ALEXANDRIA, Va. — The NCUA Board last week voted to assess credit unions a $1.06 billion premium to pay for growing losses in the corporate credit union network and among natural person credit unions.
The charge, the equivalent of 15 basis points, includes $727.5 million that will be used to replenish the diminished reserves of the National CU Share Insurance Fund and $337.5 million to pay the first of what is expected to be several installments on the newly created Corporate CU Stabilization Fund.
But the assessment, smaller than previously projected, will not be the last premium charged credit unions, which can expect to be hit again over each of the next few years. NCUA officials said they aimed to keep this year's assessment low because of the difficult times already being experienced by most CUs.
"We've had a rough year in the current year, but our anticipation is we're going to have even more losses going into next year," said new NCUA Chairman Deborah Matz. "But we're particularly concerned because we have a large number of large credit unions on the troubled list."
Melinda Love, NCUA's chief examiner, projected more assessments ahead next year. "It's likely 2010 and 2011 we may do one or more (corporate) assessments," said Love. "It's likely there will be an additional NCUSIF premium in 2010 and 2011."
But NCUA officials were reluctant to estimate future charges. "We cannot specify a premium (for next year) because there are too many variables," said NCUA Board member Gigi Hyland.
This year's charge has two components. The NCUSIF portion will bring the fund's equity, or reserve, ratio back up to 1.3% (dollars reserved per $100 of insured deposits). The ratio was projected to fall to around 1.2% by year-end because of growing losses on natural person credit unions and dillution caused by the increase in coverage on federally insured deposits from $100,000 per account to $250,000, as well as a projected 8% growth in shares at federally insured CUs.
The corporate portion will pay for interest accrued on a $1 billion note issued by NCUA to bail out U.S. Central FCU, one of two corporate giants (along with WesCorp FCU) taken under conservatorship by NCUA on March 20. More charges for the corporate bailout are expected going forward.
In addition, NCUA said the liability for the corporate bailout program continues to grow, from an earlier project of $5.9 billion to more thna $6.3 billion.
NCUA sounded an ominous warning in its report on the premium. "All indicators point to a rising number of credit union failures through 2010. Increased levels of failures at some point are expected to result in increased levels of NCUSIF losses due the reduction in the number of healthy combination partners able to absorb failed credit union assets and liabilities."
"Lower demand for mergers and acquisitions will likely lead to higher resolution costs and an increased number of liquidations, which require the NCUSIF to maintain higher levels of liquidity."
