ALEXANDRIA, Va. – NCUA officials said yesterday the agency is hoping that economy will improve in the coming months and improve the condition for corporate credit unions by the end of the year so the cost of the agency’s proposed bailout of the corporates could be less than the projected $4.7 billion.
"That’s one of the reasons we didn’t assess it yet," Larry Fazio, deputy executive director of NCUA, said yesterday, of the premium the agency will charge to finance the corporate rescue.
In addition, NCUA asked Congress yesterday to amend the Federal CU Act to allow the agency to stretch out the premium over the next five years.
There are two main components of the corporate plan, explained Fazio: the $1 billion emergency cash infusion into U.S. Central FCU; and the guarantee of all uninsured corporate deposits through the end of 2010, estimated to cost $3.7 billion. The expense of raising the reserve level of the National CU Share Insurance Fund to 1.30 form the current 1.27% will bring the total cost to about $5 billion.
If the guarantee program expires without the need to pay out claims, all or some of those funds could be returned to credit unions. "We structured this to have the maximum potential to be able to return funds to credit unions. If we don’t have to exercise the guarantee we can pay it back as a dividend," Fazio told The Credit Union Journal yesterday.
The final cost of the corporate rescue won’t be known until PIMCO, the bond fund hired by NCUA to review all corporate-held bonds, completes its estimates for losses; and until the condition of the economy and the corporates comes into closer focus, he said. That means NCUA may not know the amount of the premium and credit unions will not be charged until late in the year.
When that happens NCUA expects credit unions to account for the premium as they are required to under generally accepted accounting principles, or GAAP, said Fazio.
That means the write-down of the 1% NCUSIF deposit by 50 basis points should be taken through the income statement.
And the premium payment, projected now at 20 basis points, will also flow through the income statement.
Credit unions over $10 million in assets are required to follow GAAP, so should follow this method, explained Fazio. Though he stressed each credit union should discuss it with its outside auditor.
Credit unions under $10 million are not required to follow GAAP, but will be urged to follow the same accounting treatment, he said.
