The NCUA Board on Thursday unanimously approved measures intended to provide regulatory relief for credit unions, expand member business lending in Texas and provide increased transparency at the agency, but the bulk of the meeting could best be summed up as "If you're waiting for rebates on assessments, don't hold your breath."
Numerous times and in a multitude of ways, NCUA officials reiterated during the regulator's December board meeting that due to accounting and legal reasons, credit unions are unlikely to see assessments refunded until the Corporate System Resolution Program ends in 2021. (The same applies for institutions that held depleted capital in one or more of the failed corporates).
The bottom line: The current estimated range of available funds is between $3.4 billion and $4.9 billion. Federally insured credit unions could see assessment rebates in the range of $2.5 billion to $3.2 billion when the Stabilization Fund closes, currently scheduled for 2021. Potential estimated recoveries to holders of depleted capital in the failed corporate credit unions range from $900 million to $1.7 billion.
Credit unions paid five assessments to the Temporary Corporate Credit Union Stabilization Fund, totaling $4.8 billion. No further assessments are projected at this time, NCUA said.
Larry Fazio, director of NCUA's Office of Examination and Insurance, led the presentation, along with Brian Heitman, NCUA Guaranteed Note (NGN) financial analyst, Division of NGN Support, Office of Examination and Insurance, and Anthony Cappetta, supervisor, Division of NGN Support, for the OEI. Their presentation was accompanied by a
If the regulator attempted to close the CSRP early, that would simply transfer liability to the National Credit Union Share Insurance Fund. Such an action could create "significant volatility" for the NCUSIF equity ratio, NCUA said.
Certainly the legal recoveries have helped, Fazio explained. NCUA
"Our success on the legal front has allowed us to avoid additional assessments," Fazio said during Thursday's meeting. "We were pursuing legal recoveries in 2009, even before the NGNs [NCUA Guaranteed Notes] started in 2010. We did not expect the success we have had. We thought we would get some legal recoveries, but did not project what we received."
Fazio said no projections of future legal recoveries are included in the accounting for the CSRP, although there are more pending lawsuits.
According to figures presented Thursday, NCUA is projected to make $3.25 billion in final maturity guarantor payments relating to outstanding NGNs. After the Temporary Corporate Credit Union Stabilization Fund is closed, residual assets would go to the NCUSIF. An NCUSIF dividend would be prorated based on insured shares at the time of dividend.
As for depleted capital, NCUA said the estates of all five failed corporate CUs are projected to have senior creditor obligations — including the guaranty on the NGNs — through June 2021. Refunds would be based on membership capital first prorated by claim amount, then paid-in capital prorated by claim amount.
Such priorities are applied per estate, not in aggregate, as there is no cross-collateralization, the regulator warned. This is a significant note to those CUs that had capital in WesCorp, as the former corporate is projected to have zero capital recoveries.
Fazio concluded by saying, "This was a tortuous process," as it has been "hard to connect all the dots." Both Chairman Metsger and Board Member Mark McWatters thanked the presenters for the update and promised stakeholders there will be more frequent updates in the future.
Other News and Reaction
While the corporate resolution content was the most high-profile element of the December board meeting, it overshadowed other board actions, all of which were unanimously approved. They include:
A final rule providing regulatory relief to federal credit unions by eliminating the full occupancy requirement in the current occupancy rule.
An interim final rule amending the agency's Freedom of Information Act regulation to provide even greater agency transparency and to comply with changes in federal law.
A request from the Texas Credit Union Department to revise its member business lending rule to provide parity with NCUA's rule.
The credit union trade associations welcomed NCUA's move to detail the CSRP and its attempts to issue rebates, but Bill Hampel, chief policy officer at the Credit Union National Association, said CUNA is "concerned that [issuing rebates sooner rather than later] might cause NCUA to raise the normal operating level of the share insurance fund above 1.3%. We don't believe that would be necessary."
Prior to the board meeting, CUNA released a
For its part, the National Association of Federal Credit Unions praised NCUA for lifting what it called "needlessly restrictive occupancy requirements" at the meeting. But NAFCU President and CEO Dan Berger continued to press NCUA to increase transparency surrounding the Temporary Corporate Stabilization Fund in order to "adopt greater transparency of information and dialogue of ideas on this ever-evolving issue of substantial interest to credit unions. NAFCU recommends the agency continue to investigate and evaluate their options in future board briefings" in order to "[make]credit unions whole as soon as practical."
