Work by Matthew Stone

Feb. 15, 2009

Sebasticook Valley Federal Credit Union hasn't lost millions of dollars from writing bad loans.

But the Pittsfield-based credit union has to pay its part this year to bail out a multibillion dollar Kansas firm that bet on risky, mortgage-related investments.

The National Credit Union Administration, the agency that regulates the nation's 8,400 credit unions, is relying on its member-owned cooperatives for $1 billion to fund a bailout of U.S. Central Federal Credit Union, of Lenexa, Kan.

U.S. Central is the largest in a network of corporate credit unions that provide check-clearing and other basic services to the institutions that directly serve consumers. In January, the firm announced it had lost $1.1 billion in 2008 from bad investments.

The National Credit Union Administration said in January it would assess higher deposit insurance fees on consumer credit unions to fund the agency's U.S. Central bailout.

For Sebasticook, that means an additional $305,000 in deposit insurance fees this year.

"It immediately depletes our capital," Sebasticook President Jim Lemieux said.

Paying its share of the U.S. Central bailout likely means the credit union will have to delay some capital improvements, he said.

But Lemieux and officials at other credit unions in central Maine say they have enough capital on hand to weather the bailout storm without putting consumer services at risk.

"We're well positioned to absorb it if it comes down to that," said Rick Lachance, president of the Augusta-based Maine Education Credit Union. "I think the industry as a whole is."

With $24 million in assets, Maine Education Credit Union would be responsible for $163,000 in additional insurance premiums. That money would flow into the National Credit Union Share Insurance Fund, the account the National Credit Union Administration is dipping into to keep U.S. Central afloat.

Credit unions nationwide have an average equity-capital ratio of 11.2 percent, meaning the institutions have 11.2 percent of their total assets on hand. Assuming additional insurance fees from the National Credit Union Administration would reduce the industry average to a 10.5 percent capital ratio, Maine Credit Union League President John Murphy said.

The federal agency considers a credit union with a 7 percent ratio well capitalized.

"I think it's an issue, more from a budgeting standpoint," Murphy said of the increased insurance fees. "It's an issue of: Do credit unions want to expense that additional premium in 2009?"

Credit union officials have suggested that the National Credit Union Administration allow them to pay the increased insurance premiums over a multiple-year period. The regulator's initial proposal would require all payments during 2009, according to its Office of Examination and Insurance.

Others have suggested setting up a mechanism that allows credit unions to recoup their losses once U.S. Central and other corporate credit unions return to solvency.

"Whatever happens happens," said Ryan Poulin, president of the Waterville-based New Dimensions Federal Credit Union. "We're prepared to deal with it."

New Dimensions, with $46 million in assets, would see its insurance assessment rise by $305,000 under the stabilization plan.

The credit union administration's corporate stabilization plan is part of a larger package that proposes a permanent restructuring of the corporate credit union network. While the corporate institutions are owned by the consumer credit unions they service, they are subject to a different set of regulations that allow them more investment freedoms.

The credit union regulator is soliciting ideas for reform from credit unions and others in the industry.

Norman Dubreiul, chief executive officer of Augusta-based Maine State Credit Union, suggested holding corporate credit unions to the same conservative standards that govern consumer credit unions. With $245 million in assets, Dubreiul said, Maine State Credit Union would likely assume $1.7 million more in insurance premiums under the bailout proposal.

"We're certainly limited in the amount of risk we can take," he said, "so I think it's time for the corporate system to be under the same limit we're under as well."

Matthew Stone — 623-3811, ext. 435
mstone@centralmaine.com