The NCUA board on Feb. 15 approved a pro rata distribution of $735,678,797 to eligible credit unions – funds that are available as a result of the closing of the corporate stabilization fund.
"We have excess funds," Board Chairman J. Mark McWatters said as the board adopted a formula for the distribution. "That's a good story to tell."
"The check may not be in the mail yet, but it's on the way," Board Member Rick Metsger said.
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Metsger said attorneys who filed suit to recover funds in connection with the sale of faulty mortgage-based securities to corporate credit unions were far more successful than anyone had anticipated.
He called the distribution "historic," in part because it is 15 times larger than the last distribution in 2007.
The NCUA estimated eligible financial institutions will receive their distribution in the form of a dividend for the 2017 calendar year in the third quarter of 2018.
The NCUA board voted last year to close the stabilization fund. It had been scheduled to close in 2021. Under federal law, the stabilization fund has been used to provide the agency with the ability to mitigate costs from stabilizing the corporate credit union system.
The distribution is possible because the agency has repaid all loans from the federal government and because, as a result of the fund closing, the share insurance fund's equity ratio is 1.46% –above the 1.39% the board set last year.
However, NCUA officials also warned that if the two funds had not been merged, a premium charge of $1.3 billion would have been needed because the equity ratio would have dropped to 1.18%.
Under NCUA rules, the following institutions are eligible for the distribution:
- Active federally-insured credit unions as of the end of 2017;
- Newly-chartered, federally-insured credit unions that filed at least one Call Report for a reporting period in 2017;
- Financial institutions that converted to private insurance as long as they filed at least one Call Report as a federally-insured credit union for a reporting period in 2017; and
- Liquidation estates, provided the liquidated credit union filed at least one Call Report as a federally-insured credit union for a reporting period in 2017.
The distribution to eligible financial institutions will be calculated based on the average of insured shares reported in each institution's quarterly Call Reports.
McWatters said when the stabilization fund was established, nobody expected that legal recoveries in connection with the sale of faulty mortgage-based securities to corporate credit unions.
During the meeting, he twice said the legal fees in connection with the recoveries were too high. "I feel compelled to say that because I believe that," he said.
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