A new white paper from the Credit Union National Association calls into question the potential for increased premiums to the National Credit Union Share Insurance Fund.
The CUNA report, titled “NCUA’s Corporate Stabilization Program, An Update,” emphasizes that the Temporary Corporate Credit Union Stabilization Fund, which was originally projected to cost credit unions approximately $15 billion, is now expected to cost credit unions only about $6 billion, meaning credit unions should eventually receive refunds ranging from $3.5 to $5 billion in total.
According to CUNA’s Chief Economist and Chief Policy Officer Bill Hampel, some refunds may begin this year, but full refunds of assessments paid likely won’t occur until 2020 or 2021. NCUA has repeatedly said it will not begin repayments until that time.
“In the short term, the most significant implication is all these refunds of assessments will flow through the National Credit Union Share Insurance Fund, boosting equity in the Share Insurance Fund,” said Hampel. “In that context, we see no reason to charge a share insurance premium.”
NCUA has publicly mentioned the possibility of closing the Stabilization Fund before 2021, but has qualified those statements by pointing to certain risks that would go along with that. For its part, CUNA's report notes that merging the Share Insurance Fund and Corporate Stabilization Fund – which it says will be necessary for distributing refunds – this year would eliminate the need for NCUSIF premiums.
During its November 2016 board meeting, the NCUA Board
By merging the two funds now, wrote CUNA, “the equity of the Share Insurance Fund would rise by the $1.5 billion accounting net position of the Stabilization Fund, raising the NCUSIF’s ratio of equity to insured shares at year-end from a projected 1.25% to upwards of 1.4%. That would trigger a share insurance dividend of 8 or 9 basis points, or almost $1 billion. In other words, of the $1.5 billion of the Stabilization Fund’s net position, about $500 million would be used to top off the Insurance Fund at 1.3% of insured shares (of course, also at the same time negating the need for any NCUSIF premium this year) and the remainder would be paid out as a dividend.”
CUNA’s report acknowledges that there are risks with moving forward in this manner now, but concludes that the risks are not insurmountable.
“Even if the funds are not merged this year, the prospect of a considerable capital infusion into the Share Insurance Fund in the next few years from the merger with the Stabilization Fund means that a share insurance premium this year is simply not necessary,” the report states. “The NCUSIF equity ratio is not projected to fall below 1.2% by 2021 under NCUA’s base case projection, and by then the equity boost from the Stabilization Fund will be far in excess of 10 [basis points] of insured shares.”
In an email to Credit Union Journal, NCUA Spokesman John Fairbanks said that the board is "carefully and methodically examining the possibility of closing the Stabilization Fund before 2021, including the advantages and disadvantages, and will ultimately make its decision based on the agency’s primary responsibility of protecting the Share Insurance Fund and, by extension, credit union members’ insured accounts."
