NCUA Seeks Voluntary Advance Payments For Corporate Stabilization

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ALEXANDRIA, Va. – NCUA approved a program this morning allowing credit unions to voluntarily prepay hundreds of millions of dollars in interest-free corporate stabilization assessments in order to defray the long-term costs of the stabilization plan.

NCUA hopes the voluntary payments, which amount to an interest-free loan for the federal government, will help reduce the growing finance costs for the corporate stabilization, for which $8.44 billion comes due in a little more than a year, in October 2012. NCUA plans to fund $6 billion of the bill with subsidized borrowings through the U.S. Treasury, but needs to maintain a margin of at least $500 million for contingencies, leaving almost $3 billion in additional financing needs. As a result, NCUA said it will not implement the voluntary program unless it receives commitments for at least $500 million.

The NCUA program is modeled after an FDIC initiative mandating three years prepayments to finance the Deposit Insurance Fund's restructuring, but is unprecedented in that NCUA, which is barred by law from mandating prepayments for the corporate stabilization program, is asking credit unions to make voluntary prepayments. NCUA Chairman Debbie Matz said NCUA will not pay interest on the prepayments because it lacks the legal authority to do so.

Matz emphasized that NCUA is not telling credit unions whether to pay in to the program but leaving that up to individual credit unions.

NCUA will use commitments for prepayments to calculate this year’s corporate assessment, which is expected to be set next month. The voluntary prepayments would be used to offset individual credit union’s future mandatory corporate assessments set by the NCUA Board.

Credit unions have paid a total of $1.3 billion in corporate assessments the past two years and are projected to be making annual payments for as long as another ten years, until June 2021.

NCUA said the Federal CU Act bars the agency from requiring prepaid assessments like the FDIC, but allows it to accept “gifts of money made unconditionally by will or otherwise,” and because the voluntary prepayments are akin to interest-free loans they are a form of a “gift” to the federal government. “Accordingly, NCUA may accept such advances as conditional gifts under FCU Act.” 

Credit unions must commit to the prepayment by July 29. NCUA will notify credit unions by August 9 whether it will accept the commitment. Any pledge will be used to offset the credit union’s corporate bailout assessment for 2013 and beyond.

 

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