Trades Call For Changes To Corporate Prepayment Plan

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WASHINGTON-CUNA, NAFCU and NASCUS have all filed comment letters with NCUA on its proposed voluntary corporate stabilization prepayment program, and all three groups have found different components of the proposal they would like to see changed.

Under the proposed program, credit unions must commit at least $10,000 but are capped to a maximum of 36 basis points of their total insured shares as of March 31, 2011. NCUA has said it will not proceed with the plan unless at least $300 million in aggregate funds are committed by credit unions.

Moreover, the agency has stated that if it receives $500 million in prepayments, the 2011 Stabilization Fund assessments could be 20 basis points, down from the projected 25 BPs, and the 2012 and 2013 assessments could be 13 BPs each year, declining to 10 BPs from 2014-18 and then to four BPs by 2021. All of those figures would be revised downward should it receive even more than $500 million pledged funds.

In its comment letter, CUNA suggested the amount that credit unions would be required to pay in corporate assessments could drop if a series of recommendations it is making are adopted by NCUA. In particular, said CUNA, its recommendations, if adopted, would allow credit unions to count on several of what it called "key features":

• Sufficient Participation ($1 billion). Actual funding of a prepayment commitment would not be required unless there was sufficient participation from other credit unions to lower 2011 and 2012 assessments from 25 BPs and 13 BPs, respectively to 12BPs or 13 BPs in each of the two years, CUNA said.

• Return of Funds. Participating credit unions could expect a small return on the prepaid funds, either in the form of interest or credits against future assessments.

• Cover 2011 Assessment. Given sufficient participation by credit unions (more than half), a portion of the prepayment might be used to cover 2011's assessment (capping prepayments at $1.5 billion), CUNA wrote.

• Wider participation. CUNA has proposed that all federally insured credit unions be eligible to participate, regardless of size.

• Better understanding. "All credit unions would have a better understanding of the agency's management of the legacy assets that were held by some of the corporate credit unions as well as the prepaid assessment program," CUNA stated.

In its comment letter, CUNA further stated that the components of its proposal would address three key concerns about the agency's proposed plan:

By lessening the negative effects of the "free rider" problem (although not eliminating it).

• By helping level the early-year assessments-but not building an additional liquidity buffer for the Stabilization Fund (which NCUA proposed, but CUNA opposes).

• By allowing small credit unions to take advantage of the savings.

CUNA called on NCUA to provide direct reports to credit unions and their trade groups on a monthly basis about all material aspects of the Temporary Corporate Credit Union Stabilization Fund (TCCUSF), including regular updates on the performance of the legacy assets.

'Critical Information Needed'

Meanwhile, in its comment letter, NAFCU said the question of whether to participate in the voluntary prepayment program should be left to individual credit unions, and like CUNA, said it believes it is "critical that credit unions are provided with every bit of information available on the proposed program so that they can make their own independent judgment on whether to participate in the program."

NAFCU further called on NCUA to provide analysis of possible accounting issues, the impact of participation on a credit union's regulatory capital requirements, as well as other issues that a credit union should consider both during and after it determines whether to make the prepayment.

NAFCU wrote in its letter that while it believes that while the proposed $10,000 minimum requirement is reasonable, the agency should not impose a maximum participation amount. "Unlike the minimum requirement, which we recognize as necessary to, at the very least, justify the transaction and other costs associated with the prepayment program as well as to make the program's potential benefits worthwhile for credit unions, the maximum threshold is not necessary and potentially undesirable in some cases," NAFCU said.

NAFCU noted that NCUA has stated it does not plan to publicize a list of participating credit unions, but would add a line item on credit unions' 5300 call reports to indicate an amount pre-paid pursuant to the proposed program.

"Presumably, a credit union that chooses to not participate would enter a "0" for that line item," wrote NAFCU. "The agency should not add a line item in the 5300 call report that indicates the amount in corporate stabilization assessments a credit union has prepaid. Whether a credit union chooses to participate in the program should be based on many considerations, not the least of which is its financial condition. It should not in any way, however, be influenced by the fact that its decision would be available for the public to see."

View From State Regulators

Meanwhile, the National Association of State Credit Union Supervisors (NASCUS) has stressed in its comment letter that a credit union's decision to participate must be thought through.

"If NCUA proceeds with a prepaid assessment program, state regulators will work to ensure participation of state-chartered credit unions is prudent in light of the credit unions' condition," NASCUS wrote. "The addition of safety and soundness thresholds would mitigate the risk of imprudent credit union participation."

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