NCUA Seeks NCUSIF Equity Ratio Increase
The NCUA will ask Congress to rewrite the Federal Credit Union Act so it can establish a risk-based NCUSIF premium system and eliminate the 1.3% equity ratio cap, according to a white paper obtained Monday.
The NCUA determined the current statutory equity ratio between 1.2% and 1.5% is too restrictive.
“The current level of the NCUSIF is not large enough to weather a level of losses experienced during the last recession without exacerbating the economic cycle,” the National Credit Union Share Insurance Fund Improvements white paper, dated September 2013, said.
According to the white paper, obtained through a Freedom of Information Act request made by retired ABA Senior Vice President & Senior Economist Keith Leggett, the CUSIF equity ratio needed to be 2.17% in 2008 to prevent any depletion of credit union contributed capital.
“The NCUSIF needs an equity ratio of at least 2% to provide an asset base that would better enable the NCUSIF to withstand the types of pressure that arose during the recent financial crisis and recession,” the NCUA suggested.
In the white paper, the NCUA recommended that Congress reform the Federal Credit Union Act to enable the NCUA Board to develop a variable risk-based premium system for credit unions based on the likelihood of the NCUSIF suffering a loss.
The NCUA board would consider a credit union’s risks related to different categories and concentrations of liabilities and any other factors the board determines are appropriate.
“In setting premiums, the board should also be able to take into account the likely amount of any such loss, as well as the current and projected revenue needs of the NCUSIF,” the paper read. “The system should be sufficiently flexible to enable the board to establish separate risk-based premium systems for credit unions by asset size and other criteria.”
According to the white paper, the NCUA also wants Congress to authorize the agency to calculate premiums based on total assets minus net worth.
Leggett, author of the blog, Credit Union Watch, said the white paper’s recommendations parallel the changes to the FDIC's insurance fund.
“The proposed change in the assessment base from insured deposits to assets minus net worth and the proposal to charge risk-based premiums will in general mean that the burden of funding the increase in the NCUSIF equity ratio to 2% of insured deposits will shift from smaller credit unions to larger credit unions and corporate credit unions,” he said.
“The legislative proposal of a 2% NCUSIF equity ratio is meant to keep credit unions from writing down their 1% NCUSIF capitalization deposit the next time the economy faces a severe recession,” Leggett added.