If more credit unions leave the NCUSIF, can the NCUA take steps to minimize the impact on those that remain?

That’s a question raised by NASCUS and some credit union executives.

NASCUS President/CEO Mary Martha Fortney said the state regulators and leaders of the state-chartered credit unions that are on her association’s advisory council fear that state-chartered federally insured credit unions might face financial burdens that could negatively affect their safety and soundness if their assessments go up even more than anticipated.

“While charter choice is one of the most important principles for credit unions, it is important that everyone understand the possible implications of what could happen to credit unions. We are in the exploratory phase and trying to find what the NCUA is able to do and if it needs to have additional powers,” Fortney said in an interview.

Boeing Employees Credit Union Senior Vice President Parker Cann, who chairs NASCUS’ credit union advisory council, said he “doesn’t anticipate a rash of departures, but we are getting our ducks in a row. Human nature being what it is, some credit unions will want to look at leaving because they don’t like the NCUA and are frustrated with the costs of the corporate credit union rescue.” Cann’s Seattle-based credit union has assets of $9.6 billion.

The uncertainty facing credit unions, including the possibility that Congress may vote to tax them as part of a bigger deficit-reduction package, could cause more anxiety for credit unions. If credit unions lose their tax advantage, they might decide that they have more freedom if they have a bank charter.

Since 2009, when several large corporate credit unions began having problems, only three natural person credit unions have switched from the NCUSIF to private insurance provided by Ohio-based American Share Insurance. Dennis Adams, the firm’s CEO, said it is currently talking to “two or three” credit unions about switching.

“The three credit unions that have converted have had total assets of less than $500 million, which is small in the grand scheme of things. The bigger threat to the NCUSIF would come from liquidations than from private insurance,” Adams said.

Since 2009, there has only been one credit that has converted to a bank, the $300 million Cranston, R.I.-based Coastway Credit Union. But Har-Co FCU, a $184 million Bel Air, Md.-based financial institution has begun the process of considering whether to convert and recently ended the period for its members to comment on whether to become a mutual savings bank.

In an Aug. 9 letter to NCUA Chairman Debbie Matz, Fortney requested that the agency explain whether it has the power to assess all the costs in one premium and how would the agency calculate the total cost of the program since the total cost isn’t currently known. 

Fortney also asked if the NCUA can assess more than one premium a year to pay for the corporate credit union rescue. And she asked if the agency can assess an individual credit union’s its share of the costs if that credit union pursues conversion or private insurance.

The agency has previously said that it can collect the entire premium up front as long as it does so for all credit unions. However, its attorneys have also said that it lacks the statutory authority to require an individual credit union that leaves the NCUSIF, either through conversion to private insurance or to a bank, to pay its full share of the costs of rescuing the corporate credit unions before leaving the NCUSIF.

NAFCU Vice President and General Counsel Carrie Hunt said the equal protection clause of the Constitution’s 14th Amendment makes it difficult for Congress to craft legislation that would give the NCUA the ability to mandate that a credit union pay the entire amount before leaving the NCUSIF.

She also said that while the cost of the corporate credit union assessments are problematic for credit unions, a bigger concern for some is the competitive disadvantaged they are placed at because the NCUA relaxes field of membership rules for some credit unions as a result of some assisted mergers.

Brad Beal, president/CEO of Nevada Federal FCU, which recently said it would be converting to a state charter to expand its field of membership, said he doesn’t fear a massive exodus from the NCUSIF.

“The base [of the NCUSIF] is so big that you’d need a significant number of credit unions to depart to see a meaningful impact,” he said. Beal’s Las Vegas-based credit union has assets of $678 million.

The NCUA has advised credit unions to set aside between 20 and 25 basis points this year to pay for the rescue of the corporate credit unions. At a special meeting on Aug. 29, the NCUA board plans to vote on the assessment for this year.

The NCUA has until 2020 to repay the remaining amount of its loan from the Treasury Department, but the agency could reduce the amount of time that it takes to repay the money. The agency has estimated that the final amount will be between $7 billion and $9 billion.