Future Stabilization Fund Rebates Possible, but Markets and Law Decide When

Current estimates indicate the improved performance of the corporate resolution program could lead to rebates of some Temporary Corporate Credit Union Stabilization Fund assessments and partial recoveries for holders of depleted corporate capital.

In a detailed NCUA Board briefing on the current corporate resolution cost projections, experts in the Office of Examination and Insurance emphasized the estimates are subject to change, based on asset performance, future recoveries from NCUA’s legal actions against firms that sold the faulty residential mortgage-backed securities to the five failed corporate credit unions and economic variables such as unemployment, housing prices and other factors. The legacy asset cash-flow projections are also similarly subject to revision.

The current estimated range of available funds is between $3.4 billion and $4.9 billion. Federally insured credit unions could see assessment rebates in the range of $2.5 billion to $3.2 billion when the Stabilization Fund closes, currently scheduled for 2021. Potential estimated recoveries to holders of depleted capital in the failed corporate credit unions range from $900 million to $1.7 billion. However, these funds cannot be distributed until all other obligations of the corporate credit unions’ estates are paid.

Changes in the economy or the performance of the legacy assets that secure the NCUA Guaranteed Notes, as well as certain requirements of the Federal Credit Union Act, will dictate the eventual amount of funds, if any, available to provide rebates and the timing of those rebates.

The Federal Credit Union Act directs that assets of the Stabilization Fund may only be distributed when the fund closes, and those assets must be distributed to the National Credit Union Share Insurance Fund. Any rebates would be based on whether that transfer of funds triggers a dividend.

Larry Fazio, Director of Examination and Insurance, said it is important to remember that NCUA’s responsibility as liquidating agent for the five failed corporate credit unions is to conduct an orderly liquidation.

“This means our goal is to obtain a reasonable price upon which to liquidate assets of failed institutions while trying to minimize losses to the Share Insurance Fund and Stabilization Fund,” Fazio said.

Credit unions have paid approximately $4.8 billion in Stabilization Fund assessments. Thanks primarily to larger-than-expected legal recoveries, NCUA projects no further assessments will be needed, assuming the continued positive performance of the economy and the legacy assets.

The complete corporate resolution briefing presentation is available online at http://go.usa.gov/x9YNu. Prepared remarks by the presenters are also available online at http://go.usa.gov/x9YRg.