Onsite Coverage: NCUA Board Approves Two Proposed Rules and 9.5 BP Assessment
ALEXANDRIA, Va. – Federally insured credit unions have two new proposed rules to consider and a new corporate assessment to pay as a result of actions at the NCUA Board meeting on Tuesday.
The board approved two new proposed rules – one that would require credit unions with more than $10 million in assets to develop a plan to address emergency liquidity shortfalls and set up their own backup liquidity source, and another that would allow the NCUA to declare state regulated, federal insured credit unions in “troubled condition.”
Credit unions with less than $100 million in assets would only have to comply with the liquidity plan provision of the proposed liquidity rule. The additional requirement to establish backup liquidity sources comes as a result of the wind down of U.S. Central FCU, which provided most credit unions with access to the Central Liquidity Facility.
Credit unions must establish their own CFL membership, access the CLF through an agent or establish borrowing access through the Federal Reserve Bank’s Discount Window.
A second proposed rule would allow the NCUA to declare a federally insured, state-chartered credit union in “troubled condition.” Currently, only state regulators can make such a declaration for the credit unions they regulate.
The NCUA said in its Board Action Memorandum that the expanded authority would “enhance NCUA’s ability to identify a credit union in ‘troubled condition’ and better protect the Share Insurance Fund from losses.”
Staff Attorney Steven Widerman told the board that the need for the proposed rule comes from an “upswing in the number of financially distressed credit unions in the $250 million to $500 million asset range.” The troubled credit union rule would apply to both natural person credit unions and corporates.
The board also approved the 2012 Temporary Corporate Credit Union Stabilization Fund assessment of 9.5 basis points of insured shares. The assessment will pay off the guarantees on two medium-term NCUA Guaranteed Notes that re-securitized corporate legacy assets; those notes mature in October and November 2012 and will require approximately $3.5 billion in payments to investors. In addition to the $790.5 million 2012 assessment, the TCCUSF will have to borrow $1.87 billion from the Treasury.
Director of Examination and Insurance Larry Fazio said the two notes are the last of the medium term notes issued from legacy assets. As such, the cash flow for legacy assets will peak in 2012, and future assessments will be used to pay off Treasury borrowings and any losses that exceed estimates on remaining NGNs. After the NGNs mature this fall, the TCCUSF will owe the U.S. Treasury $5.1 billion.
Additional actions included the reauthorization of the 18% interest rate loan ceiling through March 2014, the approval of the quarterly insurance fund report, and the approval of a $2 million reduction in the NCUA’s operating budget for 2012 and a board briefing regarding an interagency proposal regarding mortgage appraisals.