No insurance premium likely soon, as fund’s equity level keeps steady

(May 21, 2021) There is likely no insurance premium in the immediate future for federally insured credit unions, as the estimated equity level for the federal credit union insurance fund will be slightly above the level that would trigger the process for assessing a premium, the NCUA Board was told Thursday.

During its regular monthly meeting for May, the board heard a staff report on the National Credit Union Share Insurance Fund (NCUSIF), which showed that the fund’s equity level at the end of June would stand at 1.22%. According to the Federal Credit Union Act, the board must establish a restoration plan (which would likely include a premium) for the insurance fund if the board determines the equity level will fall below 1.2% within the next six months. So far, the board has not yet made that determination.

The law only requires a premium if the equity level drops below 1.2%. Since the fund hasn’t dropped that low (at least, not yet), no premium is likely. (The board may charge a premium, under the law, if the equity ratio falls below 1.3%, but that is not a requirement.)

The likelihood of a premium could, however, change going forward. NCUA Board Chairman Todd Harper suggested that the full extent of the financial impact of the coronavirus crisis is not yet known. As forbearance programs instituted in the face of the crisis expire, Harper said, “some credit unions will likely see their performance begin to deteriorate. It is also possible that there may be no failures and losses to the fund. We just do not know.”

He added that the agency “must make sure that the share insurance fund is strong enough to weather any stresses, including failures or losses, we know may be coming.”

Vice Chairman Kyle Hauptman took a more sanguine view. “We are aware that in the next year or so, the equity ratio may well right itself without NCUA doing anything more,” Hauptman said. “I want to make that clear: we know that could happen.” But Hauptman also made it clear that no one can predict the future.

Board Briefing, Share Insurance Fund Quarterly Report