provided there to give
them additional flexibility to write that expense off over an
extended period.
Mr. Marchant. Chairman, what motivates or drives a
corporate credit union, would you expand on an earlier comment
that you made that the corporate credit unions compete for
customers, so is this what drives or motivates them to chase a
rate or try to buy an investment that will bring a higher
yield? What is the incentive of an ostensibly nonprofit,
people-helping-people kind of industry that in my State are the
most conservative of all of the financial institutions, what
motivates this group of credit unions to have these kinds of
assets on their books?
Mr. Fryzel. Congressman, I think every financial
institution, a bank or a credit union, attempts to earn income
and for different reasons, certainly bank for their
stockholders. Credit unions earn the income so that they are
able to provide better services for their members, offer
services at cheaper rates than they could get elsewhere. In
order to do that, you have to have money and you have to earn
money to do that.
Mr. Marchant. Let's talk about the corporates now.
Mr. Fryzel. Well, the corporates do the investments for the
natural-person credit unions. So many of the natural credit
unions invest into corporates who then invest in the high-yield
returns so that they can get better returns for the natural-
person credit unions. And here again the natural credit unions
would be looking for the corporate that provides them the
greatest return so that they could do more things for their
members.
Mr. Marchant. So the corporates are competing with each
other constantly for customers among these 7,000 credit unions?
Mr. Fryzel. That is right, sir.
Mr. Marchant. Is it your view that there are an adequate
number of corporates or too many corporates?
Mr. Fryzel. Well, there are 28 corporates now, and that is
one of the things we have asked the credit union industry, is
that too many, is that too little, how many do you think there
should be? And, of course, we have gotten a variety of
different answers as to the answer there should be, and I think
over time that is going to all shake out with the new rules and
determination as to the economics of whether or not a
particular corporate can live within those rules and whether or
not they want to continue to provide some of the products that
they are providing. So I think that is all going to over the
next year shake out as to just what the corporate structure
will look like.
Mr. Marchant. Is there any incentive for NCUA to liquidate
the assets of these corporate credit unions at any price above
the insurance fund exposure and allow the recovery of the
assets to the credit unions themselves?
Mr. Fryzel. Congressman, it is our plan to hold these
securities until such time as the disposition of them becomes a
viable alternative, for however how long that may take. We want
to make sure that we get the best dollar for these assets, so
we are not going to be in any hurry to sell these securities.
Mr. Marchant. Okay, thank you.
Mr. Reynolds. Congressman, can I make one comment too?
Mr. Marchant. Sure.
Mr. Reynolds. I want to make sure that people understand
that not all corporates are identical in terms of the function
and composition. We have a small corporate in the State of
Georgia. It has between $2- and $3 billion in total assets. It
has no asset-backed securities on its portfolio, and is very
conservatively run. I think it is important that the credit
unions in our State that capitalize that institution, that
utilize that institution, have the right to determine what
happens to that institution in terms of a future. And I just
want to make sure that everyone understands that there is that
variation among corporates.
Chairman Gutierrez. And another turn on this side.
Congressman Royce, you are recognized for 5 minutes.
Mr. Royce. Thank you, Mr. Chairman. The first question I
would ask of Mr. Fryzel, should the provisions within this bill
not become law, can you explain what steps the NCUA would be
forced to take?
Mr. Fryzel. Congressman, if this bill did not become law,
the natural-person credit unions would have to absorb this loss
this year all at once. There would be no provision to spread it
out over time. In turn, as it was previously stated, a number
of credit unions would fall below the required capital limit
and would be put on a prompt corrective action, and we would
have to monitor them very carefully. It is our intention, even
with the spreading out over this cost, to work with the credit
unions to make sure that they all can continue to survive and
provide the services that they do to their members, but it
would be very, very difficult for NCUA to work with the credit
unions if we did not have the stabilization in place.
Mr. Royce. Now, are you confident that the authority
contained in this bill is going to be sufficient to stabilize
the credit union system and that of course assumes that the
necessary changes are enacted on your end in terms of oversight
and regulation but give me your suggestions?
Mr. Fryzel. Yes, Congressman, I do. I believe the way the
bill is set up, it will enable us to provide the necessary
oversight to stabilize the corporate credit union system and
enable us to move forward to make the required changes in the
rules to make sure that this does not happen again.
