Board Action Bulletin
Briefing covers operation and funding of the NCUSIF and TCCUSF
Chairman Debbie Matz opened today’s NCUA Board meeting noting the first anniversary of
the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) and the vital role it
played in helping credit unions better manage the costs associated with the corporate crisis.
Details of the operation, funding and possible fee assessments of TCCUSF and the National
Credit Union Share Insurance Fund (NCUSIF) concluded the meeting.
The TCCUSF was set up by the U.S. Treasury to absorb losses related to corporate credit
union investments, and the NCUSIF is the federal insurance fund that stands behind consumer
deposits. Today’s briefing was NCUA’s latest effort to maintain transparency regarding the
role, cost and functions of the two funds.
The NCUA Board is responsible for assessing credit unions an amount necessary to repay the
Treasury for the $6 billion lending limit provided by the TCCUSF and for maintaining a
strong equity ratio in the case of the NCUSIF. Specifics concerning TCCUSF and NCUSIF
Assessment Analyses follow.
Temporary Corporate Credit Union Stabilization Fund
authorized NCUA to
assess credit unions for corporate losses over a 7-year period, rather than having to do it all in
one lump sum.
There are two primary considerations that affect the timing and amount of TCCUSF
1) Total expected losses and the time remaining on the life of the TCCUSF, which is
now down to 6 years.
The current reserve for corporate credit union losses is $6.4 billion. Most recent loss estimates
are from $6.4 to $11 billion in a pessimistic scenario. The estimates are primarily derived from
analysis of expected credit defaults and available capital at the corporate credit unions holding
the securities. The specific amount and timing of confirmed defaults on distressed securities
are a key variable determining a given year’s level of assessment.
2) The second key consideration is TCCUSF operational cash management needs.
The Stabilization Fund borrowed $1 billion to acquire from the NCUSIF the capital note at
U.S. Central. Last year’s Stabilization Fund assessment repaid $310 million, so $690 million
is still outstanding that needs to be repaid.
An updated analysis of the TCCUSF will be provided to the NCUA Board during the summer
along with a recommendation on the amount and timing of the TCCUSF assessment. The
Board will also consider whether to separate the TCCUSF assessment from the NCUSIF
assessment to clarify each payment and what is it for.
Determining an NCUSIF Assessment
Establishing an NCUSIF premium assessment entails four distinct processes:
1. Estimate the fund’s equity level at a given point in time;
2. Estimate how the equity level will trend over the next 6 to 12 months;
3. Analyze the impact of different assessment levels on credit unions;
4. Development a recommendation on the targeted equity level.
Each process has variables associated with making these estimates. Three major variables
determine NCUSIF’s equity ratio at a point in time: 1) earnings in the fund; 2) insured share
growth; and 3) level of loss reserves.
A key objective is to keep the fund above the 1 percent mark so credit unions will not have to
impair their contributed capital deposit in the NCUSIF.
When an estimated equity level is determined, we look at a variety of scenarios to determine
the impact of an assessment on credit unions -- impact on aggregate and individual credit
union earnings levels, the migration of credit unions into lower PCA categories due to the
assessments, and the impact on aggregate net worth levels.
Using the forward view of the equity ratio and the impact of assessments on credit unions, we
develop recommendations for the Board on whether to bring the ratio back up to our Normal
Operating Level of 1.3 percent, to a level between 1.2 and 1.3 percent, or to use our new
authorities and drop below 1.2 percent and restore the fund over an 8-year period.
Our consistent message over the past year has been that we did not want to use our 8-year
restoration period prematurely. Key factors being analyzed going forward will be industry
trends, continued growth in insured shares, the migration of credit unions to lower CAMEL
ratings, and the potential for significant losses in specific troubled credit unions.
We are seeing positive signs for the first quarter that may translate into lower general reserve
requirements later in the year. The growth of Code 3s and Code 4s seems to have slowed.
Aggregate industry earnings are better than expected, delinquency and charge-offs are lower
than year-end levels. But one quarter does not make a trend, and so we really need to see what
the June 30th
numbers reveal before we can make a determination of the need for and the
amount of a premium assessment.
The total of the two assessments is projected to be within an estimated 15-to-40 basis points.
