ALEXANDRIA, Va. (Nov. 14, 2011) – The National Credit Union Administration (NCUA) and Citigroup reached a settlement regarding potential claims relating to the sale of residential mortgage-backed securities to five failed wholesale credit unions. NCUA is the first regulatory agency to recover losses on behalf of failed financial institutions that resulted from investments in these securities.
Citigroup has agreed to pay NCUA $20.5 million to reduce the losses associated with the five credit union failures. The settlement with Citigroup does not admit fault on their part.
NCUA will use the net proceeds from this settlement to reduce assessments being charged to credit unions to pay for the losses.
“Citigroup is among the first major underwriters to come forward with a settlement proposal, and we appreciate their efforts to resolve potential claims so that we can avoid the expense and delay of litigation,” said NCUA Board Chairman Debbie Matz. “NCUA to date has received a total of $165.5 million in settlement proceeds. These settlements further our goal to minimize losses and thereby reduce the assessments that all credit unions will have to pay. NCUA will continue to fulfill our statutory responsibility to secure maximum recoveries for credit unions and ensure that consumers remain protected.”
Losses from wholesale credit union failures are paid from the Temporary Corporate Credit Union Stabilization Fund. Expenditures from this fund must be repaid through assessments against all federally insured credit unions. Thus, recoveries such as this settlement reduce the amount of future assessments on credit unions.
Since 2009, NCUA has assessed credit unions $3.3 billion to pay for losses associated with the five corporate credit union failures. Given the current settlement proceeds, projections for remaining assessments range between $1.8 billion and $6.1 billion that must be paid by 2021.
Corporate credit unions are wholesale credit unions that provide services to retail credit unions, which in turn serve consumers. Consumer credit unions rely on corporate credit unions for services such as check clearing, electronic payments and investments.
In addition to this settlement, NCUA has taken many decisive actions to mitigate losses to credit unions from the five corporate failures. Among the actions taken:
- After placing those five corporate credit unions into liquidation, NCUA re-securitized the problematic mortgage-backed securities and sold them in the marketplace with a government-backed guarantee. This action garnered approximately $28.3 billion in proceeds.
- NCUA filed four lawsuits against other securities firms alleging violations of federal and state securities laws and misrepresentations in the sale of hundreds of securities.
- NCUA established a temporary share guarantee for deposits at corporate credit unions.
- NCUA established bridge corporate credit unions in conservatorship to ensure the services provided to consumer credit unions continued during the resolution and transition period.
- NCUA successfully worked with members of the bridges to transition critical corporate credit union services to new entities.
NCUA is the independent federal agency created by
the U.S. Congress to regulate, charter and supervise
federal credit unions. With the backing of the full
faith and credit of the United States, NCUA operates
and manages the National Credit Union Share
Insurance Fund, insuring the deposits of nearly 100
million account holders in all federal credit
unions and the overwhelming majority of
state-chartered credit unions. At
Pocket Cents, NCUA also educates the public on consumer protection and financial literacy issues.