Board looks for input on how NOL is calculated

(May 21, 2021) In a related move Thursday, the NCUA Board voted unanimously to seek public comments on its policy that guides the determination of the insurance fund’s Normal Operating Level (NOL).

Now, the NOL (the target equity ratio set for the insurance fund by the NCUA Board) is set at 1.38%. Under the law, the board may set the NOL at anywhere between 1.2% to 1.5%. If the equity level is greater than the NOL, the NCUA Board may vote to make a distribution back to credit unions of the equity in the fund above the NOL (as it did two years ago).

According to NCUA staff, a re-evaluation of the NOL policy is prompted by two events: the current economic landscape (along with the impact of current forbearance programs ending, and likely evictions rising – both perhaps leading to loan underperformance), and pending events related to the corporate asset management estates and end of the NCUA Guaranteed Notes (NGN) Program. Staff noted that the NOL will no longer have to take into consideration the NGNs after June, since the last of the notes will have been, by then, liquidated.

The agency said it is looking for looking for comments on a variety of subjects regarding the NOL policy, including:

  • Should a moderate or severe recession be the basis for evaluating the insurance fund’s performance?
  • Should a five- year period — or a longer or shorter period – be used for modeling the fund’s performance?
  • How should the agency use the modeled potential decline in value of the fund’s claims on the corporate asset management estates going forward until the estates are fully resolved?
  • Should the projected equity ratio decline continue to be incorporated into the NOL analysis through the end of the following year without an economic downturn (or should this period be longer or shorter, or not factored into the analysis at all)?

A 60-day comment period was set for public input.

Request for Comment, Share Insurance Fund Normal Operating Level Policy