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<p>ALEXANDRIA, Va – A senior NCUA official downplayed credit union savings forecasts which, should they prove true, could bring an NCUSIF premium assessment for all federally insured credit unions. In a January 17 briefing on the NCUSIF Dennis Winans, NCUA’s Chief Financial Officer, forecast 2002′s NCUSIF equity ratio on savings growth rate of 6.5%, an estimate he made based on historical savings trends. But a CUNA economist has forecast a savings growth rate of 10% and predicted that the economic trends that pinched the NCUSIF’s equity ratio in 2001 would continue in 2002. If the NCUSIF equity ratio falls to below 1.2% the NCUA must assess a premium on credit unions. CUNA Senior Economist Steve Rick has predicted savings growth in 2002 at 10% and cited some of the very same economic conditions, stressing the share insurance fund as reasons for that forecast growth. “Money market and regular savings accounts will experience double-digit growth in 2002,” Rick said. “People will park funds in these accounts to wait out low interest rates,” he explained. Saving growth will be slower in 2002 than last year, Rick said, but “in general we expect a continuation of last year’s trends.” But Winans, who said he had not yet seen the latest CUNA numbers, said it is “still too early” to make hard forecasts about the savings rates and noted that many economists expect the economy to take an upward swing towards the middle of 2002. An improvement in the economy would raise interest rates and draw money out of credit union savings accounts. “Historically we have seen a sharp drop off in savings during the year following a heavy savings year,” Winans said. “I based my forecast on those historic trends.” Winans forecast the NCUSIF’s 2002 equity ratio in January, February, June, July and August at either 1.27% or 1.26% and did not predict any months as low as the 1.21% it hit in June 2001. The NCUSIF’s equity ratio remained at only 1.22% in July and August of 2001. It fell to almost 1.27% in December, due in part to the agency’s 2001 overhead transfer rate of 66.72%. In light of these economic trends and NCUSIF performance the NCUA owes credit unions a plan for how it will manage the NCUSIF’s ongoing economic stress, said Charles “Chip” Filson, president of Callahan and Associates and one of the architects of the insurance fund’s current structure. “The NCUA’s role in the NCUSIF is that of a trustee,” Filson said in a recent interview. “It is much more fiduciary than regulatory. Credit unions are the “owners of the insurance fund,” he said, and the NCUA owes them a strategy for how it plans to manage their money during these economically stressful times. “If the NCUSIF were a credit union that had gone through similar difficulties, income dropping, unable to pay a dividend etc.,” Filson said, “the NCUA would expect that credit union to have a plan for how it was going to manage its economic stress.” Credit unions have a right to expect the NCUA to have such a plan, he said. Filson refrained from advocating any specific course such a contingency plan would have, citing NCUA’s access to broader and deeper credit union data. But he suggested strategic elements might include further cuts to NCUSIF expenses, lowering the equity ratio’s normal operating level to 1.2% and explaining the specific circumstances that would lead the agency to assess a premium. Filson lectured the board at the 2001 budget hearing about charging too many of the agency’s costs to the insurance fund, predicting that spending at current levels, combined with low income to the fund, could result in credit unions having to pay premiums. “The NCUA’s view is that most of those sorts of fund details are set in federal statute,” said Clifford Northup, NCUA’s Director of Public and Congressional Affairs. Northup pointed out that the statute limits the agency to adjusting the normal operating level between 1.2% and 1.5% and that it mandates the agency assess a premium if the equity ratio drops below 1.2%. But Filson countered that the statute gives NCUA some discretion on when and how it assesses a premium based on outlooks and economic contingencies. “The agency can look ahead and project when and under what economic circumstances it may be required to assess a premium,” he said. “It can share with credit unions a plan for how it will manage the fund in these difficult economic times.”</p>

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