I’m not sure what it adds up to, but it is curious. For example, Congress
passed a law on the subject:
111TH CONGRESS 2D SESSIONS. 4036AN ACT To clarify the National Credit Union Administration authority to make stabilization fund expenditures without borrowing from the Treasury.
Just the heading of this scares guys like me. The purpose of the law is
to avoid Treasury from forking out money to the NCUA? That would be a
bailout. Everyone hates bailouts. But there is a large hole in the NCUA
system that should be filled. If that bucket is not filled by Treasury
then who will fill it?
I believe the plan for the empty bucket is to assess the individual
credit unions for several years worth of insurance premiums. This is
exactly what NCUA’s big sister, the FDIC, did last summer. The FDIC
collected four years of premiums upfront to bolster their underwater
insurance fund. In the case of banks, the prepayment shows up as an
asset on the books, the expense is recognized over the four years, so
there is no economic penalty for the banks to front the losses. The
question then becomes, can the individual credit unions pay the
premiums? That was addressed in the new law:
Any
insured credit union that fails to make timely payment of the assessment
or special premium is subject to the procedures and penalties described
under 21 subsections (d), (e), and (f) of section 202.’’
Basically this means if they don’t/can’t pay, they are toast. How big is this issue? Consider the following:
As of November month end, 372 federally insured credit unions, with assets of $43.4 billion were designated as CAMEL code 4 or 5. In addition, there were 1,792 CAMEL 3 credit unions with assets of $158.2. Overall, 22.3 percent of all credit union assets are in CAMEL code 3, 4 or 5 credit unions.
What does CAMEL 4-5 mean? Answer: Dreck.
What does CAMEL 3 mean?
There are of course losses embedded in this $200b of assets. How much? I
would estimate $20-40b. That may sound like a big number, but it is
not. There are about $900b of total assets in CUs so the problems are in
the 5% range. They are also concentrated in a few large corporate CUs.
Four-years of prepaid insurance covers the nut. The question becomes; “Who is going to step in to fill the roll of those that are in the process of failure?”
The answer to that (I think) lies in the minutes of a board meeting by
the National Credit Union Administration. The meeting took place on
December 16th. The exact same day that Congress was voting to approve
S.4036. (If you believe in coincidences, stop reading) The language:
New subpart C of Part 708a establishes procedural and substantive requirements for converting a credit union to a bank through merger.
They change the rules so that the commercial banks can play in this space? This change to the charter is also interesting:
The new
requirements apply to direct mergers as well as transactions where the
credit union first converts to a mutual savings bank (MSB) and then merges with another bank without operating as a stand-alone MSB.
This suggests that a CU can become a MSB in the morning, and in the
afternoon it can merge or sell itself to a commercial bank. What do
they need to get all of this done? SECRECY, of course. From the NCUA
12/16 minutes:
Finally, the proposed amendments to Parts 708a and 708b revise existing rules to enhance the secrecy and integrity of the voting process in MSB and insurance conversions.
Given that this can now be accomplished with the desired level of
secrecy I would anticipate that the process will commence sometime in
2011. I anticipate that some of the big banks will step in and buy up
the shells of a number of the corporate CUs.
Should this happen many will call it a success. The alternative was a
federal bailout that would have cost taxpayer dollars. This outcome is
the objective of S.4036. But here is my rub; the CUs provide
important banking services to millions of people. Were it not for the
legacy assets of 2006-08 the CU’s would be muddling along just fine
today. They provide an important alternative to the big commercial
banks. But now some key players who provide important services to the
smaller CUs are going to get gobbled up by fat cat bankers from Wall
Street.
There is big money to be made in this consolidation. Big players
will no doubt be involved. At the end of the day the big banks will make
another bundle. The cost, over time, from less competition and higher
fees to consumers will be more than the $30b that is being avoided.
This is another of those examples where if you are big and have muscle
you can bend the outcome and come out ahead. Guess who brought you
S.4036? Dodd/Frank of course (surprised? I hope not). These two guys have been the best friends the big banks ever had.
white collar criminals are in fact the worst of all. They get to rob you, and use the law while keeping a big stupid happy grin on their face. No wonder people are starting to pile into gold and silver, tired of the games.
@jeffgroove
If silver and gold starts to compete with their stash, do you honestly think the "white collar criminals" will let you keep your gains? I'm not talking some Mad Max bullshit here, just a situation down the road where PMs are way up and/or the USD is way down. The lights still come on when you flip the switch, water runs, stores are open, but Uncle Sugar and his bank buddies are hurting.
Will they sit by while you gloat with a big grin? No way, they will tax the hell out of PMs and label anyone trying to sell large quantities as criminals, domestic terrorists, etc.
Could be a motive for the new $600 / yr 1099 thing, find all the Au / Ag purchases they can.
Uncle Sugar is actually far more dependent on oil than money - all modern complexity is. Since the production of oil has flatlined since 2005, for the first time in Uncle Sugar's life, he'll soon have a lot more to worry about than gold owners.
