Details Revealed on Assessments, But Price Tag Remains a Mystery
Natural person credit unions don't know how much they will have to pay to shore up the NCUSIF this year, but they now know that the industry's health and historical trends are the key factors in determining the premium assessment.
Melinda Love, NCUA director of examination and insurance, recently told the board that her office's assessment recommendation-which will come out this fall-will be based on the fund's current equity level; projections for the next six to 12 months; an analysis of different assessment levels on the financial health of credit unions; and a recommended target equity level for the NCUSIF.
The agency levied a 0.15% premium last year.
In recent years, the agency has aimed to have the NCUSIF's equity ratio as close to 1.3% as possible. The Federal Credit Union Act mandates that that the ratio must be between 1.2% and 1.5%. CUNA and NAFCU have said if the equity ratio ever falls below 1.2%-it was 1.24% at the end of April and 1.26% at the end of March-the NCUA should develop a plan to restore it to 1.2% so that assessment expenses are spread out.
Love has warned that losses in some large credit unions may make the agency's existing provision for losses insufficient.
She said that the three key variables for determining equity ratio are the fund's earnings, insured share growth and the level of loss reserves needed to deal with losses caused by failed credit unions.
She noted that consumers' flight to safety has caused share growth to increase throughout 2009, which did not drop off throughout the rest of the year with typical seasonal activity. The agency expects that trend to continue this year.
On the loss reserves, she said that the agency determines necessary loss reserves based on historical loss probabilities for credit unions with each CAMEL rating. The number of CAMEL 3, 4 and 5 credit unions has increased over the last year.
Last September, the agency levied a 0.15% assessment on credit unions to shore up the NCUSIF and Temporary Corporate Credit Union Stabilization Fund. This year the agency is announcing the assessments separately and plans to announce the assessments for the Stabilization Fund this summer and for the NCUSIF in September.
Deputy Executive Director Larry Fazio told the board that the health of the Stabilization Fund will be hurt by bond defaults within corporate credit unions of $7.6 billion during the next two years. The fund has $6.4 billion set aside for losses for this year and must repay the Treasury Department $690 million over the next six years. The department gave the NCUA a $3 billion line of credit last year, but the agency has only used $690 million.
Fazio said the agency has "solid estimates" on the size of the corporate loss exposure and other corporate stabilization expenses and is on target to recommend an assessment figure this summer.
Despite new other-than-temporary impairments at many 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.