NCUA Maintains NCUSIF Operating Level at 1.3% for 2004; Decides Not to Assess Premium for 2003

ALEXANDRIA, Va.-Arguably the most important news to come out of NCUA’s December Board meeting was that the insurance fund’s operating level remains the same. The NCUA Board voted unanimously to maintain the National Credit Union Share Insurance Fund’s operating level at 1.3%. Because federally insured credit unions remain well capitalized and the number of problem credit unions-CAMEL code 4 or 5-is low, the board determined that 1.3% was a sufficient operating level. When the fund ends the year above this level, a dividend can be paid out to member credit unions. If the operating level falls below this number, NCUA may decide to charge a premium. The operating level is expected to hold at 1.25% by year-end and the agency has decided not to assess a premium. However, if the fund were to fall below 1.2%, NCUA would be statutorily obligated to charge a premium; the operating level, the ratio of fund equity less unreserved contingent liabilities divided by the aggregate amount of shares, must be between 1.2% and 1.5% by law. NCUA hasn’t assessed a premium since 1991. After delaying the release of an advance notice of proposed rulemaking aimed at simplifying privacy notices from November’s meeting, the agency unanimously approved its release for comment. The other federal financial services regulators had already issued the advance notice in the interagency effort. The ANPR encourages commenters to provide suggested language for privacy notices. NCUA Chairman Dennis Dollar noted that while each agency’s rule must be comparable, NCUA “reserves the right to utilize our own language and format in moving forward,” because of the credit union differences. The ANPR is expected to be published in the Federal Register in early January and comments will be due 90 days later. The NCUA Board also followed up on a previously proposed regulation regarding share insurance (Part 745) that is now final. The final rule amends the current Part 745 to allow a six-month grace period for insurance coverage in the event of a member’s death or credit union merger to allow time to restructure the accounts. For example, if one spouse dies and the survivor is already using the maximum coverage, then also receives the funds from the deceased, the member will have six months under the new rule to deposit the money elsewhere or in a different type of account. Additionally, if a member has deposits in excess of $100,000 in two credit unions that merge, the member would have six months to restructure those as well. The rule also clarifies that the interests of non-qualifying beneficiaries of a revocable trust account are treated as individually owned funds of the owner even when the owner has not opened an individual account; and that Coverdell Education Savings Accounts, formerly Education IRAs, are insured. NCUA Board Member Debbie Matz also advocated the inclusion in the preamble that credit unions should help members get the appropriate deposit insurance coverage. The preamble now highlights steps credit unions can take to help members maintain full coverage of their deposits: 1) Inform members of a pending merger as soon as possible; 2) Suggest that members plan to restructure their accounts as necessary to maintain full coverage; 3) Notify members who have funds over the limit after a merger that a six-month grace period has begun; and 4) Help members restructure their accounts before the grace period expires. She also announced that NCUA would be producing guidance shortly on how to help members prevent losing their share insurance coverage. “These steps are voluntary,” Matz said. “While we are not adding another regulatory burden, I encourage credit unions to adopt these procedures. I believe that credit unions, as pro-consumer institutions, will want to take these steps to help members protect all of their hard-earned savings.” During the board meeting, Dollar commented on how heartbreaking it could be to deny the appeal of an elderly credit union member who has lost their spouse, part of whose life-savings is at stake, because they were unaware of the insurance situation. The rule has a 30-day effective date. Another final rule unanimously approved at the December meeting made some clarifications to the loan participation rule to bring it in line with the credit union service organization rule. The rule expands the definition of a financial organization to include state and federal government agencies. Matz noted that the issue came up with agricultural loans in Minnesota and North Dakota. “Loan participations are an important tool to help credit unions manage liquidity and.risk,” NCUA Vice Chair JoAnn Johnson pointed out. Finally, NCUA approved the community charter conversions of three credit unions and the expansion of one community charter’s field of membership. W.C.T.A. Federal Credit Union (Sodus, N.Y.) was approved in a 3-0 vote to take on the community within Monroe, Ontario, and Wayne Counties in N.Y. The $228 million credit union already has a branch located in each of the counties, which have a combined population of 929,332. Dollar noted that the credit union had an excellent penetration rate in its current FOM with 36,000 members out of a potential 65,000. He added that shared branching, which W.C.T.A employed, was “the cooperative movement in one of its finest and most unique examples.” Additionally, $225 million Park Federal Credit Union, which had representatives in attendance of the meeting, was approved to convert from a multiple common bond to a community charter serving Jefferson, Bullitt, Spencer, Shelby, Oldham, Henry and Trimble Counties in Kentucky, and Clark and Floyd Counties in Indiana. According to 2001 Census Data, the entire area has a population of just over one million. Johnson noted the speed with which the agency handled the application, which was just filed in the beginning of October and approved by the December board meeting. “That’s the type of response I’ve been pleased to see the agency give,” she stated. Matz added that the credit union’s loans had increased 24% and savings were up 34% since Park adopted the underserved area of Madison County. It also began offering small loans for appliances and $100 CDs at 100 basis points over the going rate for children. University Federal Credit Union of Birmingham, Ala. was also approved for a community charter serving Bibb, Blount, Chilton, Jefferson, Shelby, St. Clair, or Walker Counties in the state. The $182 million credit union was approved to serve the 1,068,177 residents of the community. Finally, Paragon Federal Credit Union received the nod from the NCUA Board to expand its FOM into Passaic County, N.J. The $394 million Paragon already serves Bergen County. [email protected]