No, a SIF Premium Is Not Necessary

Amid the turbulence experienced over the past year, there is a silver lining for credit unions: The strength of the National Credit Union Share Insurance Fund. Despite a global pandemic, economic uncertainty and increased financial hardships, the share insurance fund remains on solid financial footing thanks to credit unions’ strong balance sheets and prudent risk management, along with effective management by the NCUA.

While the NCUA has recently reported the share insurance fund’s equity ratio at 1.26%, that figure is expected to jump to 1.31% next month – placing it above the threshold at which the NCUA can charge a premium. This positive adjustment will occur after the agency finalizes Call Report data and invoices are sent to credit unions to true up capitalization deposits.

This is good news. And with no material weakness in the fund, there is no reason for the agency to charge credit unions a premium.

Two of the concerns highlighted at the NCUA board’s February meeting were strong share growth and low interest rates. But rates have risen steadily over the past six months, and dramatically so in the past month. With markets increasingly expecting a burst of economic activity in the near future, share growth over the second half of the year should be closer to historical norms than to the extraordinary rates we saw in 2020.

The outlook for losses has likewise improved since the start of the pandemic. Between March and December, reserves fell from 13.9 cents per $1,000 of insured shares to 12.1 cents. There was just one credit union failure during 2020. Once again, this improvement is a testament to credit unions’ resilience in the midst of an unprecedented crisis, and to the NCUA’s ability to quickly pivot to fully remote supervision.

While the fund itself remains strong, our economy is still battling back against the ill effects of the coronavirus pandemic and the subsequent economic downturn. Main Street small businesses and American consumers are still in need of financial assistance, and credit unions have repeatedly shown they are a key financial lifeline for those needing help. An unnecessary premium hampers credit unions at the worst time possible, as they extend support to those Americans most in need of it.

Now more than ever, people need help. It is credit unions’ mission to always be there to assist their members and communities – especially during times of high economic stress. Now is the time to empower credit unions with additional resources and flexibilities, not handicap them from serving their 123 million members to the best of their abilities.

The state of the share insurance fund remains strong, and to that NAFCU says: No premiums.

Curt Long is Chief Economist and Vice President of Research for NAFCU in Washington, D.C.