NAFCU Tells Congressional Committees That No SIF Premium Is Needed

NAFCU is taking its opposition to a credit union premium assessment to Capitol Hill.

The NCUA’s equity ratio will bounce back, and Congress and the agency should not intervene by assessing a premium on credit unions or enacting legislation that would make it easier for the agency to do so, NAFCU Vice President of Research and Chief Economist Curt Long told congressional committees this week.

Long has made the same argument to the NCUA, but now is taking NAFCU’s opposition to Capitol Hill.

In a letter to the Senate Banking Committee and the House Financial Services Committee, Long wrote that the decline in consumer spending and the influx of coronavirus relief payments has led to an artificial increase in shares.

The NCUA board was told last week that the agency’s equity ratio stood at 1.26% at the end of 2020, well below the 1.38% normal operating level set by the agency. However, the equity ratio was above the 1.20% — the level that would require the agency to enact a restoration plan.

Long said the dip below 1.30% is deceptive since it does not consider credit union capitalization deposits that are forthcoming.

“Once the NCUA generates invoices for those deposit true ups in March, the agency estimates it will add 5 basis points to the equity ratio, which would place it at 1.31% — beyond the range where the Board has the statutory discretion to assess a premium,” he wrote.

Long said the Federal Credit Union Act structured a Share Insurance Fund that is fundamentally different than the fund operated by the Federal Deposit Insurance Corp. He added NAFCU is opposed to restructuring the NCUA fund using the FDIC model.

The NCUA board has been divided over whether a premium may be needed to shore up the insurance fund.

“I recognize that charging a premium during a pandemic and economic downturn is not ideal,” NCUA Chairman Todd Harper said at last week’s NCUA board meeting. “However, we may no longer be able to avoid it.”

NCUA Board Member Rodney Hood was not convinced that a premium will be needed.

“While we do not know what the future holds, I believe the fund is well positioned to handle whatever may come our way as we plan for the worse and hope for the best,” he said.

Board Member Kyle Hauptman agreed that a premium may not be needed.

“Taken to excess, building up capital and liquidity in the Share Insurance Fund because of our concern of the unknown, reduces the ability for credit unions to provide the financial services we know members need today,” he said.