Dear Board of Directors and Chief Executive Officer:
For 2014, NCUA projects no assessment for the Stabilization Fund and a Share Insurance Fund premium range of 0 to 5 basis points (bps) of insured shares.
2014 Projected Range
|Share Insurance Fund||0 - 5 bps|
|Combined||0 - 5 bps|
NCUA this month announced its participation in the $13 billion legal settlement between the U.S. Department of Justice and JPMorgan Chase. NCUA will receive $1.417 billion in gross proceeds. The net proceeds will be paid to the U.S. Treasury to reduce NCUA’s outstanding borrowings related to the corporate resolution program, which currently stand at $3.9 billion.
NCUA continues to vigorously pursue legal action to hold 16 other securities firms accountable for selling faulty mortgage-backed securities to the five failed corporate credit unions. NCUA thus far has recovered a total of $1.75 billion in legal settlements.
However, if a major, unexpected development – such as a severe economic downturn – arises in 2014, the NCUA Board may have to reconsider an assessment based on those adverse conditions.
|Year||Estimated Stabilization Fund Assessment||Actual Stabilization Fund Assessment||Estimated Share Insurance Fund Premium||Actual Share Insurance Fund Premium|
|2009||N/A||4.73 bps||N/A||10.27 bps|
|2010||5-15 bps||13.4 bps||10-25 bps||12.42 bps|
|2011||20-25 bps||25.0 bps||0-10 bps||0 bps|
|2012||8-11 bps||9.5 bps||0-6 bps||0 bps|
|2013||8-11 bps||8.0 bps||0-5 bps||0 bps|
Stabilization Fund Projection Considerations
Even without the funds pending from the latest legal settlement, the low end of the assessment range is now negative. This means that, under optimistic economic assumptions and after accounting for NCUA’s other legal recoveries of $335 million through October 2013, there may be funds remaining after all obligations have been repaid.
However, the Treasury debt must be fully repaid before any remaining funds on hand may be distributed to credit unions. This is not likely to occur prior to expiration of the Stabilization Fund in 2021.
It is important to note that the assessment range is generated using legacy assets cash flow projections. These projections are generated by BlackRock based on a number of different economic scenarios that can change at any time. As the housing market and economy in general have improved, the projected cash flows have increased.
A great deal of disciplined work and careful planning has kept the corporate resolution on-track. These latest estimates are very good news. NCUA’s recoveries from Wall Street firms responsible for the corporate crisis, and our continuing efforts to effectively manage losses, along with an improving economy, are significantly reducing costs to credit unions.
Share Insurance Fund Projection Considerations
The Share Insurance Fund remains slightly above the 1.30 percent normal operating level as of September 30, 2013. NCUA will transfer any equity in excess of the 1.30 percent to the Stabilization Fund, as required by statute.
The following factors will drive the Share Insurance Fund’s equity ratio in 2014:
- Growth in insured shares,
- Yield on Share Insurance Fund investments, and
- Cost and pace of credit union failures.
While NCUA provides this information to assist credit unions in planning for the following year, the actual assessment and premium levels are determined by the NCUA Board when declared, and could vary from projections based on a variety of factors. Credit unions should not expense any assessment or premium until actually declared by the NCUA Board, nor use the projection as the basis for any accruals of future expenses.
Corporate System Resolution Costs
NGN Program Information