Credit unions now know approximately when and how much they will receive from the closing of the temporary corporate credit union stabilization fund.
The National Credit Union Administration on Sept. 28, 2017, voted to close the fund and transfer its assets and liabilities to the share insurance fund. At its Feb. 15 board meeting, the NCUA approved a final rule governing the methodology to be used for calculating distributions from the fund. The board then approved a $735.7 million dividend payment to be made in the third quarter of 2018.
Board members in the fall predicted that between $600 million and $800 million would be returned to credit unions in 2018.
The distribution will be based on the average quarterly insured shares reported by credit unions in call reports extending back to the beginning of calendar year 2009. That year marks the beginning of the corporate system resolution program and the first calendar year in which the NCUA board charged corporate assessments.
That methodology was chosen from a handful of alternatives and was preferred by the vast majority of stakeholders that commented on the proposal, NCUA staff said.
The NCUA said it will put a tool on its website to allow credit unions to calculate their specific dividend.
At the same time, the board sounded less certain about additional distributions. In September, the NCUA said there may be anywhere from $600 million to $1.1 billion of potential future distributions in addition to the 2018 payout. But during the Feb. 15 meeting, board member Rick Metsger said only that more dividend payments are possible between now and 2022 if the economy remains strong and if there are no unusually large losses to the share insurance fund.
Institutions eligible for the 2018 rebate include all active, federally insured credit unions as of December 31, 2017, and newly chartered, federally insured credit unions that filed at least one call report in 2017. Institutions that converted to federal share insurance during 2017, provided they filed at least one call report in 2017, are also eligible.
Credit unions that converted to private insurance are also eligible if they filed at least one call report as a federally insured credit union for a reporting period in 2017. However, credit unions that paid into the stabilization fund but later switched to private insurance before 2017 will not see any money.
NCUA Chairman J. Mark McWatters said he feels for credit unions that made the business decision to opt for private insurance after making payments into the stabilization fund. "There's an inherent unfairness in this," he said. "We used their money, but now because of the way the law is stated ... they will not receive a distribution."
Metsger said there were only two credit unions that converted to private insurance in 2017. One of those institutions will receive a distribution because it filed a call report in 2017 while the other converted before the first call report deadline of 2017 and so will not receive a payment. He compared the situation to an investor selling stock before a dividend payout date.
McWatters also said there are some in the credit union community that believe all excess funds in the share insurance fund are mandated to be repaid to the credit unions that paid into the stabilization fund. Because of the success of lawsuits, the fund has netted more than $5 billion. But the regulator said the law does not stipulate what must be done with those funds.
McWatters said when Congress set up the stabilization fund it probably did not anticipate money going back to credit unions. "The truth of the matter is, I suspect that at the time no one realistically thought this day would be here," he said.
Board members said that if the NCUA had not closed the corporate stabilization fund in October 2017, credit unions would have seen no distributed equity for 2017 but instead likely would have faced premium charges totaling $1.3 billion. McWatters said credit unions were facing a "substantial" assessment in 2018 but that will not be necessary because of the merger of the two funds.
Metsger said the distribution plan is not perfect but he called it the best possible solution. He stressed that the distributions are not rebates because the money from the special assessments was used to make up for losses by the corporate credit unions.
"That money has been spent. It is gone," he said.