NCUA and Trades Weigh April NCUSIF Adjustment Impact
The NCUA will soon reveal April's 1% capitalization deposit adjustment, expected along with the agency's March financial statements.
Chief Financial Officer Mary Ann Woodson has apparently already added up this month's tab. She reported during the NCUA's March 18 board meeting that after credit unions pay the adjustment, the fund's equity ratio will rise to 1.26%.
That's still below the fund's 1.30% normal operating level but much closer than it was last September, when a portion of the 15 basis point special assessment was needed to return the NCUSIF's equity ratio to normal levels.
NCUA spokesman John McKechnie confirmed April's adjustment will not include an NCUSIF premium or corporate stabilization fund assessment. That will probably come this fall, he said, although he added the board reserves the right to collect special assessments at any time if it deems such a move necessary.
NAFCU President/CEO Fred Becker said credit unions have budgeted for April's assessment. But, he called the question of where do we go from here in regard to future assessments, including this fall's corporate stabilization and NCUSIF assessment NCUA estimated last October would be between 15 and 40 basis points, the most important issue facing federally insured credit unions.
Becker said current 5300 reports reveal a weighted average return on assets of only 0.24% for federally chartered credit unions. Those with more than $500 million in assets are faring the best with 0.41%.
While some have called for credit unions to spend capital to fund assessments, Becker said he's not sure the economy will turn around like it has in the past. And because many CUs are at or just below 7% net worth, the industry needs to protect its capital.
McKechnie said the NCUA is sensitive to how premiums could "exacerbate adverse trends" for credit unions and cautioned that when the NCUSIF equity ratio falls below the normal operating ratio, the agency is not required to charge a premium. Just as the board has the discretion to charge a premium, it can also choose not to.
Becker suggested the NCUA do just that this fall when it weighs the impact the corporate stabilization assessment will have on credit unions. He suggested the regulator shoot for a target net worth between 1% and 1.2%, which according to a provision in the stabilization act, would allow the NCUA to extend the payment eight years or even beyond that with the Treasury's approval.
"If the average weighted ROA is only 0.24%, if the NCUA takes 0.40%, it will obviously drive that ROA down into the negative range," Becker said. "So, when it comes to the insurance fund, why not thread the needle between 1% and 1.2%?"