ALEXANDRIA, Va. – Growing credit union losses are putting increasing stress on the National CU Insurance Fund, eliminating any chance of a dividend and raising questions whether credit unions will be asked to replenish the fund by paying a premium after year-end.
Losses from several large credit union failures pushed the insurance fund’s reserve ratio down at mid-year to 1.24% (dollars per insured deposits), putting it into the “anti-cyclical zone” where NCUA officials start exploring the possibility of a premium, according to David Marquis, chief examiner at NCUA. NCUA projects that the reserve ratio will grow to 1.28% by year-end, but that calculation could be thrown off by any additional large failures, Marquis said yesterday during a briefing for the NCUA Board.
NCUA has budgeted $450 million in losses for the fund, as much as $400 million of it from four large failures over the past year: Norlarco CU, Huron River Area FCU, and California’s Cal State 9 CU and Sterlent CU. Those figures include $5 million NCUA paid Patelco CU to absorb the two California failures as part of purchase and assumption agreements.
More losses appear to lie ahead, as the number of troubled credit unions, those rated either CAMEL 4 or CAMEL 5, grew by 35 over the past month to 245, and 15 of those are large credit unions, according to Marquis. “We pay close attention to those,” he said.
The news of growing bank and credit union losses, and last week’s failure of IndyMac Bank, has unleashed a deluge of calls to NCUA on the status of insured deposits, according to agency officials.
The NCUSIF provides the same federal insurance coverage as the FDIC bank fund. Both insure up to $100,000 per account, up to $125,000 for retirement accounts. But as incomes grew over the past decade, both banks and credit unions hold uninsured deposits above those amounts. Marquis said about 89% of all credit union deposits are insured.
The NCUA examiner said the federal agency will do everything it can to avoid charging a premium, which would be the first since 1991-92, at the height of the last credit union crisis. “One of our goals is to make every effort not to charge a premium in a down cycle,” said Marquis.
There is a good chance NCUA will reach its goal of higher reserves, simply because of earnings on its $7.4 billion portfolio of Treasury securities, which is the value of credit unions’ collective 1% NCUSIF deposits. Those funds earned almost $150 million in interest in the first six months of the year, which will help defray costs to resolve additional credit union failures.
