The stabilization fund has $6.4 billion set aside for current estimates of losses that would be incurred by the fund over the life of the securities and must repay the Treasury Department $690 million in outstanding borrowings. Congress gave the NCUA a $6 billion line of credit last year, but the agency has only used $1 billion to date.

In September, the NCUA is scheduled to announce the assessment credit unions will have to pay to shore up the NCUSIF. NCUA Board Member Michael Fryzel said that after the board approves the assessment for the insurance fund, the final additional total will be between 15 and 40 basis points, as the agency had originally estimated. He recommended that credit unions budget toward the higher end of that range.

NCUA Director of Examination and Insurance Melinda Love said as a result of the assessment, 552 of the approximately 5,000 federally insured credit unions with positive earnings might have negative ones during the next reporting period. During the first quarter, credit unions had an average return on average assets of 50 basis points, and this will probably drop by 11 basis points because of the assessment, she said. The agency is mandating that credit unions book the loss on the financial reports they file at the end of this quarter on June 30.

Love's office projected that as a result of the assessment, some credit unions would likely become unprofitable: 12.9% of those with assets of less than $10 million, 11.1% of those with assets of $10 million to $50 million and 7.8% of those with assets of $150 million or more.

NCUA Chairman Debbie Matz said the decision to levy the assessment "is not taken lightly," and promised that examiners will be flexible when reviewing credit unions' net worth restoration plans.

The September assessment to shore up the NCUSIF will be based in part on the financial health of the credit union movement as of June 30. NCUA Chief Financial Officer Mary Ann Woodson gave a bleak assessment of the state of the fund.

She told the NCUA Board that the fund lost $122 million in May, in part because of a higher than expected insurance loss expense of $132 million. The agency had budgeted for a $62.5 million loss. Its reserve balance at the end of May was $1 billion.

The fund's equity ratio was 1.22% at the end of May, down from 1.24% at the end of April. Love said there is an increased probability that the fund could drop below 1.2%, in which case it would have to develop a restoration plan. The agency is also reviewing whether to keep the target equity ratio at 1.2%.

Woodson said additional losses to the fund of ?$185 million could cause the equity ratio to drop ?below 1.2%.

The NCUA Board also approved a new rule spelling out requirements for approving community charters for federal credit unions. The rules designate a well-defined local community as one having 2.5 million or fewer people. However, the agency removed a proposed requirement that the community be required to have a core area containing 50% of the jobs and 33% of the population. The agency made the change after receiving comments that it was too burdensome a requirement.

The rule defines a rural district as a contiguous area in which more than 50% of the population lives in rural areas and the area's population doesn't exceed 200,000. The agency increased that number from the original proposal of 100,000 because of concerns raised in comment letters that the lower population number would prevent credit unions from entering rural markets.

"The 200,000 figure is a viability test," said NCUA Staff Attorney Frank Kressman. "If a credit union wants to serve a rural community there has to be a concentration of people to make the expenses it incurs worthwhile."

Matz said the new rules would make the process more objective and give federal credit unions a clearer idea of the chartering requirements.

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