Mica on bailout bill
Friday, October 3 — President Bush has this afternoon signed into law the financial rescue bill (the “Emergency Economic Stabilization Act,” HR 1424), following the House’s approval just after 1 p.m. today. With the President’s signature, the bill is now law of the land.
Some thoughts:
*Perhaps the most significant item for credit unions in the legislation is the increase in deposit insurance coverage to $250,000 (from the current $100,000). The increase, according to the legislation, will be temporary; in effect from today until Dec. 31, 2009.
By being included in this provision, credit unions remain on the same level as FDIC-insured banks in terms of deposit insurance coverage. This is vital to maintaining member and public confidence in credit unions as safe, sound and solid financial institutions.
Congress will next year address the question of making the insurance increase permanent. This, of course, would have implications for how credit unions would pay for this additional coverage.
For now, however, credit unions will pay nothing. The legislation states clearly that the temporary increase in the standard maximum share insurance amount shall not be taken into account by the NCUA Board for purposes of setting insurance premiums or share insurance deposit adjustments.
*Regarding credit union involvement in the $700 billion “Troubled Assets Relief Program” (TARP), meant to assist financial institutions (including credit unions) in selling off troubled loans and/or securities, let me suggest this (and be clear):
** BEFORE INVOKING “TARP,” PLEASE TRY TO WORK WITHIN THE CREDIT UNION SYSTEM TO RESOLVE YOUR ISSUES. TALK TO YOUR CORPORATE, YOUR LEAGUE OR US AT CUNA IF YOU NEED GUIDANCE IN WORKING WITHIN THE COOPERATIVE CREDIT UNION SYSTEM TO HELP.**
The fact is, credit unions were not at the root cause of the problems that ultimately led to this legislation; they have been – and continue to be – responsible lenders. With that in mind, the credit union movement can reinforce its image as continuing to be responsibly self-sustaining by solving our own issues.
*Along those lines, please be reminded that President Bush earlier this week signed legislation (a “continuing resolution” to keep the government funded and in business during the upcoming congressional recess). That legislation allows the NCUA’s Central Liquidity Facility to access up to $41 billion in borrowing authority from the Treasury (in other words, the bill lifted any caps on the borrowing authority).
Before going outside of the system, credit unions should consider that we do, indeed, have this additional source of funding waiting to be tapped should it be needed.
*Regarding the more practical aspects about the increase in deposit insurance coverage; Namely, what will credit unions have to do?
Chances are, credit unions will want to get the word out as quickly as possible about the increased coverage. Today, NCUA announced it is changing all of its information related to share insurance on its website, including an updated version of the official “insured status” sign. CUNA is coordinating with NCUA on this. We will be providing additional information about it and other aspects of the bill to our members this afternoon.
Three related points from our compliance staff:
--The increase to $250k is temporary (as noted, running until Dec. 31, 2009). But we are sure the regulator will not expect you to advertise this temporary status (understandably causing confusion among members). Further, as indicated, Congress will likely be revisiting the “temporary” issue.
--Insurance coverage can actually be much more than $250k. The rules on how account ownership can increase coverage – such as by use of joint accounts and trust accounts – are not being changed.
--Finally, be reminded that the $250,000 separate insurance limit on IRAs is unchanged.
Let me close with this information I came across today:
Apparently, the auto dealers have been fanning out over Capitol Hill complaining that no money is being made available for car loans (it is one of the points they made in urging “yes” votes on the bill). There may be an opportunity for credit unions to focus some of the lending/marketing dollars toward auto lending, to fill the breach described by the dealers.
I hope this information is helpful to you. Later today we will post a summary of the bill’s contents and key information on the CUNA website. Further, in the coming days, and weeks (no doubt), we will have more to share with you.
In the meantime, enjoy your weekend!
Dan