NCUA surprises credit unions with potential rebate

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The National Credit Union Administration’s governing board approved a decrease to its normal operating level that makes a rebate to credit unions more likely. It also put its stamp of approval on a report that is likely to hasten renewed conflict with banks.

Meeting Thursday at the agency’s headquarters in Alexandria, Va., the board voted to reduce the normal operating level, which sets the equity level of NCUA’s share insurance fund, to 1.38 percent. That is down 1 basis point from the current level of 1.39 percent.

The operating level adjustment was a last minute change and was added after the agenda was published earlier this month. Since any potential rebate is based on the year-end equity ratio, officials hustled to get the issue in front of the two-person board after determining recently that the levels required for the share insurance fund had changed.

A rebate would occur if the equity in the fund is found to be above the freshly lowered 1.38 percent threshold. The agency will make that calculation sometime in February. If a rebate is warranted, the funds would be delivered to individual credit unions prior to the end of the second quarter, according to Larry Fazio, director of NCUA’s office of examination and insurance.

The NCUA doled out a different rebate earlier this year. The agency returned roughly $736 million to more than 5,700 federally insured credit unions as part of a special distribution from the share insurance fund. That payout was the result of the NCUA merging the Temporary Corporate Stabilization Fund into the National Credit Union Share Insurance Fund after raising the equity ratio to 1.39 percent in order to forestall a $1.3 billion premium charge.

Industry groups applauded the move on Thursday but made it clear they expect the board to eventually provide additional payouts.

Curt Long, chief economist and director of research at the National Association of Federally-Insured Credit Unions, called the 1 basis point reduction “a positive development,” but added his group would “continue to press the NCUA to reduce the [normal operating level] for further distributions.”

In other actions, the board approved a report by its regulatory reform task force that lays out an ambitious agenda. The document was first released in August 2017. Thursday’s revision was based in part on suggestions from four dozen comment letters.

One of those suggestions was to increase the level of urgency behind plans to make it easier for credit unions to issue subordinated debt or other forms of alternative capital.

Originally, plans to issue a capital rule were categorized as a second tier priority. Thursday’s report moved the issue to the first tier, meaning NCUA will work to commence some kind of action by May.

The idea of providing easier access to alternative forms of capital — strongly opposed by banks — has been discussed in credit union circles since the agency approved a risk-based capital plan in 2015. The agency issued an advance notice of proposed rulemaking in February 2017 but has yet to follow up with a proposed regulation.

Revising NCUA’s payday alternative loans program was also included as a top tier priority.

In accepting the report, Chairman Mark McWatters didn’t comment on any of the individual proposals, but he lauded the overall effort as “an example of regulatory transparency.”

“This is exactly what a federal bureaucracy should be doing,” McWatters said. “They should not be steeped in mysticism.”

The decision to move alternative capital to the front burner came as Sen. Mike Rounds, R-S.D., introduced a bill that would delay implementation of the risk-based capital rule until January 1, 2021. In October, NCUA pushed the start date, which was set initially at January 1, 2019, back a year.

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Deposit insurance Failures Capital requirements J. Mark McWatters NCUA