As Prepared for Delivery on March 17, 2022
There is finally light at the end of the tunnel with the Corporate System Resolution. I would like to thank the NGN Oversight Committee and its staff; and, staff from the Asset Management and Assistance Center, and the Office of Chief Financial Officer for their work in administering the affairs and finances of the asset management estates.
The good news is that the agency has provided a distribution to the capital account holders and the possibility of future dividends. There is no question the industry has benefited from this effort.
Keith, as you know better than anyone, this has been going on for 12 years. When can we expect this to be fully resolved?
Thank you. While I support a Corporate System Resolution as soon as possible, we also must stay the course with any of the pending lawsuits before we can bring this matter to a close based on our legal contract, which is also in our fiduciary interest.
On slide 13, we see the payouts to the industry. In that regard, I do have some questions: In specific, how much have we spent on contingent legal fees to date in this case? Do we have any restrictions in place that caps our spending on contingency legal fees in instances going forward?
I support updating our policies to have caps on contingent legal fees in the future. So, I urge the NCUA Board to act in this regard to change this policy. How much of the recoveries are a result of legacy assets relative to legal recoveries?
When the NCUA established the Corporate System Resolution Program in 2010, managing to the least long-term costs, consistent with sound public policy, was one of the core principles established by the NCUA Board under the leadership of then Chairmen Matz and Fryzel. They should be proud of today’s outcome, as they should be.
But with any significant challenge, there are opportunities to learn lessons. One lesson I would take away from the failed corporates is patience in the resolution process. So, I am glad that we are going to look back at the failed corporates, not to second guess or question decisions, but to learn from this experience as history can repeat itself. I think a critical lesson, again, is patience during times of crises. For example, I am glad this Board showed great patience, at my urging, with a premium assessment based on the equity ratio last year. Since that time, we haven’t been required to assess a premium under the law as the equity ratio has improved.
As we think about the corporate resolution, there were costs to this liquidation even if the liquidation was ultimately unavoidable, but I will say the corporate system no longer works the same way. After the crisis, the NCUA Board revised Part 704, which placed greater limitations on the corporates. While the NCUA Board had to do something, we should also acknowledge publicly that this really hurt the smallest of credit unions. Prior to the corporate failures, smaller credit unions could put all of their investments in one corporate. They cannot do that today as the corporate system has entirely evolved as today it primarily handles cash management and short-term investment and liquidity services, with longer-term investments being directed off-balance sheets. It has become more difficult for smaller credit unions to compete based on this outcome.
Shifting gears, can you discuss why no other corporate has been able to fill the void left by U.S. Central and access to the Central Liquidity Facility since its involuntary liquidation in 2010?
In closing, I want to thank Keith Morton and his team. Keith is the utmost professional who has my full trust and confidence. Keith, you have done yeoman’s work managing these corporate estates. There is no way anyone could manage estates of this magnitude and satisfy everyone at the same time. But to quote Aristotle, “There is only one way to avoid criticism: do nothing, say nothing, and be nothing.”
Thank you, Keith, for your leadership and willingness to make the hard decisions.