Mr. Royce. You note in your testimony that over a 4-year
period, the percentage of corporate credit unions investments
in mortgage-backed securities grew from 24 percent to 37
percent. Looking forward, what is going to be done to ensure
that investments taken by the corporate credit unions are
better aligned with the cooperative, conservative nature that
we see in the credit union by the individual credit union
members?
Mr. Fryzel. Congressman, I think we have to look at
limitations on the investments as to where they can be placed.
We have to look at diversification of investments, and we have
to make sure, again, that the corporates do not place all their
eggs in one basket, as they did, so we do not have this
situation in the future.
Mr. Royce. Yesterday, the committee held a hearing on the
rating agencies. I think the main take-away from that was the
over-reliance on NRSROs, especially by the regulators. Do you
believe the NCUA relied too heavily on credit rating agencies?
Mr. Fryzel. I think, as you pointed out, Congressman,
everybody relied heavily on the rating industries, probably to
a greater degree than everyone should have. And I think going
forward in the future, I had mentioned earlier that in addition
to looking at whatever rates have been placed on investments,
the corporates need to do greater due diligence in regards to
whether or not these investments are everything they are
supposed to be.
Mr. Royce. Let me ask a question of you in terms of, again,
how you are going to rectify that problem, and maybe ask
Commissioner Reynolds as well?
Mr. Reynolds. Well, I think, as I mentioned earlier, one of
the things that can be done is to make a greater reliance on
risk management and risk mitigation procedures in the
institution. We need higher expectations for management in
terms of what they do, and greater reliance on stress testing
of individual securities. And I think, like one of my
colleagues said recently, regulators sort of planned on the 50-
to 100-year flood, and what we had was the 500-year flood. So
we need to do stress testing, but at higher levels of stress,
to make sure that we predict when those types of things happen.
Mr. Royce. Let me quickly ask you a transparency question,
Commissioner. How aware are the natural-person credit unions,
do you think, how cognizant were they of the risks taken by the
corporate credit unions?
Mr. Reynolds. Well, speaking from personal experience as
far as the credit unions in my State, I think they were very
aware of what was going on in their corporate. They were less
aware perhaps of what was going on at U.S. Central. And
obviously, since not many of them are members of WesCorp, they
would have had limited knowledge of that corporate credit
union. I think that is one of the issues that I hear a lot from
my credit unions is they want to see greater transparency in
the process. This is a cooperative system, they are members of
the corporate, and their corporate are members of U.S. Central,
and they think there needs to be more transparency for all
stakeholders in the system.
Mr. Royce. Thank you. Commissioner, thank you. My time has
expired, Mr. Chairman. Thank you very much.
Chairman Gutierrez. Thank you. I would like to thank you
both for coming before the committee. We will be inviting Mr.
Hensarling and other members of the Minority in the fall to try
to get together with Chairman Fryzel to see how things are
going. And I just wanted to add that most of the members, as I
talk to them, they come here knowing and recognizing natural-
person institutions and there is a growing concern about the
corporate institutions, so bear that in mind in terms of the
level of support that exists here and the traditions that exist
here and kind of who we meet with when the Chamber of Commerce
gets together.
We kind of meet with the Ukranian and the Polish, the local
credit unions that people are members of and those are the kind
of people we know. So that into consideration. And thank you
both so much, chairman, for your work. And, commissioner, for
coming down--or coming up from Georgia to see us. Thank you so
much.
Mr. Fryzel. Thank you, Mr. Chairman.
Chairman Gutierrez. Now, we have our two remaining
witnesses for panel number two. Mr. Jim Bedinger is the chief
operations officer of the Chicago Patrolmen's Federal Credit
Union from my City of Chicago, and he is testifying on behalf
of the National Association of Federal Credit Unions. Jim has
been working in the credit union industry for the past 15
years. He has been with Chicago Patrolmen's for over 12 years,
with over 9 of them being in senior management. He is currently
the chief operations officer, a position that he has held for
the last 4 years. We welcome you.
And Mr. William Lavage, is that correct? Mr. William Lavage
is the president and chief executive officer of Service 1st
Federal Credit Union, and he is testifying on behalf of the
Credit Union National Association. He has been with Service 1st
since 1981. In 2001, he received the William S. Pratt Lifetime
Achievement Award for being the outstanding credit union
professional of 2000.