Complete text of the NCUSIF and TCCUSF assessment analyses are available online at
Temporary Corporate Liquidity Guarantee Program modified
The NCUA Board extended and modified the Temporary Corporate Credit Union Liquidity Guarantee Program (TCCULGP). With the change, corporates can issue new TCCULGP-guaranteed debt through September 30, 2011; however, new issuances after June 30, 2010, must mature no later than September 30, 2012, to receive the TCCULGP guarantee. Debt issued after June 30, 2010, that matures later than September 30, 2012, is not covered by the TCCULGP guarantee.
Previously, new TCCULGP issuances were set to expire June 30, 2010, and issuances under
the guarantee were permitted to have maturities through June 30, 2017, providing corporate
credit unions access to longer-term stable funds at lower cost. The extension of TCCULGP
allows corporate credit unions continued access to more liquidity sources as we move forward
to address the corporate credit union legacy assets.
Originally, NCUSIF guaranteed principal and interest payments on certain unsecured debt of
participating corporate credit unions. The obligation was transferred from NCUSIF to the
Temporary Corporate Credit Union Stabilization Fund June 18, 2009.
Final Mortgage Loan Originator Registration Rule Briefing
NCUA staff provided a briefing on the interagency final rule on mortgage loan originator
registration requirements for depository institutions and their employees based on provisions
of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act).
The NCUA Board recently approved its final rule on Parts 741 and 761, by notation vote. It is
expected that all federal financial institution regulators and the Farm Credit Administration will approve the interagency rule and it will be published in the Federal Register in coming weeks.
The S.A.F.E. Act mandates a nationwide licensing and registration system for mortgage loan originators, the Nationwide Mortgage Licensing System (NMLS) and Registry. The S.A.F.E. Act specifically prohibits an individual from engaging in residential mortgage loan origination without first obtaining and maintaining: (1) registration as a mortgage loan originator and a unique identifier if employed by a federally regulated institution, or (2) license and registration as a state-licensed mortgage loan originator and a unique identifier.
The NCUA final rule will require credit union employees, including volunteers, who have
originated more than five residential mortgage loans during the past 12-months to register with
NMLS and Registry and to obtain a unique identifier and maintain the registration. All credit
unions originating any residential mortgage loans also will have to adopt, and employees will
have to follow, written policies and procedures designed to assure compliance with the rule.
NCUA’s regulation contains additional requirements for non-federally insured credit unions
participating in the federal registry. Section 761.101(c)(3) addresses how appropriate state
supervisory authorities will enter into memoranda of understanding with NCUA. The registry
listing for employees of a non-federally insured credit union will contain a clear statement that
the credit union is not federally insured.
The final rule is effective 60 days after publication in the
Federal Register. Compliance is
required 180 days after public notice that the NMLS and Registry is accepting federal
National Credit Union Share Insurance Fund Report
NCUA’s Chief Financial Officer reported the Fund’s reserve balance totaled $896.3 million
April 30, 2010, with $177.3 million charged to insurance loss expense thus far in 2010.
The NCUSIF equity ratio declined from 1.26 to 1.24 percent during April primarily due to
$170 million charged to insurances losses during the month. The equity ratio is based on the
NCUSIF balance and the amount of insured shares held by the nation’s federally insured
credit unions at year-end 2009.
Twelve federally insured credit unions have failed thus far in 2010 at a cost to the Fund of
There were 357 CAMEL code 4&5 credit unions April 30, 2010, representing 5.94 percent of
year-end 2009, total insured shares. This is eight more CAMEL code 4&5 credit unions than
reported last month.
The current distribution of federally insured credit union assets by CAMEL code follows:
• 80.7 percent of assets are held in CAMEL code 1&2 credit unions;
• 13.7 percent of assets are in CAMEL code 3 credit unions; and
• 5.6 percent of assets are held in CAMEL code 4&5 credit unions.
Through April, NCUSIF’s annual revenue and expenses included total income of $88.3
million and total expenses of $226.4 million, resulting in negative net income of $138.1
The Temporary Corporate Credit Union Stabilization Fund had net income of $25,284,
corporate credit union expense of $1.03 billion, and interest expense of $1.7 million at April
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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 account holders in all federal credit unions and the overwhelming majority of
state-chartered credit unions. At MyCreditUnion.gov, NCUA also educates the public on consumer protection and financial literacy issues.