WASHINGTON – Credit unions around the country are starting to set aside reserves for what they expect will be another large assessment from NCUA later this year – maybe as much as $4 billion to pay costs associated with the ongoing corporate bailout and for the failure of several large credit unions.
“We don’t know when NCUA is going to come down with it, but we put it in there, we thought it was appropriate,” Tom Dorety, president of Suncoast Schools FCU, on Tuesday said of the $2.4 million his credit union set aside in its first quarter financials.
NCUA has warned credit unions it expects to follow up last year’s $1.1 billion assessment, or 15 basis points, with an assessment of between 15 bps to 40 bps this year, which could amount to as much as $4 billion. Last year’s assessment forced many marginally profitable credit unions into the red for the year, with half of all credit unions reporting losses for 2009.
“Budgeting is all over the place,” said Tun Wai, chief economist for NAFCU. “Some are putting 10 [bps], some are putting 40, and everything in between.”
Most credit unions have yet to set aside a reserve but a growing number are including the projected assessment in their first quarter financials. Michigan Schools and Government FCU set aside $736,353; Wings Financial CU reserved $807,000; Randolph-Brooks FCU set aside $2.5 million; Arizona FCU $1 million.
NCUA is expected to set a definitive assessment later this summer after it has better information on the costs of natural person credit union failures, which it will combine with the growing costs of the corporate bailout.
NAFCU’s Wai recommended that credit unions having a difficult year begin to establish a reserve as early as possible. “If you are in a situation that your earnings are not so great you need to set aside some reserves so when the bill comes due you’re ready, kind of like a prepayment plan,” he told Credit Union Journal.
