The NCUA board on Thursday approved a pro rata distribution of $735,678,797 to eligible credit unions—funds that are available as a result of the closing of the corporate stabilization fund.
“We have excess funds,” said Board Chairman J. Mark McWatters, as the board adopted a formula for the distribution. “That’s a good story to tell.”
“The check may not be in the mail yet, but it’s on the way,” said board member Rick Metsger.
Metsger said that attorneys who filed suit to recover funds in connection with the sale of faulty mortgage-based securities to corporate credit unions were far more successful than anyone had anticipated.
He called the distribution “historic,” in part because it is 15 times larger than the last distribution in 2007.
The NCUA estimated that eligible financial institutions will receive their distribution in the form of a dividend for calendar year 2017, in the third quarter of 2018.
The NCUA board voted last year to close the stabilization fund. It had been scheduled to close in 2021.
Under federal law, the stabilization fund has been used to provide the agency with the ability to mitigate costs from stabilizing the corporate credit union system.
The distribution is possible because the agency has repaid all loans from the federal government and because, as a result of the fund closing, the share insurance fund’s equity ratio is 1.46%–above the 1.39% the board set last year.
However, NCUA officials also warned that if the two funds had not been merged, a premium charge of $1.3 billion would have been needed ecause the equity ratio would have dropped to 1.18%.
Under NCUA rules, the following institutions unions are eligible for the distribution:
- Active federally insured credit unions as of the end of 2017;
- Newly chartered federally insured credit unions that filed at least one Call Report for a reporting period in 2017;
- Financial institutions that converted to private insurance as long as they filed at least one Call Report as a federally insured credit union for a reporting period in 2017;
- Liquidation estates, provided the liquidated credit union filed at least one Call Report as a federally insured credit union for a reporting period in 2017.
The distribution to eligible financial institutions will be calculated based on the average of insured shares reported in each institution’s quarterly Call Reports.
McWatters said that when the stabilization fund was established, nobody expected that legal recoveries in connection with the sale of faulty mortgage-based securities to corporate credit unions.
During the meeting, he twice said that the legal fees in connection with the recoveries were too high.
“I feel compelled to say that because I believe that,” he said.
McWatters said that some in the credit union community continue to believe that the NCUA’s normal operating equity should be 1.3%, rather than 1.39%.
That is not possible, he said.
“We are stewards of the share insurance fund,” he said. “We are stewards of the taxpayers.”
Metsger said that the closing of the fund was possible because he and McWatters have been able to work on a non-partisan level.
McWatters agreed, saying, “No one is wearing an ‘R’ hat or a ‘D’ hat here.”
NAFCU had a mixed reaction to the developments.
“The money credit unions will have returned to them belongs to their members and is critical to the products and services they offer,” said NAFCU President B. Dan Berger. “That is why NAFCU has consistently pushed for the NCUA to give all of the funds back to credit unions as soon as possible.”
NAFCU will continue to advocate for that, Berger said, adding that NAFCU will continue to push NCUA to set its normal operating level at 1.3% rather than 1.39%.
CUNA officials said they had pushed for a distribution this year.
“We are closely reviewing the details of NCUA’s plan for share insurance fund equity distributions for credit unions in 2018,” said CUNA President/CEO Jim Nussle.