Board votes to merge funds; $600 million to $800 million ‘distribution’ to credit unions expected in 2018

Sept. 28, 2017 -- The Temporary Corporate Credit Union Stabilization Fund (TCCUSF) will be closed and merged Oct. 1 with the National Credit Union Share Insurance Fund (NCUSIF), setting the stage for credit unions to receive “distributions” early next year of between $600 million and $800 million, following action Thursday by the NCUA Board.

The board voted unanimously to merge the TCCUSF, set up in the aftermath of the financial crisis in the late 2000s, with the federal fund that insures savings at credit unions.

In making the decision, NCUA said that the actual amount of the distribution will be determined in March 2018, after year-end insured shares are reported. (The “distribution” is the amount that will be in the insurance fund that is more than that the agency determines it needs as the “normal operating level” of the fund.)

Although the estimated amount of distributions is $600 million to $800 million, the agency cautioned that actual results may vary due to: extraordinary losses and/or failures in credit unions; unusual or abnormally high insured share growth; economic conditions that involve greater volatility in one or more market indicators as compared to the stress scenarios modeled; extraordinary losses on the Legacy Assets resulting in higher than anticipated guaranty payments from NCUA 

The agency said it will issue additional information regarding amount and accounting for any distribution in second quarter 2018.

Board Chairman J. Mark McWatters, and Board Member Rick Metsger, also pointed out that additional distributions may be made after 2018. According to a staff briefing, that amount could range from between $600 million and $1.1 billion, depending on economic and other factors.

Also, the board voted to raise the “normal operating level” of the fund to 1.39% of reserves to total insured shares, up from 1.33%. However, both McWatters and Metsger indicated that the agency would review the operating level on at least an annual basis between 2018 and 2021, “based on relevant data.”

NASCUS, in its comment letter to the board on the proposal, supported closing the stabilization fund and merging it into the insurance fund, as well as distributing the corporate fund’s surplus to credit unions. But NASCUS acknowledged that doing so has risks, including exposing the NCUSIF to the financial obligations of the corporate resolution program, and facing the risk associated with any economic downturn that impairs the value of the legacy assets, which in turn could trigger a decline in the NCUSIF’s equity ratio.

NASCUS also warned of the danger of raising the “normal operating level” of the insurance fund and the higher level becoming the “new normal.”

LINKS:

Board action memorandum

Final notice (includes final rule)

Board briefing presentation