Credit unions may avoid a Share Insurance Fund premium in 2017 and possibly receive a distribution in 2018 under a plan that ends a funding mechanism used by our Movement to weather the 2008 housing crisis.
The National Credit Union Administration (NCUA) Board voted in September to:
Close the Temporary Corporate Credit Union Stabilization Fund
The Board chose to end the Fund four years ahead of schedule by transferring its assets to the National Credit Union Share Insurance Fund (NCUSIF).
Depending on the performance of the assets held by the NCUSIF, the NCUA estimates credit unions should receive a rebate or dividend in 2018 between $600-$800 million, and future dividends between $600 million to $1.1 billion from 2019 through 2021. There may be anywhere from $600 million to $1.1 billion of potential future distributions.
Corporate capital holders may have between $1.1 billion and $1.9 billion returned to them in 2021 as well.
Set a new operating level for the National Credit Union Share Insurance Fund
To account for the risk to the fund when it includes Stabilization Fund assets, the NCUA also increased the normal operating level of the National Credit Union Share Insurance Fund (NCUSIF) - an equity target - from 1.30 percent to 1.39 percent. This is higher than both The League and the Credit Union National Association (CUNA) recommended as part of the regulatory comment process. By law it cannot be lower than 1.2 percent or greater than 1.5 percent.
The nine basis point increase reduces the amount of excess equity credit unions might have returned to them had distributions not been made until 2021, when the Stabilization Fund was set to expire. Credit unions paid about $4.8 billion into the Fund since inception. However, NCUA Board Member Rick Metsger noted that credit unions are not owed a full refund.
"The special assessments were never an 'investment' in the traditional sense. They were funds that were needed to pay off the obligations of the failed corporates and keep the entire system from collapsing. If they had been an investment credit unions could have held them on their books as a receivable. But, they were neither investments nor receivables," he said.
The method used to determine the distribution to credit unions will be subject to the Board’s decision on a proposed rule currently under agency review. Read more about NCUA's plan to close the the Stabilization Fund.
NCUA Chairman J. Mark McWatters said that merging the funds allowed the NCUA to forego assessing a premium on credit unions to bolster the NCUSIF, which has seen a decline in its equity ratio. By merging the two funds the NCUA could replenish the NCUSIF and head off the out-of-pocket costs for insured credit unions, in addition to providing the payout of excess equity to credit unions.
According to McWatters, the new 1.39 operating level will also enable the NCUSIF to withstand the shock of a moderate recession without having to tap credit unions with additional premiums in 2018.
NCUA Board members said that, prior to 2013, the NCUA did not project a distribution to credit unions in 2021. A distribution only became a possibility after the agency won legal recoveries of more than $5.1 billion on behalf of five failed corporate credit unions, materially decreasing the costs to the Stabilization Fund resulting from those failures.
The Federal Credit Union Act gives the NCUA Board authority to close the Stabilization Fund at its discretion prior to its expiration date in 2021. The NCUA is required by law to distribute funds, property and other assets of the Stabilization Fund at its closing to the NCUSIF.
Wisconsin credit unions come together as a single League to Unite for Good; we remove barriers, increase awareness and foster service excellence. All of these steps help more Americans to see credit unions as their best financial partner and regard their credit union as their primary financial institution. Read more articles in our Unite for Good series.