ALEXANDRIA, Va. (7/25/12)—Credit unions will be charged a 2012 Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessment of 9.5 basis points (bp) of their insured shares as of June 30, the National Credit Union Administration (NCUA) announced at Tuesday's July open board meeting.
"The assessment is just about what we expected, falling right in the middle of the forecasted eight to 11 bp range," Credit Union National Association (CUNA) President/CEO Bill Cheney said. 'The good news--to the extent there is some for credit unions--is that this year's assessment is much smaller than last year's 25 bp charge," he added.
CUNA Chief Economist Bill Hampel has projected a range of possibilites for future TCCUSF assessments.
The TCCUSF assessment is expected to bring in $790.5 million in funds to help cover the costs of corporate credit union stabilization. Invoices for the assessment will be mailed to credit unions in September, and payment will be due by Oct. 9, the NCUA said. Credit unions should record the TCCUSF assessment as an expense on their August financial reports.
The assessment will reduce the aggregate net worth ratio of all credit unions from 10.01% to 9.96%, with an average 6 bp decline, according to the NCUA. A total of 335 credit unions will not post net income this year as a result of the assessment costs, the NCUA added.
"The primary determinant of the size of this year's assessment is the cash flow needs of the stabilization fund, rather than any change in expected losses over the life of the fund," CUNA Chief Economist Bill Hampel said. The NCUA said the funds generated by the assessment, combined with borrowed U.S. Treasury funds, will pay $2.66 billion in net obligations that are due in 2012. The obligations are mainly principal and interest on maturing medium term notes issued by corporate credit unions and guaranteed by the TCCUSF, the agency added.
Federally insured credit unions will have paid $4.1 billion in corporate resolution expenses once this round of assessments has been collected, according to the NCUA. Credit unions can expect between $1.9 billion and $5.2 billion in remaining assessments, and this total would be paid off between 2013 and 2021, the agency said.
"Future TCCUSF assessments should be based more on spreading out the remaining losses on the legacy assets held by the fund, rather than on cash flow concerns," Hampel said.
"Since the legacy assets are primarily private-label, mortgage-backed securities, the actual losses will depend on the future of the economy in general and the housing market in particular," he added.
Assuming the $3.6 billion mid-point of NCUA's published remaining assessment range, Hampel said credit unions would pay off the remaining costs in about four years at assessment rates similar to this year's. Three years of ten bp assessments, and an eight bp assessment in the fourth year, would cover the remaining corporate stabilization costs, he added.