No insurance premium for now, but outlook for future less certain

(Feb. 19, 2021) No premium – for now — is in the works for credit unions to pay to bring the federal credit union savings insurance fund back up to its “normal operating level,” but that could change after June, according to a discussion held by NCUA Board members Thursday.

We may no longer be able to avoid it,” NCUA Board Chairman Todd Harper said about a future premium for credit unions. “It’s no longer a question of if, but when and how much” of a premium will be charged. He added that, whatever decision the board ultimately makes about a premium, it will be data driven – and the result of consensus among the board members, himself, Vice Chairman Kyle Hauptman and Member Rodney Hood.

During a briefing on the current equity ratio of the National Credit Union Share Insurance Fund (NCUSIF) – which describes the total reserves in the fund relative to the total credit union savings insured – the board was told the ratio at year-end 2020 stood at 1.26% — six basis points (bp) below that projected by NCUA in September.

The 1.26% equity ratio is also 12 basis points (bp) below the “normal operating level” (NOL) of the fund that is set by the agency board. The NOL is the reserve level at which the board has determined the fund can adequately cover any losses presented to the fund.

Looking ahead, the board was told by staff during the briefing, more savings are expected to flow into credit unions in the coming months, continuing a trend that surfaced last year, and spurred in 2021 by another federal economic stimulus package now in the works by Congress. (The stimulus is meant to counter the financial impact of the ongoing coronavirus crisis.) Meanwhile, earnings on the fund’s reserves are expected to remain reduced, reflecting the low-interest rate environment. The result: continued downward pressure on the NCUSIF equity ratio, making it more difficult to reach the NOL by this summer, the next time the board hears a report on the equity ratio.

NCUA Chief Financial Officer Eugene Schied, during the presentation, noted that credit unions will adjust their 1% deposits in the insurance fund (collected in April), which will total about $866 million. He said that would result in about a 5 bp bump to the equity ratio – which, when added to year-end’s equity ratio, is still well below the NOL, and will also be affected by any increase in savings in insured by mid-year.

Schied said (in answer to a question from Todd Harper), however, that it is still too early to tell where the equity ratio will be as of June 30. Nevertheless, staff agreed with Harper that the trendline for the equity ratio has been going down since 2018.

NCUA Board Briefing: Share Insurance Fund Quarterly Report.

Harper comments at 2/18/21 NCUA Board meeting, re: NCUSIF