Credit unions need reg relief, not new premiums
In the midst of a global pandemic, the credit union industry is doing all that it can to support members who are facing financial hardships. As our members have changed their spending and investments habits — whether because they have lost jobs or hours or are simply being cautious as so much uncertainty remains — so too have credit unions changed some of their own behaviors.
The NCUA board during its September meeting discussed the impact the coronavirus pandemic is having on the National Credit Union Share Insurance Fund. Through the first six months of the year, our industry has seen share growth of nearly 13% — three times higher than normal — which has caused the share insurance fund’s equity ratio to fall to 1.22%.
If the equity ratio drops below 1.2%, the NCUA is statutorily required to create a restoration plan. The NCUA held off on implementing a plan, but based on the discussion presented, it certainly seemed like the NCUA would like to assess a premium sooner rather than later.
These are unprecedented times, and while credit unions are seeing heightened levels of share growth, we cannot ignore the overall global conditions we find ourselves in. Any plan that requires credit unions to pay a premium in 2020 or even 2021 are extremely premature.
To break it down, if the NCUA were to assess a hypothetical premium of 5 basis points as it discussed: Credit unions with $250 million in insured shares would face a bill of $125,000; those with $500 million in insured shares would be on the hook for $250,000; and those with $1 billion, well, you're looking at half a million dollars.
As a $4.5 billion credit union, we’ve calculated our potential expense at Mission Fed at nearly $2 million.
NAFCU is strongly opposed to any share insurance fund restoration plan that takes money away from credit unions' ability to serve members during this tremendously difficult and uncertain time.
We are supportive of a healthy, stable share insurance fund to ensure the safety of our industry. To achieve this, there are several options the NCUA can implement without charging a premium in the middle of the pandemic. The best option: Giving credit unions additional temporary investment authorities.
There are inconsistencies in NCUA regulations today that limit credit unions' options to manage the large influx of deposits. For example, natural person credit unions aren't allowed to invest in asset-backed securities, but credit union service organizations are. Additionally, federal credit unions aren't explicitly permitted to invest in corporate bonds while some state-chartered credit unions are.
The NCUA can address these inconsistencies by acknowledging these investment opportunities are incidental to a federal credit union's exercise of its express authorities — which the Federal Credit Union Act allows.
NAFCU is committed to ensuring credit unions and the industry's 122 million members come out of the pandemic even stronger. Now is not the time to penalize institutions working around the clock to keep Americans' finances secure and the economy running.