If current trends hold, the NCUA isn’t likely to have to levy a premium to shore up the NCUSIF this year, and if there is sufficient participation in the prepayment plan, assessments to repay the corporate credit union rescue could be reduced.
Those were the key messages from NCUA officials during Thursday’s webcast on the proposal to allow credit unions to prepay some of their assessments.
“Knock on wood, based on our current models we won’t have to have an assessment for the NCUSIF,” said Director of Examination and Insurance Melinda Love.
The agency had previously recommended that credit unions set aside between 0 and 10 basis points for the fund for this year.
In addition, agency officials said that assessments for the corporate credit union rescue would likely go down if enough credit unions participate in the proposed prepayment plan.
For example, if the NCUA receives $500 million in prepayments, the corporate assessment would be 20 basis points for 2011, compared to 25 basis points if there are no prepayments, according to projections released at the meeting.
The agency has recommended that credit unions set aside between 20 and 25 basis points for 2011 assessments for the Temporary Corporate Credit Union Stabilization Fund.
Deputy Executive Director Larry Fazio said the more money the agency receives through the program, the faster it can repay the loan from the Treasury Department and therefore the agency’s interest rate risk would be reduced.
He said the interest rate on the Treasury loan is subject to being adjusted once a year on the anniversary of the loan and given the likely rise in interest rates this would increase the cost of the repayment.
If the prepayment program goes through, the agency plans to collect the prepayments in August, Fazio added.
Under the proposal, credit unions could prepay between $10,000 and 36 basis points of insured shared toward their assessments to pay the costs of the rescue of corporate credit unions. Fazio said that based on comments that the agency receives during the comment period, which runs through June 20, the maximum contribution could be increased.
Credit unions wouldn't earn any interest and the total collected in prepayments would have to be at least $300 million for the program to take effect.
Love noted that in future years all credit unions would be assessed at the same rate, as required by law, regardless of whether they participated in the prepayment program.
In response to a question, she said NCUA examiners won’t treat credit unions differently, based on whether or not they participate.
Fazio said if the there is sufficient interest in the program, the agency would have to spend additional money to make some adjustments in its accounting system. He didn’t provide an estimate of how much and said the agency staff would give those projections to the NCUA Board at the meeting when the board votes whether to approve the program.