I want to share with everybody that I have not smoked a
cigarette for like 11 days, and I thought that was supposed to
clear my mind.
[laughter]
Chairman Gutierrez. I think it takes a while, so excuse me
if there is any lack--some fogginess there. Thank you so much.
Please begin. You each have 5 minutes.
Mr. Bedinger?
STATEMENT OF JIM BEDINGER, CHIEF OPERATIONS OFFICER, CHICAGO
PATROLMEN'S FEDERAL CREDIT UNION, ON BEHALF OF THE NATIONAL
ASSOCIATION OF FEDERAL CREDIT UNIONS (NAFCU)
Mr. Bedinger. Thank you. Good afternoon, Chairman
Gutierrez, Ranking Member Hensarling, and members of the
subcommittee. My name is Jim Bedinger, and I am testifying
today on behalf of the National Association of Federal Credit
Unions or NAFCU. I serve as chief operations officer of Chicago
Patrolmen's Federal Credit Union, which is headquartered in
Chicago, Illinois. I have been COO of the Chicago Patrolmen's
Federal Credit Union for the last 4 years, have worked at the
credit union for the last 12 years, and have been in the credit
union community for the last 15 years.
Chicago Patrolmen's Federal Credit Union field of
membership includes all Chicago police officers, regardless of
their rank, all full-time civilian employees of the Chicago
Police Department and the Office of Emergency Management or the
911 center, and all employees of the credit union.
NAFCU and the entire credit union community appreciate the
opportunity to participate in this discussion regarding share
insurance and corporate credit union issues for America's
credit unions.
While the credit union industry has fared much better than
most financial institutions in these turbulent times, many
individual credit unions have been impacted, through no fault
of their own, by the current economic environment. In
particular, the corporate credit union system has felt the
biggest impact, leading NCUA, starting in January, to take a
series of steps using the National Credit Union Share Insurance
Fund to help stabilize the system.
In March, the NCUA placed two corporate credit unions, U.S.
Central Federal Credit Union and Western Corporate Federal
Credit Union, into conservatorship. An independent third party
analysis of the portfolios of these two credit unions led the
NCUA to estimate that the resulting impact of the Insurance
Fund will be approximately $5.9 billion, dropping the Fund's
equity ratio to an estimated 0.31 percent.
Because credit unions follow GAAP accounting, there is an
immediate impairment to the one percent deposit credit unions
must hold for the insurance fund. Federally-insured credit
unions have to recognize this impairment by setting aside
enough money in a contingency liability account to bring the
deposit fund back to the one percent level.
The Federal Credit Union Act also requires the NCUA to
assess a premium when the fund's equity ratio drops below 1.2
percent. The impairment and the premium combined would have an
approximately 99 basis point impact on all natural-person
credit unions in 2009, absent the creation of a stabilization
fund.
We are pleased that the House yesterday acted to support
the provisions of H.R. 2351 by passing S. 896, the Helping
Families Save Their Homes Act of 2009. We applaud
Representatives Kanjorski, Scott, Royce, LaTourette, and you,
Mr. Chairman, for your leadership in getting this done.
Enactment of this legislation and creation of the
stabilization fund will allow credit unions to have billions
more to lend to consumers and small businesses in the current
economy. At Chicago Patrolmen's, we estimate that the expense
that we were facing was approximately $2.24 million, meaning
that we would have the potential for nearly $14 million in
decreased lending capacity to our members in the Chicago area
this year.
Looking ahead, NAFCU believes that it is imperative that
the NCUA provide full and open transparency about its actions
leading up to, and throughout, the resolution of the current
situation. We also believe that it is important that the NCUA
provide clarification on how credit unions would treat or
reverse the present write-down resulting from the impairment of
the one percent deposit if, and when, the fund is no longer
impaired.
The corporate credit union system is an important resource
for natural-person credit unions. At Chicago Patrolmen's, we
are members of two corporate credit unions. We use over two
dozen corporate services that are key to providing many of the
services that we offer to our membership.
NAFCU believes that the NCUA and Congress should work to
find additional ways to help stabilize and strengthen the
corporate credit union system as well. Going forward, other
changes, such as modernizing the Central Liquidity Facility, or
CLF, should be examined. The CLF provides loans to natural-
person credit unions to meet their liquidity needs in turbulent
times, but cannot loan directly to corporate credit unions. We
believe some changes to the Federal Credit Union Act to
modernize the CLF and allow it to directly help the corporate
credit union system could help address future challenges when
they occur.