You may be right this is a stealth plan to squeeze credit unions that are basically solvent, but not in great shape. This would allow for a bank to take over a credit union that is solvent, but cannot afford the insurance premiums. The credit unions can use the deposits as the basis for fractional lending at 25%. The banks would be able to convert that to 10%, essentially multiplying by 2.5 the value of the deposits.
The risk that banks would face is that many credit union customers would not remain with the bank. If that were to occur the bank would be left holding the bag of bad loans (although I am sure they would have some kind of guarantee against losses from the NCUA). I for example would move immediately.
Agreed. Banks seem to count on the fact that most people stick with them, rather than go through the pain of moving. Credit Unions lately have gotten a lot of customers who aren't "sticky" and are quite willing to move because they are more knowledgeable than the average person.
This isn't a winning strategy for the Banks, IMO. In fact, it seems like a suckers play for them.
I too would be out of there in a flash, if a Bank took over my Credit Union.
It's a good thing I got all my Fiat out of the TBTF banks and into that local ba...nevermind
So government is nothing more than a special interest broker with the biggest gun?! (Wow, just when I was getting used to yesterday, along comes today.)
Not to worry, all is well
http://www.ncua.gov/NCUAsafe.aspx
I suppose many CU's, especially those in the biggest bubble states, are in the same dire straits as regular banks. Is there a published list of what CU's fall under which categories?
Edit: Even though, it is outright extortion, such information would be nice too know.
Bauer Bank (and other financial institution) ratings is a good place to check the ratings of banks. It's pretty disheartening though, not many 5-star banks and so many that are in the red zone. http://www.bauerfinancial.com/btc_ratings.asp
" Is there a published list of what CU's fall under which categories?"
I'm not aware of such a list, but there have been a number of CU's who played the same speculative games as the big banks. This caused an upset in the CU industry, with similar issues about the insurance and failures as was reported with the FDIC; but on a much smaller scale.
In general, CU's are in much, much better shape than the Banks. If you want to see where your CU stands, the best rating around is here:
http://banktracker.investigativereportingworkshop.org/credit-unions/
The national median is about 6% for the Troubled Asset Ratio. For Banks, it's about 15%. Both of these have been increasing over the years, but CU's are still in much, much better shape than Banks.
Overall, this law strikes me as another way for Banks to go after what money is remaining.
Bruce: This is an absolutely superb find. I haven't seen this reported anywhere else. Very well done, sir.
Next Stop:
"You can't handle the truth".
Someone has to say it.
CAMEL... toe... bitches!!!
this could bring about the revolution no one wants to really see.
if i have this right squeezing credit unions out of business with
insurance demands that benifits the too failed to function will
cause a level of rage at the local level that will be satisfied
in only one way. only one way.
buy silver.
end the fed and everything that hangs off of it!
Pirates at work ,now we return to sheduled programming
Credit Unions for the most part are financial innocents with boards of directors made up of well-meaning but financially unsophisticated community members. The threat outlined above seems quite credible to me, and the risk is that CUs will become the next Savings & Loans.
Become the next S&L's?
Harks back to the old adage that a problem is not a problem until it becomes a problem.
knukles
I thought a major part of the S&L crisis was they were used by the CIA for Black Ops slush funds. That Iran Contra started a whole bunch of running and hiding to keep funds in the dark.
true, but when interest rates went double digit the S&L's couldn't loan out any money at a premium to UST rates, and they went under. Whats interesting from a stagflationary point of view, is that as interest rates go up, and inflation does not, (just as it seems to be doing right now) then the banking business gets a lot more difficult.
+1
(Sorry to quote your whole post, but it's important in its entirety.)
Remember, the CUs were "forced out" of all residential lending -- they just couldn't compete with the below-market money from Fannie & Freddie, subsidized by the taxpayer, and with liabilities hidden through accounting fraud. So, the Credit Unions moved into Commercial Real Estate, and in many cases backed the Developers. No, that shoe has *not* dropped there yet, but it will. In 2011. And massively in 2012 (I don't think we'll make it that far).
I agree with Bruce that the 5% currently reported "badness" isn't too big (yet), but it will get A LOT bigger. When Commercial Real Estate collapses (and it will), it will hurt a lot of banks, but it will ANNIHILATE the Credit Unions.
They didn't know what they were doing in the CRE space; they were forced into non-viable CRE lending because of F&F stealing all their residential lending; and they DO NOT have capital access to ride out what will be an impossible cash-flow and liability problem.
The Credit Unions are already dead.
CRE and if anyone wants a great example look no further than M&I.
via WSJ
"M&I's retail, or consumer, loans represent about 30%, or US$11 billion, of M&I's US$40 billion loan portfolio, while commercial loans account for 41%, or US$16 billion. The remaining 30%, or US$12 billion is commercial real estate loans, of which the developer portfolio is about 9%, or US$3.5 billion, BMO said. The developer portfolio, which was more than US$9 billion three years ago, has declined steadily. BMO has estimated future losses at US$4.7 billion, or just under 12% of the portfolio."
http://online.wsj.com/article/BT-CO-20101217-707031.html
i feel compelled to respond to you even tho i have nothing to say relative to this issue.
Dude!
me too
http://www.youtube.com/user/BrotherJohnF
.
http://www.youtube.com/watch?v=7TheJPboU4c