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Credit unions ask about size, timing of stabilization fund rebates

Not surprisingly, credit unions want to know when and how much they can expect to receive in refunds if the temporary corporate credit union stabilization fund is closed later this year.

At its July meeting, the National Credit Union Administration board said the fund has fulfilled its purpose, and the regulator is considering closing it, possibly in October.

More than 800 participants signed up for a webinar to discuss the plans Aug. 9, and NCUA CFO Rendell Jones and Director of Examination and Insurance Larry Fazio answered a slew of questions ranging from the timing of potential payouts to whether more assessments might be made if the fund is not closed.

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 through dividends to credit unions and their members. Fazio said the amount that each credit union would receive is subject to another proposed rule-making. "The choices the board would make from that proposal would then drive which credit unions got how much of that distribution," he said.

Cornerstone Credit Union League CEO Caroline Willard recently said the league's members hoped the refund would be bigger. "They were certainly holding out hope that they'd get 100% of their funds back," she said.

During the webinar, one credit union asked what the payout schedule would be for the distributions beyond the initial ones proposed for 2018. Fazio said there was no specific timetable but added that at the end of each subsequent year the NCUA would look at the share insurance fund's equity ratio and compare that to the normal operating level. If the ratio exceeded the operating level, a distribution would be triggered.

The NCUA board has historically set the normal operating level as the target equity ratio for the share insurance fund. It was last set at 1.3% in 2007 and is proposed to rise to 1.39%. The closing of the stabilization fund and the increase in the normal operating level are tied together because by closing the stabilization fund, the NCUA would be adding new risk to the share insurance fund, Fazio said. An equity ratio below 1.20% requires the agency to charge a premium or develop a fund restoration plan by federal law.

The last time a premium was assessed on credit unions was in 2010, but some credit unions asked if there could be a premium assessed for the share insurance fund in 2017 if the stabilization fund is not closed. Fazio said it 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.

But closing the stabilization fund would add significant equity to the share insurance fund and "other than some fairly significant and unexpected loss otherwise, it would remove the need for a premium in 2017," Fazio said. He also said that if the stabilization fund is not closed the NCUA board would have to decide by the end of the year if it wanted to assess a premium.