As the NCUA looks to reform the corporate credit union
system, the NAFCU board has outlined a series of three
principles that we believe should be adhered to:
Number one, corporate credit unions should continue to
serve the liquidity and operational payment system needs of
natural-person credit unions. Number two, corporate credit
unions should operate under a risk-based capital system. And,
number three, corporate credit unions should operate under
corporate governance standards created and policed within the
industry.
In conclusion, NAFCU thanks you for your leadership with
H.R. 2351 and your support for its important provisions
contained in S. 896. The NCUA should provide clarification
again on how credit unions would treat or reverse the present
write-down resulting from the impairment of the one percent
deposit if and when the fund is no longer impaired.
Maintaining a healthy and well-regulated corporate credit
union system, as many natural-person credit unions rely on
corporates for essential services. Additional legislative
changes to the CLF and action by NCUA to reform the corporate
credit union system are important steps to make sure that
future crises can be avoided.
Thank you for the opportunity to appear before the
subcommittee today, and I welcome any questions.
[The prepared statement of Mr. Bedinger can be found on
page 31 of the appendix.]
Chairman Gutierrez. Thank you for being here.
Mr. Lavage?
STATEMENT OF WILLIAM LAVAGE, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, SERVICE 1ST FEDERAL CREDIT UNION, ON BEHALF OF THE
CREDIT UNION NATIONAL ASSOCIATION (CUNA)
Mr. Lavage. Chairman Gutierrez and Ranking Member
Hensarling, thank you for inviting me to appear before the
subcommittee today on behalf of the Credit Union National
Association to discuss H.R. 2351. I am Bill Lavage, president
and CEO of Service 1st Federal Credit Union in Danville,
Pennsylvania. My credit union has $140 million in assets, and
we serve 18,000 members.
CUNA is the Nation's largest credit union advocacy
organization, representing about 90 percent of our Nation's
approximately 8,000 State- and federally-charted credit unions
and their 92 million members. We want to thank Representatives
Kanjorski, Royce, Scott, LaTourette, and you, Mr. Chairman, for
introducing H.R. 2351. CUNA, its member credit unions, State
leagues, and the Association of Corporate Credit Unions
strongly support this critical and timely legislation. We also
appreciate that the House and Senate both passed S. 896
yesterday, which includes the provisions of H.R. 2351.
I want to emphasize that CUNA supports rigorous supervision
and balanced regulation for all credit unions to promote safety
and soundness and the interests of credit unions members. We
also continue to urge Congress as it reviews regulatory reform
to maintain NCUA as an independent regulatory agency for credit
unions, for which Chairman Frank has indicated his support.
Even while we support NCUA's independence as the only
regulatory framework to ensure that the unique cooperative
nature of credit unions will be preserved, we also feel it is
fair and appropriate to bring to this subcommittee the serious
concerns federally-insured credit unions have about the
handling of the assistance for the corporate credit unions.
I also want it to be very clear that credit unions
understand there are critical problems within the corporate
credit union system that must be addressed expeditiously. We
want to work with NCUA in that endeavor.
Mr. Chairman, I would like to ask permission to submit our
comment letter to NCUA for the record.
Chairman Gutierrez. Without objection, it is so ordered.
Mr. Lavage. Two major concerns of credit unions and NCUA's
handling of the corporate stabilization are the lack of
transparency of its process and an apparent unwillingness to
make the most of regulatory authority to manage and minimize
what has become the largest single shock ever to the Share
Insurance Fund.
Credit unions face substantial future losses on securities
held by corporate credit unions and these losses may have been
absorbed by the Share Insurance Fund. That much is certain.
What is not certain is the amount of those losses and how they
will be managed, minimized, and borne. In this world of
uncertainty, the more transparent NCUA's processes and actions,
the better for all involved. So far, that transparency has been
lacking.
NCUA initially engaged a bond firm, PIMCO, to analyze
potential credit losses in the securities held by corporate
credit unions. PIMCO's loss estimates range from a low of $6
billion to a high of $16 billion, with the most likely estimate
of $10.6 billion. This served as the basis for NCUA's judgment
that total cost to the Share Insurance Fund would be $5.9
billion. Since then, most recent loss estimates from Clayton
Fixed Income Services suggest that the losses may be much less.
