NCUA Board May Consider Lower NCUSIF Reserve Ratio

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CHICAGO – The NCUA Board would consider allowing the reserve ratio for the National CU Share Insurance Fund to decline below its normal operating level of 1.2% to 1.3% (dollars reserved per $100 of insured deposits), or lower, to ease the strain on the thousands of natural person credit unions facing a fall charge to replenish the NCUSIF reserves, according to NCUA Chairman Debbie Matz.

Matz said NCUA would consider taking the ratio below 1.2%, but not as low as the 1.1% range or even lower, as some have proposed. Each 0.1% of reserves equals about $700 million. The lower the reserve ratio, the lower the assessments that will be charged to credit unions to replenish the fund.

NCUA had budgeted for the fund to operate closer to 1.3% in 2010, but anticipated losses – $1.1 billion to date in 2010 – have forced additional funds be placed into reserves. The fund currently has an equity ratio of approximately 1.22%.

The NCUSIF is required by law to operate with a 1% minimum equity ratio, but once it drops below 1.2% NCUA is required to provide Congress with a net worth restoration plan.

“NCUA is focused on careful management of the share insurance fund’s equity ratio,” Matz said yesterday while attending NAFCU’s 43rd Annual Conference. “While our equity ratio remains within its normal operating range between 1.2% and 1.3%, it has declined since beginning of the year….Some have called for it to operate a few basis points below the 1.2%, and this is one option for the NCUA board to consider to ease the assessments.”

But going any lower is not feasible, said Matz. “Given the magnitude of losses, I believe it is not practical to manage the ratio to just a few basis points above the 1.0%.” Matz noted there are currently 2,100 credit unions operating as either CAMEL 3, 4 or 5, representing 21% of all federally insured assets.

 

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