On the heels of Sheila Bair relinquishing her chairmanship of the FDIC, NCUA seems poised to incorrectly continue her legacy.
NCUA's current proposal for corporate credit unions to prepay their assessments for two years is an investment decision for credit unions. Is a prepayment of at least $10,000 worth potentially receiving 10 to 25 basis point reductions in future assessments? Is this a good investment of a credit union's assets?
To answer this question, let's first, understand the accounting. A prepaid is treated like an asset on the balance sheet. As a portion of the prepaid expense becomes due, that portion is allocated to the income statement. Effectively, money that could be used as a potential investment, or future loan, is made into another asset–prepaid expense.
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