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US' 2nd-largest credit union says NCUA rushing into stabilization refunds


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US' 2nd-largest credit union says NCUA rushing into stabilization refunds

Credit unions obviously want the money they paid into the corporate credit union stabilization fund back, and State Employees' CU has more reasons than most to look forward to a rebate.

But President and CEO Mike Lord urged patience in the closing of the fund.

At a July 20 meeting, National Credit Union Administration board members approved a request for comment on a proposal to close the stabilization fund into the share insurance fund Oct. 1 using the closing balances as of Sept. 30. All comments must be received no later than Sept. 5.

In an interview, Lord called the proposal interesting but said he has a number of questions and concerns. Chief among those is the speed with which the NCUA is moving forward. "I'm not sure why it has to be rushed ahead the way it is," he said.

And State Employees' CU, the second-largest credit union in the country by assets, has 162 million reasons to want this to be done right. Between 2009 and 2013, it paid about $122 million in share insurance assessment premiums, and in 2009 and 2010, it paid an additional $40 million. Only Navy FCU, the nation's largest credit union, paid more into the fund.

In an effort to diversify and spread its risk, State Employees' CU joined 11 corporate credit unions, including the five that eventually failed during the financial crisis. The credit union had almost $30 million invested in those 11 corporates, and ultimately lost $21.5 million. "So, we definitely have some big dollars in the middle of this," Lord said.

Lord said the NCUA is not giving credit unions enough time to get information before commenting. He called the planned rebates "hush money to calm [credit unions] down a little bit."

NCUA board members said the estimated initial distribution to credit unions would be $600 million to $800 million, likely in the first half of 2018. When all is said and done, $2.6 billion to $3.0 billion would be returned. The NCUA projects returning between 54% and 63% of the special assessments that were made.

But Lord said the amount credit unions are slated to receive is a moot point and should not be the focus now. "Everybody is in a rush to get some money back and that's good, but it's been since 2009 that we've been wrestling with this," he said.

The NCUA is giving credit unions only 45 days to consider a plan based on speculation about what the future may hold for factors including growth in insured shares, the yield on the investment portfolio and the NCUA Guaranteed Note Program, or NGN, Lord said. The NGNs fund more than $40 billion in legacy assets from the corporate credit unions that failed during the economic crisis. Lord said projections could be wrong and the performance of the NGNs could be poor.

"I'm not so concerned about what is going to be returned as how much is not going to be returned because they rush headlong into doing this to throw extra funds into the share insurance fund," he said. "What is the rush?"

Lord said the calculations used for the refunds are complex, and the NCUA said its estimations could change. If that is the case, Lord said the regulator should take more time rather than move quickly simply so it can "declare victory." He said rushing forward could impact the refunds that credit unions receive in later years. If another recession were to occur, the NCUA could have to borrow from the U.S. Treasury Department or assess more premiums on credit unions. "We know what we don't know, and we don't know the future," he said.

At the same time, the share insurance fund's normal operating equity level is proposed to rise to 1.39%. Lord said it seems like the NCUA is in effect trying to recapitalize the share insurance fund through a "pseudo" assessment.

Additionally, in a November 2016 letter, the NCUA projected assessing a 2017 share insurance fund premium of between three and six basis points of insured shares. During an Aug. 9 webinar, Director of Examination and Insurance Larry Fazio said such as assessment would depend on whether the NCUA board believed it was needed and also if the equity ratio fell below 1.20% or was projected to do that in the next six months. He said it would also depend on future economic events and the performance of the share insurance fund.

All of which leads Lord to believe the regulator is simply moving too fast. "There's a lot that could happen that could blow things out of the water," he said. "You might have a small return right now and a big fat assessment in two years."