Keeping Your Credit Union Safe and Secure
Addressing Regulatory Risk in the Credit Union System

The recent upheaval in the banking industry has caused many Americans to worry about the safety of their money and the stability of their financial institution. Indeed, some members have asked about the safety of their money at Wings Financial. I'm pleased to report that despite the difficulties experienced by many other financial institutions, Wings Financial remains strong, stable and secure. We attribute our success to our conservative investment philosophy, our focus on cost control and our avoidance of things like sub-prime mortgages.

While we've been able to weather the recent gyrations of the market, we remain concerned about actions by our federal regulator to shore up the credit union system. In reviewing some of the government's proposals, it seems that responsible institutions like Wings Financial are being called upon to rescue parts of the credit union system that are in distress.

This involves a small group of wholesale credit unions, called corporate credit unions, that don't conduct business with the general public. These corporate credit unions offer many regular credit unions the type of investment and cash management services that correspondent banks provide to community banks. (Wings has very limited relationships with corporate credit unions.) Because corporate credit unions do not originate loans directly to consumers like regular credit unions, they invest in high-quality securities and other financial instruments to generate income. These corporate credit unions currently hold a significant amount of mortgage-backed securities which, when purchased, had strong credit ratings. The value of these securities, however, has declined significantly since there are few buyers for these types of securities now given the depressed state of the housing and real estate markets. Using accounting guidelines, the corporate credit unions must write down the value of these securities to a price equal to what they would likely receive if they were to sell them in the open market today, even though they plan to hold them until the securities mature. When considered "other than temporary" the corporate credit unions must recognize these market losses on their income statement. This has resulted in significant losses at some corporate credit unions which reduced their capital to very low levels. Thus their ability to weather any additional market shocks is limited.

Our regulator, the National Credit Union Administration (NCUA) responded by developing a plan to provide corporate credit unions with additional capital and deposit guarantees so they can continue to provide business services to other credit unions until market conditions improve or other actions can be taken to stabilize their investment portfolios. This additional capital is proposed to come from regular credit unions like Wings Financial. We intend to closely monitor the actions of the NCUA to ensure their actions are in your best interests.

We believe, as we always have, that our primary responsibility is to you, our member/owners, and not to the credit union "system" as our regulator suggests. The regulatory assessment and insurance premium to be charged in 2009 will consume all of Wings' budgeted net income. If that does in fact occur, please do not be alarmed by the changes you will see in 2009 income. As noted previously, Wings is buoyed by high capital levels, conservative operations, and our organization can certainly manage the charge. Nevertheless, your board of directors has asked me and the Wings executive team to examine options and alternatives that will protect Wings' capital from additional charges that may be levied by our regulator for "system" losses.

Your continued loyalty and trust has helped build Wings Financial into a $2 billion financial institution, and we'll do everything in our power to protect your interests.

We'll be keeping a close eye on activities in Washington, D.C., and will report to you developments as they occur through our Web site and future editions of Money Matters. Protecting organizational value to ensure our long-term ability to provide high quality service at very attractive rates is our top priority and a responsibility we take very seriously.

Sincerely,

Paul V. Parish
President/CEO

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material. Images may be from one or more of these sources: ©Jupiterimages, ©Getty Images, ©iStock, ©SnapVillage. ©2009 Wings Financial Federal Credit Union. All rights reserved.