Clearly, the estimates are highly sensitive to a number of
varying assumptions and NCUA has not shared them with credit
unions. Fully recognizing the current expensed amount is just
an estimate requires the actions that follow to take into
account the uncertain future.
In the case of credit unions' impaired capital in corporate
credit unions, the agency has not been willing to exercise
sufficient flexibility in dealing with these very complicated
issues. Facing similarly trying circumstances, the FDIC has
shown greater creativity in responding to and managing the
crisis in a responsible manner, presumably consistent with
GAAP.
Going forward, CUNA encourages the agency to provide more
information to credit unions on the condition of the corporate
credit unions and their conservatorship, on the condition of
the securities held by these credit unions, on how the agency
is dealing with these issues, and on how these actions will
affect credit unions.
We further request the subcommittee and encourage the
agency to develop a mechanism whereby a credit union whose
capital deposits in WesCorp and U.S. Central, which may soon be
impaired, have the possibility of recovering their capital if
the ultimate losses on the securities turn out to be
significantly less than expected. Let me emphasize this point:
The capital of some credit unions is being wiped out on the
basis of estimates. We need a mechanism that if the estimates
are wrong, the capital can be returned.
Another concern is the agency set in place mechanisms to
ensure the management of the portfolio of mortgage- and asset-
backed securities is handled in such a manner so as to minimize
losses on the portfolio. The expected losses are driven by two
factors, the estimated credit losses on the underlying
securities and market losses that would result from selling
them before they mature or are amortized.
Currently, NCUA has insufficient reserves to sell the
portfolio at current market values. The agency has assured
credit unions it has no intention of selling the securities in
the near future. However, in a few years, the market values of
the securities are likely to move closer to the underlying
credit losses. There is concern among credit unions, NCUA will
sell the securities once the remaining market losses fall below
the funds the agency is accumulating from credit unions to
cover those losses.
CUNA encourages NCUA to establish portfolio management
guidelines for the portfolios to be managed for a long enough
period that essentially only credit losses are incurred and
further to engage a portfolio manager to follow these
guidelines.
Mr. Chairman, in closing, we appreciate your working with
Representatives Kanjorski, Royce, Scott, and LaTourette on
these issues and for the opportunity to express our concerns
regarding the corporate credit union situation. I look forward
to your questions.
[The prepared statement of Mr. Lavage can be found on page
68 of the appendix.]
Chairman Gutierrez. Number one, you are both welcome. I am
happy to work with you and with credit unions. I just have one
question for both of you, and it is from Mr. Bedinger's
testimony. And you correct me if I am wrong, okay, just say,
``Luis, you got it wrong.'' You distinguish, you say that
natural-person credit unions are different than corporate to
the extent of the risk that they take, that maybe they should
pay different amounts of money into the pool, the insurance
pool. Fix it if I did not put it right?
Mr. Bedinger. Well, I think if I understand what you are
saying, on natural-person credit unions, it is different in the
regulation thereof.
Chairman Gutierrez. And in the insurance that they should
pay into the fund, the amount of insurance they should pay into
their fund, is that right?
Mr. Bedinger. Well, yes, the way that the natural-person
credit unions are doing it right now obviously is what the one
percent.
Chairman Gutierrez. Yes, do you think it should be
different?
Mr. Bedinger. Well, the corporate credit unions right now
do operate a little differently. They have a different capital
requirement than we have at natural-person credit unions and
maybe that would have mitigated some of this had their capital
requirement been a little higher or if there was at least some
flexibility in it. I think that is where some of us as natural
credit unions have a little frustration. We are footing the
bill and yet they were making different types of investments
maybe than we would have made and those types of things. So
there are some differences there. I think being a cooperative
movement, certainly we are trying to figure this out ourselves
and do it altogether. It does not mean we are happy about it,
it is our members' money, it is the police officers' money that
we have to send the check for to shore them up, but they should
be playing by the same rules I think that natural-person credit
unions should.
Chairman Gutierrez. They should be playing by the same
rules, but is it your testimony here today that they are
different to the extent that they should have different rules?
