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Federal regulator announces cost estimates for 2011 to strengthen CU system

The National Credit Union Administration (NCUA) announced at its November Board meeting the estimated combined costs that all federally insured credit unions will pay in 2011 as part of ongoing efforts to strengthen the credit union system. Those costs include:

The Share Insurance premium for 2011 is estimated from zero to 10 basis points, or zero to 10 cents for every $100 of insured deposits. The actual cost will be determined by losses experienced by retail credit unions nationwide.

The Corporate Stabilization assessment for 2011 is estimated from 20 to 25 basis points, or 20 to 25 cents for every $100 of insured deposits. This cost covers losses experienced by corporate credit unions, five of which have been taken over, or conserved, by the federal regulator since March 2009. By conserving the five corporates, which became unstable because of their over-investments in mortgage-backed securities that significantly devalued during the turmoil in the overall mortgage market, the NCUA aims to ensure that losses are stemmed and that service to members of retail credit unions continues with no disruption. The assessments credit unions pay into the Corporate Stabilization Fund are used to repay the U.S. Treasury for the money that was borrowed to cover the conserved corporates’ losses.

The combined estimated costs for both of these expenses are from 20 to 35 basis points, or 20 to 35 cents of every $100 of insured deposits. Credit unions should use this range as a guide for their budgeting for 2011.

Credit unions pay premiums for the Share Insurance Fund annually, with the amount determined by the actual losses credit unions incur. So the better credit unions do, the less the premiums will be. All federally insured credit unions nationwide – including all credit unions in Wisconsin – have paid a total of $1.3 billion for Corporate Stabilization through two assessments by the NCUA in 2009 and 2010. Credit unions have until 2021 to pay the remainder of the corporate losses through payment of their annual assessments.

While these costs are significant, credit unions have so far paid about 20% less than have similar-sized banks, and can expect to pay about one-third less than what similar-sized FDIC-insured institutions will be required to pay in restorative costs over the coming 11 years, according to the Credit Union National Association (CUNA).

The League has posted materials in its Corporate Stabilization webpage to help credit unions understand, calculate and plan for these costs, as well as explain them to others. League consultant Bill Rockeman can help if you have questions or need assistance with calculations or presentations on these issues. Contact him at (800) 242-0833, Ext. 6024.