The National Credit Union Share Insurance Fund is used to make payments of insurance to members, provide assistance in connection with the liquidation or threatened liquidation of an insured credit union, and for administrative and other expenditures in carrying out its purpose.
The Share Insurance Fund was created in 1970, with no government-provided start-up capital. Instead, insurance premiums assessed to federally insured credit unions were the Share Insurance Fund’s primary source of capital between 1970 and 1979.1 By 1979, the Fund’s ratio of equity to insured shares had grown to 0.32 percent. During this time, interest income alone covered almost all of the Share Insurance Fund’s insurance losses and operating expenses.
However, between 1980 and 1983, insurance losses substantially increased and the ratio of equity to shares fell to 0.26 percent in 1982. That year, the NCUA Board set a goal of increasing the Fund’s ratio of equity to insured shares to 1 percent, which was the statutorily mandated normal operating level. In 1982, credit unions were assessed the required 1/12 of 1 percent of shares and an additional assessment equal to two-thirds of the 1/12 of 1 percent premium. In 1983, credit unions paid the regular assessment of 1/12 of 1 percent and a special assessment equal to the regular assessment, effectively doubling the cost of share insurance for that year. Even with these assessments, the ratio of equity to insured shares was only 0.29 percent at the end of 1983, far from the Board’s goal of 1 percent.
With the threat of double premiums for the foreseeable future, the industry began to seek alternatives for capitalizing the Share Insurance Fund. In late 1983, NCUA drafted a legislative proposal that was introduced to the Senate on November 17, 1983. The proposed legislation would require all federally insured credit unions to maintain a deposit in the Share Insurance Fund equal to 1 percent of insured shares.
Under the Deficit Reduction Act enacted in 1984, credit unions recapitalized the Share Insurance Fund by placing 1 percent of their insured shares on deposit with the fund. This deposit is recorded as an asset for credit unions and equity for the share insurance fund and adjusted either annually or semi-annually, depending on the credit union’s asset size. Once this deposit was collected in 1985, the ratio of equity to insured shares increased to 1.28 percent as of the year-end. Additionally, the NCUA Board waived premiums for that year and was barred from assessing special premiums. The Federal Credit Union Act was amended to include the following changes:
- Removed the required annual premium and provided the Board discretion to assess an annual premium equal to 1/12th of 1 percent of insured shares.
- Instructed the Board to effect a pro rata distribution of equity if the Share Insurance Funds equity ratio at the end of the insurance year exceeds the normal operating level and there are no outstanding borrowings.
- Defined the normal operating level as an amount equal to 1.30 percent of the aggregate amount of insured shares in all insured credit unions, or such lower amount as the Board may determine.
Throughout the late eighties, the equity ratio hovered between 1.23 percent and 1.25 percent, but no premiums were assessed. In 1991, the NCUA Board assessed a full premium of 1/12th of 1 percent of insured shares because the Fund’s equity fell to 1.21 percent. The equity ratio declined mostly due to insured share growth was exceptionally high — nearly 8 percent — combined with the conversion of approximately 1,400 credit unions from private insurance to federal insurance.
Under statute, the federal insurance year was July 1 – June 30 and premium income was amortized during this 12-month period. Therefore, half of the premium was recognized as of year-end 1991 and half was recognized in the first quarter 1992. The Share Insurance Fund ended calendar year 1992 with an equity ratio of 1.26 percent. The equity ratio remained stable through 1993 and 1994, ending the year at 1.26 percent and 1.27 percent, respectively. The equity ratio exceeded 1.30 percent at the end of the year in 1995, 1996, and 1997, resulting in distributions.
In 1998, the Credit Union Membership Access Act was passed. Among other things, this law provided the NCUA Board with greater authority to manage the Share Insurance Fund. Specifically, the law:
- Changed the way premiums were assessed by requiring credit unions to pay a premium in an amount stated as a percentage of insured shares, as prescribed by the NCUA Board. However, the Act also limited the NCUA Board to assessing premiums only if the equity ratio was less than 1.30 percent and limited the premium charge so that it did not cause the equity ratio to exceed 1.30 percent.
- Required the NCUA Board to assess a premium if the equity ratio fell below 1.20 percent.
- Added the requirement that the available assets ratio exceed 1.00 percent prior to the NCUA Board effecting a pro rata distribution.
- Defined the equity ratio.
- Provided the NCUA Board flexibility to set the normal operating level by defining it as an equity ratio not less than 1.20 percent or more than 1.50 percent.
- Provided for larger credit unions to adjust their 1 percent contributed capital deposit semi-annually.
Between year-end 1998 and 2000, the equity ratio exceeded the normal operating level at year-end, resulting in a distribution declared each of these years. Between 2001 and 2004, the equity ratio hovered between 1.25 percent and 1.27 percent and grew to 1.28 percent at year-end 2005. At year-end 2006, the equity ratio slightly exceeded the normal operating level, triggering a small distribution. The equity ratio was 1.29 percent at the end of 2007 and fell to 1.26 percent as of year-end 2008.
In 2009, additional statutory amendments related to the Share Insurance Fund took place. Under Public Law 111-22, the Board was granted authority to develop a restoration plan if the equity ratio fell below 1.20 percent. Additionally, the Board was required to transfer any equity of the Share Insurance Fund in excess of the normal operating level to the Temporary Corporate Credit Union Stabilization Fund if there were outstanding borrowings, instead of distributing it to credit unions.
In 2009, the equity ratio fell drastically as a result of increased losses, combined with the permanent increase in share insurance coverage from $100,000 to $250,000. The NCUA Board assessed a premium in mid-2009 to restore the equity ratio to 1.30 percent. Because of continued losses and insured share growth, the equity ratio at year-end 2009 was 1.23 percent. As the number of problem credit union continue to increase in 2008, the equity ratio again fell below 1.20 percent, causing the NCUA Board to assess a premium in mid-2010. At year-end 2010, the equity ratio was 1.28 percent.
Starting in 2011, as the economy began to improve and the number of problem credit unions decreased, the Share Insurance Fund recorded negative insurance loss expense because of reductions in the reserves for failed credit unions. As a result, the equity ratio exceeded the normal operating level in 2011, 2012, and 2013. However, because the Stabilization Fund had outstanding borrowings with the U.S. Treasury, a distribution was made from the Share Insurance Fund to the Stabilization Fund for these years.
In 2017, the NCUA Board voted to transfer all of the assets and liabilities of the Stabilization Fund to the Share Insurance Fund. This resulted in the Share Insurance Fund absorbing the remaining legacy assets and NGNs and increased the size of the Share Insurance Fund to over $16.7 billion in assets.
1 As statutorily required at the time, credit unions were required to pay at a minimum, an annual premium of 1/12 of 1 percent of insured shares. The NCUA Board also had the option of requiring special assessments or waiving the assessment if the equity ratio exceeded the normal operating level.