Mr. Bedinger. Well, no, they are different in the sense
that they service natural-person credit unions, we service
actual people out on the streets. So by what they do, obviously
if they are more complex, and in the way that they are set up
now, they are more complex than we are at natural-person credit
unions.
Chairman Gutierrez. So you do not feel, representing your
association, that there should be any difference in terms of
future liabilities or insurance risks. We have heard from
community bankers, for example, why should we pay into the FDIC
fund when indeed we are solvent, make good loans, we are good
members of our community. It is the big shots that had all the
losses.
Mr. Bedinger. Right.
Chairman Gutierrez. So do you think there should be a
difference in terms--so if you even look at our regular banking
institutions, they are all FDIC insured but they are kind of
saying we are different. You do not see a difference?
Mr. Bedinger. Well, NAFCU, I think, feels that the NCUA
should look into them, on how they invest in their corporate--I
mean into the Insurance Fund, at least in how they are paying
into it as opposed to the natural-person credit unions. So if
the risk is there, maybe it should be risk-based, in the sense
that if they are riskier, pay more into it. That is one of the
things I think, as the NCUA goes through it and looks at all
different possibilities, is their restructuring.
Chairman Gutierrez. Let me ask you something, so how is the
policemen's credit union doing?
Mr. Bedinger. We are doing very well, actually, I am very
happy to say. Obviously, by passing this yesterday, that was a
big, big help to us.
Chairman Gutierrez. Did you have any losses last year like
the corporate ones?
Mr. Bedinger. No, no, we are actually very well
capitalized. We have over 9 percent capital in our credit union
right now. We make very, very good loans. Just to give you an
example, we have over 600 mortgages that we have put on the
books since we started our mortgage program, since mortgages
kind of caused this problem, and we have currently one that is
going into default over the history of that loan period.
Mr. Lavage. Mr. Chairman?
Chairman Gutierrez. Mr. Lavage?
Mr. Lavage. Yes, I would like to answer that too. Service
1st is very strong and well-capitalized. Obviously, if we did
not have this problem, we would be happier and ready to move on
even more expeditiously. As far as the corporate credit unions,
they differ in that they serve credit unions where as we serve
natural persons. CUNA and other credit unions are willing to
work with NCUA to look at ways to restructure the corporate
system, possibly including the insurance involved.
Chairman Gutierrez. Okay, I think that is a logical step
that maybe we should look at. If you are different, you are
different. Again, thank you both for being here.
Mr. Bedinger. Thank you.
Mr. Lavage. Thank you.
Chairman Gutierrez. My time has expired. My friend, Mr.
Hensarling, is recognized for 5 minutes.
Mr. Hensarling. Thank you, Mr. Chairman. Mr. Lavage, did I
understand in your testimony that you advocated that TARP funds
be made available for the NCUSIF, is that correct?
Mr. Lavage. On a borrowed basis, and they would be repaid.
Mr. Hensarling. Well, supposedly, most of the TARP funds
are to be repaid. We will see ultimately how the taxpayer comes
out on that deal.
Mr. Lavage. Right.
Mr. Hensarling. I have high hopes and low expectations
myself. Your organization's understanding of the TARP Act, its
purposes, its legislative language, how do you see that to be
consistent with the TARP statute, potential loans to the fund?
Mr. Lavage. We differ, as you are probably aware, from
other financial institutions in that we are member-owned and
therefore nonprofit, so I am not in-depth aware of all of the
guidelines of TARP as it stands. My understanding is that
credit unions are not eligible for those funds at this time.
Mr. Hensarling. But you are advocating that they be made
available to the fund?
Mr. Lavage. Yes, yes.
Mr. Hensarling. Okay. Mr. Chairman, I think I am going to
follow your lead and restrict myself to one question. With
that--
Chairman Gutierrez. Thank you very much, Mr. Hensarling.
Mr. Bedinger. Could I answer that as well?
Chairman Gutierrez. One additional minute to Mr. Bedinger.
Mr. Bedinger. Sorry, I just wanted to say, obviously,
speaking on behalf of the Chicago police officers, whom I
represent at the credit union, we are not really for that. We
actually have members who come in and say, ``Hey, did you take
TARP funds?'' And we are like, ``No, we did not. There is no
need to.'' And they actually bring money to our financial
institution. But if that were to ever be the case, where TARP
would be required or something that would be needed down the
road, at least have parity with it. Obviously, one of the
things that makes us unique is the fact that our capital comes
from our members, and you do not want undue influence coming
from the outside from somebody who is giving that in there, it
just kind of opens things up. Parity, if it is allowed to other
financial institutions, okay, fine, it may be good, but we view
it individually at our credit union as probably not a very good
thing.
