NCUA Deputy Executive Director Larry Fazio told the Board yesterday his team already has "solid estimates" on the size corporate loss exposure and other corporate stabilization expenses, and is on target to recommend an assessment figure this summer.
Despite new OTTIs at corporates, the NCUA's original credit loss estimates haven't changed much. That's because to date, only $600 million in actual confirmed losses have hit corporates, far shy of the total $12 billion expected to occur over the life of the toxic bonds.
However, that will change over the next two years, Fazio said. More than half-$7.6 billion-is expected to return to front-loaded corporate investment portfolios as actual losses during 2010 and 2011.
"Within the next two years, we will know if our loss projections were pessimistic or on target," Fazio told Credit Union Times.
He added he fields two primary questions from credit unions: how much will this year's assessment be, and how much will corporate stabilization cost in total. Determining a year's assessment is a balancing act between the impact of the cost on credit union earnings and capital, and the risk of back-end loading the assessments.
After real losses in 2010 and 2011 are matched to estimates and the NCUA has a more precise total loss number, the regulator can make adjustments, if needed, to the corporate stabilization fund for the remainder of the repayment period.