Magazine article American Banker

CUs Scramble to Line Up Aid as Tarp Ends Bad-Asset Buys

Magazine article American Banker

CUs Scramble to Line Up Aid as Tarp Ends Bad-Asset Buys

Article excerpt

Byline: Ed Roberts, The Credit Union Journal

The Treasury Department's decision to abandon its initial plan to buy distressed mortgage assets effectively cuts credit unions out of the $700 billion bailout, but the industry hopes that the National Credit Union Administration will offer an aid program of its own.

Treasury Secretary Henry Paulson said Wednesday that the funds authorized under the Economic Emergency Stabilization Act would be better spent on direct investments in banks rather than on buying troubled assets, as was originally proposed. The government has agreed to invest in dozens of banks and thrifts through the purchase of preferred shares, but credit unions are ineligible to participate in the Treasury's Capital Purchase Program because they cannot issue preferred shares. In addition, growing amounts of the funding approved by Congress last month are expected to be used to assist nonbank financial companies like credit card, consumer, and auto lenders.

Buying toxic mortgage assets was the linchpin of the controversial plan, which was rejected by Congress before passing after billions of dollars in tax breaks were added.

Though few credit unions planned to participate, hope was widespread that the Treasury's intervention in the market would raise the value of troubled mortgage securities.

The National Association of Federal Credit Unions said it is hoping Mr. Paulson's announcement that the Treasury will no longer buy troubled assets is not the last word on the issue.

Brad Thaler, the senior lobbyist for NAFCU, noted that Congress has scheduled hearings this week on the program and that individual members are expected to express dissatisfaction with the change in course.

"Right now we're still urging Treasury to continue the congressional intent of the program," he said.

Meanwhile, the industry's other major trade group, Credit Union National Association, is expected to step up its pressure on the NCUA to come up with a program specifically to help credit unions. …

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