ALEXANDRIA, Va. — The NCUA Board last Thursday approved an assessment of 12.42 basis points that federally insured credit unions must pay to shore up the NCUSIF, which has seen its assets drained because of losses in the credit union system.
As of Aug. 31, the equity ratio for the NCUSIF dropped to 1.176%. When the fund falls below 1.2%, the agency must publish a restoration plan in the Federal Register. The premium will bring the equity ratio back up to 1.3%, but that's expected to decline again because of continued strains on the fund.
The assessment is on top of a 13.4 basis point assessment levied earlier this year to help the Corporate Stabilization Fund repay the Treasury Department.
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This is the second consecutive year that the NCUA has had to levy assessments. In 2009, the combined Stabilization Fund and NCUSIF assessment was 15 basis points.
The newest assessment will be billed in October and due in November.
Given the sluggishness of the economy, the NCUSIF could still face significant challenges through next year, NCUA Director of Examination and Insurance Melinda Love told the board, and she said the agency will provide a range for next year's assessments in October.
Love said under the most optimistic scenario the fund's equity ratio will be 1.28% as of Dec. 31, 1.25% next June 30 and 1.22% as of Dec. 31, 2011.
She said the agency's base scenario is for a 1.25% ratio on Dec. 31, 1.20% next June 30 and 1.17% on Dec. 31, 2011.
The agency's pessimistic assumption is 1.22% as of Dec. 31, 1.17% as of next June 30 and 1.12% as of Dec. 31, 2011.
NCUA Chairman Debbie Matz said the decision to charge the premium wasn't "taken lightly, but it was needed to protect the interest of more than 90 million credit union members and to prevent the reputation risk to credit unions."
She said the board considered, and rejected, suggestions by the trade associations to keep the ratio below 1.2%. The board concluded that setting the lower level would risk it falling below 1%, which would require immediate recapitalization.
"To put it simply, the stakes are too high. We cannot afford to aim low and miss the target," she said.
Executives of CUNA and NAFCU said they were happy that the premium wasn't higher.
"Their reasoning is sound. If it's a little too high then the premium will be a little lower next year," said CUNA President/CEO Bill Cheney. "The combined [Stabilization Fund and NCUSIF] premium is reasonable. Eventually, the credit union system will have to bear the costs so it's a question of pay me now or pay me later."
NAFCU Senior Counsel and Director of Regulatory Affairs Carrie Hunt said NAFCU "happy that the premium is at the lower end of the projected range. We want the premium to be as low as possible for our members but don't want a situation where there is a likelihood of higher premiums next year."
The NCUA Board's vote on the assessment came minutes after NCUA Chief Financial Officer Mary Ann Woodson told the board that the NCUSIF lost $203.2 million in August and $569.9 million this year. The agency had projected a $54.7 million loss for expense and a $436.7 million loss for the first eight months of 2010.
Because of the growing number of troubled credit unions, the agency's insurance loss expense has been $641.6 million this year, compared with a $500 million projection.
At the end of August, 18.79% of insured shares were in CAMEL 3 credit unions, compared with 17.59% at the end of July. There were 1,753 CAMEL 3 credit unions at the end of August, compared with 1,749 at the end of July.
Woodson also reported that 5.26% of insured shares were in CAMEL 4 and 5 credit unions at the end of August, compared with 5.34% at the end of July. There were 360 CAMEL 4 and 5 credits at the end of August, compared with 5.34% at the end of July.
There have been 23 failures of federally insured credit unions through August, including 14 involuntary liquidations. There were 28 failures in 2009.
Last Thursday's board meeting also covered other items.
The board unanimously approved new regulations on payday loan alternatives. Federal credit unions will be allowed to charge up to 28% for certain short-term loans The loans can be between $200 and $1,000 and can have terms of between one and six months. The application fee can be no more than $20 and the borrower must have been a member of the credit union for at least 30 days.
By a 2-1 margin, the board upheld the decision by Rejection IV, rejecting an application by Vantage Credit Union in suburban St. Louis to convert to a federal community charter. The regional staff determined that there was a lack of adequate common interests and adequate interaction among the residents of the proposed community. Board Member Gigi Hyland dissented, saying some of the data indicated that community events and sporting activities indicated sufficient common interaction
The NCUA unanimously approved changing the accounting method for the NCUSIF to reflect standards recommended by the Federal Accounting Standards Advisory Board. Currently, the board uses standards that are designed for for-profit corporations and the change will better reflect the board's mission as a regulator and manager of the NCUSIF, Woodson told the board before the vote.
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