Credit unions would avoid a possible Share Insurance Fund premium in 2017 and receive a distribution in 2018 under a proposed plan to close the Temporary Corporate Credit Union Stabilization Fund this year.
“The closing of the Stabilization Fund in 2017 allows the NCUA to return funds to credit unions that can be put to work in the system prior to the original closure date of 2021,” Board Chairman J. Mark McWatters said during the July Board Meeting. “As part of this proposal, the NCUA would raise the Share Insurance Fund’s normal operating level to account for the remaining obligations of the Corporate System Resolution Program. Even with the proposed increase to the normal operating level, the NCUA is projecting a return of excess equity to insured credit unions through a distribution from the Share Insurance Fund in 2018. The proposed plan to close the Stabilization Fund, including increasing the normal operating level for the interim, will ensure the Share Insurance Fund has the appropriate level of resiliency to protect member deposits and maintain a safe and sound credit union system, including maintaining public confidence in federal share insurance.”
Several factors make the proposed closure of the Stabilization Fund this year possible:
- There are no longer any outstanding borrowings to be repaid to the U.S. Treasury, as the agency made the last payment to the Treasury Department in October 2016;
- The balance of the legacy assets that secure the NCUA Guaranteed Notes Program and the NGN investor balance are both lower than the $13.2 billion Share Insurance Fund; and
- Due to nearly $4 billion in net legal recoveries, the Stabilization Fund has a net positive position of $1.9 billion as of May 2017.
The proposed plan includes a staff recommendation that the Stabilization Fund closure be done Oct. 1, using the closing balances as of Sept. 30.
Additionally, even if the Stabilization Fund were closed this year, there would be remaining obligations of the Corporate Resolution Program that would need to be met. The Board believes those obligations can be prudently borne by the Share Insurance Fund without inordinate risk, provided the necessary equity is maintained in the fund.
Board Proposes Raising Share Insurance Fund Normal Operating Level
To maintain the necessary equity in the Share Insurance Fund after the Stabilization Fund closes, the Board also proposed in July to increase the normal operating level for the Share Insurance Fund to 1.39 percent.
Should the Stabilization Fund close, the law requires that its assets be transferred to the Share Insurance Fund. The agency projects that transfer would raise the fund’s equity ratio as high as 1.47 percent, requiring a distribution to credit unions.
Raising the normal operating level would still permit a distribution to credit unions in 2018. It would also allow the Share Insurance Fund to withstand a moderate recession without the equity ratio dropping below 1.20 percent, at which point federal law requires the agency to charge a premium or develop a fund restoration plan. At 1.39 percent, the Board would ensure credit unions’ one-percent contributed capital deposit is well-protected.
Amendments to Share Insurance Distribution Rule Also Proposed
Credit unions would see greater fairness, predictability, and transparency under a Board-approved notice of proposed rulemaking (Part 741) that accompanied the Stabilization Fund closure proposal.
The proposed rule amends the existing share insurance requirements rule and would give federally insured credit unions greater transparency on how an individual credit union’s share of an equity distribution from the Share Insurance Fund would be calculated. The rule also would prohibit a federally insured credit union that terminates share insurance coverage from receiving a distribution for the calendar year in which that termination occurred.
Finally, the proposed rule would add a temporary provision governing equity distributions related to the Corporate System Resolution Program. The Board believes any such distribution should go first to repaying credit unions that paid special assessments rather than taking the form of a general distribution. A credit union that did not pay a special assessment would not be eligible to receive a distribution related to the Corporate System Resolution Program, unless all other corporate assessments have been repaid.
The estimated distribution to federally insured credit unions is between $600 million and $800 million.
Stakeholders Are Encouraged to Submit Comments before Sept. 5
Comments on these proposals must be received no later than Sept. 5. All stakeholders are encouraged to submit their comments early to ensure they are considered during the review process.