NCUA Eyes Congressional Intervention

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ALEXANDRIA, Va. – NCUA is widely expected to have to go back before Congress with a new plan to restore the National CU Share Insurance Fund reserves, just a year after Congress was forced to create an emergency fund to bail out the corporate credit unions.

NCUA officials discussing the declining financials at yesterday’s NCUA Board meeting said if the Fund’s reserve level continues to decline they will be forced under the law that created the Temporary Corporate CU Stabilization Fund a year ago to provide Congress with the equivalent of a net worth restoration plan, as troubled credit unions must do with NCUA under prompt corrective action. During yesterday’s meeting Melinda Love, chief examiner for NCUA, said if the Fund falls below 1.20% (dollar per $100 of insured deposits), NCUA is required to return to Congress with a restoration plan. The reserve level was 1.24% at the end of April and had fallen to 1.22% at May 31, meaning it could breach the 1.20% mark any day now.

Love, speaking just before the NCUA Board approved a $1 billion assessment for the corporate bailout, explained that the deteriorating reserves will require NCUA to charge another assessment in the fall to rebuild the reserve level for the NCUSIF.

Afterwards, NCUA downplayed the possibility of going back to Congress. “NCUA is not predicting next month’s Fund level,” said John Mckechnie, chief spokesman for the agency. “However, if the equity level were to fall below 1.2%, we would initiate required contact with Congress and would present a restoration plan.”

But key industry observers have little doubt. “It’s a virtual certainty,” said Fred Becker, president of NAFCU. “The Fund is going to fall below 1.2%, that’s going to trigger the requirement to report back to Congress.”

Becker has been pushing NCUA to operate at a reserve level under 1.2%, in order to stretch out the impact of the huge NCUA assessments, $1.1 billion last year, and $1 billion so far this year. NAFCU lobbied for last year’s law, which created the corporate stabilization fund. NCUA and the credit union lobby told Congress they needed to create a separate fund to effectuate the corporate bailout and move it off the books of the NCUSIF in order the return the NCUSIF to health. But now it looks as though the creation of the corporate fund just delayed the inevitable.

NCUA’s Love explained there are two main pressures that are weighing down the reserves in the NCUSIF. The first is the growing losses among natural person credit unions, which NCUA is estimating at an all-time high of $1.1 billion. The second pressure, ironically, is the growing popularity of credit unions, moving billions of dollars of new deposits into credit unions, but also diluting the reserve ratio of the NCUSIF.

NAFCU’s Becker noted that under the new law NCUA could choose to take the reserve level of the NCUSIF all the way down to 1%. He advocated some where above that, says 1.1%. Every 10 basis point equates to about $900 million, so that would provide some extra breathing room for credit unions, he points out.

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