NAFCU’s Long: Share Insurance Fund Is in Good Shape
NAFCU's Curt Long predicts the equity ratio will be around 1.26%. A full SIF update is expected Thursday.
The next update of the NCUA’s Share Insurance Fund will demonstrate that the fund is strong and a new premium on credit unions will not be needed, Curt Long, NAFCU’s chief economist and vice president of research, predicted Friday.
“The fund has performed very well,” Long said. He predicted that the equity ratio will be around 1.26%, above a level that would require the NCUA board to take action. Long also said that the equity ratio will likely exceed 1.30% soon.
During a webinar featuring new NCUA Chairman Todd Harper Thursday, Myra Toeppe, director of the agency’s Office of Examination and Insurance, said the agency board will receive an update on the insurance fund’s equity ratio at its Feb. 18 meeting.
In September, the board was told that the equity ratio stood at 1.22%. If the ratio falls below 1.20%, the agency would be required to adopt a restoration plan, which could include a premium charged.
The equity ratio is reported twice a year. The NCUA has set the agency’s Normal Operating Level at 1.38%.
The Federal Credit Union Act defines the equity ratio as “(A) the amount of Fund capitalization, including insured credit unions’ 1% capitalization deposits and the retained earnings balance of the Fund (net of direct liabilities of the Fund and contingent liabilities for which no provision for losses has been made) to (B) the aggregate amount of the insured shares in all insured credit unions.”
In September, agency officials said that the ratio had dropped 13 basis points since the end of 2019, largely because of a huge increase in insured deposits because of the coronavirus crisis.
At the time, board member Todd Harper, now the chairman, said that a premium was likely.
“It is not a question of whether we will charge a premium, but a question of when,” Harper said at the board’s November meeting. He later added, “Credit unions need to brace themselves for that eventual reality.”
Harper said at the time that he would like the NCUA board to ask Congress for more flexibility in the way it monitors the equity ratio. He said it hurts the agency when it must charge a premium during an economic downturn.