Fund Levy Unlikely; Doubts on Prepay
Credit unions probably won’t have to pay a premium for the NCUSIF, but the NCUA is still trying to encourage them to part with more of their money.
"Knock on wood, based on our current models we won’t have to have an assessment for the NCUSIF," Office of Examination and Insurance Director Melinda Love said during a May 26 agency webinar.
The NCUA had previously recommended that credit unions set aside between 0 and 10 basis points for the fund for this year.
Love’s comments came while agency officials were explaining the details of its plan allowing credit unions to prepay some of the cost to rescue the corporate credit unions.
Credit unions have until June 20 to submit their comments, which the agency doesn’t plan to make public. The NCUA board could decide whether to implement the plan by the end of the month.
While participants in the webinar were not allowed to make comments, several of the questions sent via chatroom indicated skepticism about it, including those about additional costs and whether the agency would discriminate against those credit unions that don’t participate.
Tom O’Shea, president/CEO of Aspire FCU, said he doesn’t think the plan makes financial sense for credit unions such as his and he faults the way the agency has presented it.
"The money they want us to lend them is a long-term non-earning asset. We need to look carefully at the opportunity costs over five years or more, especially if interest rates go up," said O’Shea, whose Clark, N.J.-based institution has assets of $188 million.
He added that the discussion of the merits of the plan would improve if people were aware of everyone’s comments because "the wisdom of the crowds can help bring out valuable ideas. When they don’t share comments, they go into a black hole, and we don’t know what happens."
Agency spokesman David Small wrote in an email that NCUA officials believe that they will "get more frank feedback from credit unions on their ability to participate if we didn’t post their comments publicly."
Credit union consultant Marvin Umholtz said in an interview he can’t imagine any credit union board would "neglect its fiduciary duty to its membership and authorize a loan to NCUA that violated the safety-liquidity-yield principle. A noninterest loan is bad for most credit unions and a misalignment of both the liquidity and yield in SLY, he said.
At the webinar, 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 agency 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 adjustment 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 would probably collect the prepayments in August, Fazio added.
Under the proposed plan, credit unions could prepay between $10,000 and 36 basis points of insured shares 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 the maximum contribution allowed 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 said 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, Love said NCUA examiners won’t treat credit unions differently, based on whether or not they participate.
Fazio said if there is sufficient interest in the program, the agency would have to spend additional money to make some adjustments in its accounting system.