Fazio Assessment Lays Out NCUA Corporate Bailout Thinking
Citing the timing of cash flows, NCUA Director of Examination and Insurance Larry Fazio answered critics who have questioned the need for future corporate assessments in comments released to the press Aug. 14.
Fazio didn’t shut the door on the possibility the NCUA may stall or discontinue future assessments, saying if corporate legacy asset loss estimates continue to improve, the low end of the loss range may decline to the point where no future assessments would be needed.
He also said based on projected residual legacy assets value, the NCUA Board may have more flexibility in future years to wait for the NCUA Guaranteed Notes to mature to repay the Treasury in whole or part. The majority of the 2013 assessment will be applied toward the NCUA’s $4.7 billion outstanding on a U.S. Treasury credit line that funded corporate stabilization efforts, leaving a little more than $4 billion owed after the assessment is applied this fall.
However, Fazio also said when the NCUA projects net remaining assessment figures, it merely represents the estimated remaining costs that must be paid by the industry to cover projected NGN program shortfalls between cash inflows and outflows. It does not account for the timing of those cash flows.
Fazio also cautioned that projecting loss estimates is a fluid process.
“The legacy assets are very complicated; it’s hard to precisely predict borrower’s behavior and where the economy is headed,” he said. There are other factors, such as potential future legal recoveries, that can’t be estimated at this time.”
CUNA Executive Vice President of Strategic Communications and Engagement Paul Gentile said after reading Fazio’s statement CUNA still maintains corporate assessments should end.
“We believe based on the most recent estimates of the legacy assets and the improving economy and housing market, coupled with the $4.8 billion credit unions have already paid in corporate assessments and the $5.6 billion in member capital in the failed corporates, that the assessments should be over,” he said.
In an Inside Exchange video interview released Aug. 15, Chief Economist Bill Hampel said he thinks actual losses will be between $10 billion and $11 billion. Assessments and corporate capital adds up to $10 billion, Hampel said, so no further assessments are needed.