ALEXANDRIA, Va. – The average credit union will be hit by the huge bailout of the corporate system both coming and going--on its bottom line and on its net worth, according to projections by NCUA.
NCUA plans to fund the $1 billion bailout of U.S. Central FCU; the expansion of deposit insurance to all uninsured corporate deposits; and the replenishment of reserves in the National CU Share Insurance Fund, with a special premium this year that will amount to about $5 billion.
"The credit union industry will be using the funds they have put on deposit with the National Credit Union Share Insurance Fund to help shore up the credit union system, which they are a part of," NCUA Chairman Michael Fryzel said, in explaining the costs of the corporate bailout.
The extra assessment will result in all federally insured credit unions taking a hit to their return-on-average assets and to their net worth, as they are forced to write down the value of their 1% NCUSIF deposits, NCUA explained in a letter to credit unions sent Wednesday.
The guarantee of an additional $80 billion of uninsured deposits held by NCUA will cost credit unions more than $1 billion to fund, reducing their annual return-on-average assets by about 48 basis points, and net worth ratio by 43 bps, at a time when the bottom lines of most credit unions are already squeezed to their limits.
The infusion of $1 billion into U.S. Central will cause decline of about 14 bps on ROA and 13 bps of net worth, the agency projects.
The combination of the two actions will result in the average federally insured credit union absorbing a 62 basis point decline in ROA and a 56 bp reduction in net worth.
