Fazio's Team Has "Solid" Corporate Assessment Estimates
NCUA Deputy Executive Director Larry Fazio said the regulator already has "solid estimates" on the size of corporate loss exposures and other corporate stabilization expenses and is on target to recommend an assessment figure this summer.
Fazio reported the progress to the NCUA Board May 20, one week after Chairman Debbie Matz told an audience in Wisconsin that the board will consider separating corporate stabilization related assessments from those that replenish the share insurance fund.
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.
However, Fazio said that pace of actual loss return will soon change. More than half-$7.6 billion-is expected to return to front-loaded corporate investment portfolios as actual losses during 2010 and 2011. Fazio stressed that the $12 billion total loss estimate includes corporate impairments covered by member-contributed capital and is not the net loss amount to be covered by the corporate stabilization fund.
"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 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.