NCUA Recoveries Improve Outlook for Corporate Stabilization Fund
ALEXANDRIA, Va. (Feb. 12, 2014) – Credit unions are much less likely to be charged another assessment by the Temporary Corporate Credit Union Stabilization Fund, as a result of significant recoveries from legal settlements and strong asset management, the National Credit Union Administration announced today.
The net remaining Stabilization Fund projected assessment range now runs from negative $1.9 billion to negative $400 million, compared to the negative $200 million to $1.6 billion projection from the second quarter of 2013. As long as both ends of the range remain negative, there will likely be no need for future assessments.
The net proceeds from the $1.4 billion JPMorgan Chase settlement in November 2013 and the continued improvement in the performance of the legacy assets underlying the NCUA Guaranteed Notes (NGN) program during the third quarter of 2013 caused the decline in the assessment range.
“Our legal team is diligently pursuing our claims against the Wall Street securities firms who sold faulty securities to five corporate credit unions, causing them to fail and triggering a crisis in the system,” NCUA Board Chairman Debbie Matz said. “That hard work is paying off, and we will continue our efforts to hold accountable those who helped precipitate the crisis.”
NCUA announced at the November 2013 Board meeting there would be no planned Stabilization Fund assessment in 2014. The Board also decided to post a special update on the Corporate System Resolution Costs webpages, apart from the normal semi-annual release schedule, in order to reflect the effects of the JPMorgan Chase settlement with the Department of Justice on existing Stabilization Fund projections. Following NCUA’s $1 billion repayment to Treasury in December 2013, the agency must still repay $2.9 billion in outstanding Treasury borrowings before any remaining Stabilization Fund distributions can be legally made to credit unions. As a result, any potential repayment to credit unions is not likely to occur prior to expiration of the Stabilization Fund in 2021.
The assessment range is generated using legacy asset cash flows projected by the international asset management firm BlackRock. While NCUA expects to receive these legacy asset cash flows over time, they have not been realized, so future Stabilization Fund ranges could also vary significantly from current projections.
NCUA has litigation pending against several other financial institutions, including Barclays Capital, Credit Suisse, Goldman Sachs, RBS Securities, UBS Securities, and Morgan Stanley, alleging the banks sold faulty mortgage-backed securities to five corporate credit unions—WesCorp, U.S. Central, Southwest, Constitution, and Members United—which subsequently failed. The agency also has sued 13 other banks, alleging violations of federal and state anti-trust laws by their manipulating interest rates in the London Interbank Offered Rate (LIBOR) system. By lowering the cumulative losses on the legacy assets, net recoveries reduce the assessments that credit unions pay through the Stabilization Fund. From 2009-2013, credit unions paid assessments totaling $4.8 billion.
NCUA’s new projections and other information can be found at Corporate System Resolution Costs Introduction, Resolution Costs Detail, and Borrowing Cost on www.ncua.gov. To promote transparency, NCUA will continue providing periodic updates on the estimates about the losses associated with the Corporate System Resolution, the performance of the NGN Program, and the total anticipated assessments that credit unions will pay during the life of the Stabilization Fund, all of which can vary over time. The next update is scheduled for April 2014.
NCUA is the independent federal agency created by
the U.S. Congress to regulate, charter and supervise
federal credit unions. With the backing of the full
faith and credit of the United States, NCUA operates
and manages the National Credit Union Share
Insurance Fund, insuring the deposits of nearly 100
million account holders in all federal credit
unions and the overwhelming majority of
state-chartered credit unions. At
Pocket Cents, NCUA also educates the public on consumer protection and financial literacy issues.