Although the majority of NCUA Board members are Democrats, when it comes to the question of lowering the NCUSIF's operating level, they have followed the advice of former First Lady Nancy Reagan: "Just say no."
Earlier this month, CUNA became the latest industry group to urge the agency to lower the level to 1.2% of credit union assets, down from its current level of 1.3%. While the agency hasn't specifically responded to CUNA's request, it has generally been reluctant to lower the level.
In 1998, Congress passed legislation gave the agency the right to set the fund's operating level between 1.2% and 1.5%. The level has stayed the same since then and the fund's equity ratio has ranged from 1.24% to 1.30%.
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Although there are signs that the economy is improving, the agency is still predicting difficulties. Because of anticipated problems with some credit unions, the agency projects that the fund's income could decline by $652.8 million this year.
That's the economic environment in which the agency received CUNA President/CEO Dan Mica's letter.
"CUNA is proposing that NCUA take steps that will help credit unions mitigate and manage their insurance costs, Mica wrote to NCUA Chairman Debbie Matz. "One is to reduce temporarily the normal operating level of the NCUSIF from the current 1.3% to no lower than 1.2%, the floor established for the fund in the FCU Act. While insured credit unions must maintain a deposit with the NCUSIF equal to 1% of their insured shares, slightly reducing the target level for the fund's retained earnings will potentially reduce credit unions' insurance payments over the next few years."
"We do not think the NCUSIF would be jeopardized if the normal operating level is set for a relatively short period of time closer to that level," Mica added.
The NCUA is preparing a response to Mica, but in the past the agency has said that its decision on the operating level is made after performing stress tests. Agency officials have said given the difficult economic conditions and the increased number of credit union liquidations, they prefer to err on the side of caution in this area.
In January, responding to a similar request made last year by NAFCU President/CEO Fred Becker, Matz wrote that the board will decide next fall whether to replenish the fund to 1.3% or let it continue to decline. She added that decision would be based on tracking of economic and institutional factors.
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