Mr. Hensarling. Mr. Chairman, could I ask for unanimous
consent for 30 seconds?
Chairman Gutierrez. Absolutely.
Mr. Hensarling. I would point out to both our panelists
that of all the financial institutions, the banks who took the
TARP money, there is now a fairly long line of those wishing to
pay it back. You may learn something from that. Thank you, Mr.
Chairman.
Mr. Lavage. If I could add one more comment just to
clarify, CUNA is not suggesting all credit unions use TARP, a
few do, and should have access.
Chairman Gutierrez. Thank you very much. We are going to
spend an additional 5 minutes. We gave you the time and the
Congressman showed up, so you are recognized for 5 minutes,
sir.
Mr. Sherman. Yes, I would point out that the reason some
Wall Street banks want to give back the money is that they feel
that holding onto their fleet of private jets or paying bonuses
of over $2- or $3 million to any one person is a bit
inconsistent with continuing to hold TARP funds, or at least
they get criticized. Do your members have any of these fleets
of private planes or give out bonuses of over a couple million
dollars to any particular employee? I will ask each witness for
a yes or no?
Mr. Bedinger. No.
Mr. Lavage. No, sir.
Mr. Sherman. Okay. Mr. Lavage, have you heard personally,
or have you heard from other credit unions, that their
examiners are forcing them to develop net worth restoration
plans if their capital had been reduced because of share
insurance costs even if the institution is well capitalized and
why is this a concern?
Mr. Lavage. Coincidentally, our NCUA examiner has just
concluded his exam and the exit interview is Tuesday. I will be
anxious to hear after my testimony how that goes. But, yes, I
have heard of credit unions who are above the limit, still well
capitalized, even after the corporate stabilization program
costs, have been asked by their examiner to develop a capital
restoration plan and that is a concern.
Mr. Sherman. So they used to be very, very well
capitalized. They have suffered some declines. Now, they are
still well capitalized, and they are being told that being
well-capitalized is not good enough?
Mr. Lavage. That is correct. It is almost like they are
ignoring the costs of the corporate stabilization program
caused the drop in the capital/net worth and are asking them to
develop a plan to restore it.
Mr. Sherman. Okay. I agree that the corporate credit
unions' financial challenges should not be permitted to
interfere with the mission of member credit unions, to provide
low-cost lending and services to their members. In this
challenging economic climate, we cannot allow credit union
lending to decrease by over $46 billion in response to a $5.9
billion reduction in capital. How do you think NCUA should
permit credit unions to reverse the present write-down and is
there a way to get through this that is both financially stable
and allows you to continue your mission? When I say,
``financially stable,'' provides enough capital to protect the
fund and ultimately the taxpayers?
Mr. Lavage. I think that the bill that was passed provides
NCUA that flexibility when it allows us to write off this
expense over up to 7 to 8 years, so that is a flexibility
needed.
Mr. Sherman. I will ask the other witness as well. Mr.
Bedinger?
Mr. Bedinger. I agree exactly with what he was saying. I
think by allowing us to spread it over time, we can actually
manage that, rather than taking it all at once, and actually
try to budget for it because we do budgets every year obviously
looking forward to see what we have, and try to figure out
exactly how we are going to cover that expense. And with it
being a smaller expense, it will be a lot easier to do over
that time period.
Mr. Sherman. Mr. Chairman, let the record show that for the
first time, I can yield back before the light is red.
[laughter]
Chairman Gutierrez. So recognized, and it will be made a
part of our record.
I want to thank the witnesses and all of the members for
their participation in the hearing. The Chair notes that some
members may have additional questions for the witnesses, which
they may wish to submit in writing. Therefore, without
objection, the hearing record will remain open for 30 days for
members to submit written questions to the witnesses and to
place their responses in the record.
This subcommittee is now adjourned. Thank you.
[Whereupon, at 4:07 p.m., the hearing was adjourned.]
A P P E N D I X
May 20, 2009
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