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CUNA IDs NCUA corporate prepayment plan concerns
WASHINGTON (5/25/11)--The Credit Union National Association (CUNA) has developed more useful information on the key elements of the National Credit Union Administration’s (NCUA) proposed plan for voluntary prepayment of corporate credit union stabilization fund assessments. The information, which is in a question-and-answer document, is designed to help credit union officials understand the proposal and assess whether they want to take part in NCUA’s proposed prepayment plan. The NCUA’s plan, which would allow most credit unions to voluntarily prepay up to 36 basis points (bp) of their assessments, was released at last week’s May NCUA board meeting. The plan is not mandatory, but, legally speaking, all federally insured credit unions may participate. However, NCUA noted that 6,023 credit unions have more than $2.8 million in assets and could be able to take part in the plan. The NCUA said credit unions would need to advance the minimum amount of $10,000 to participate in the plan, and that it would not move forward with the plan if credit unions do not commit a combined $300 million in funds to the proposal. Credit unions that wish to take part in the prepayment program can pledge their desired amount to the NCUA, and the agency would then process a direct debit from those credit union accounts. CUNA said that the plan “would affect the amount of each year’s assessment through time, but not the total amount of assessments.” The primary goal of the plan is to smooth assessment rates. Based on current estimates of future losses on the legacy asset portfolios, NCUA will still need to collect $8.5 billion to cover the cost of corporate stabilization. However, the ultimate losses could end up requiring more or less than $8.5 billion in funding. Assessments beyond 2012 would be somewhat higher than they would be without the NCUA prepayment plan, according to CUNA. The exact amount of assessment reduction would depend on the level of participation. According to CUNA, the NCUA would need to collect $1 billion in funds for credit unions to truly recognize the benefits of the proposal. CUNA estimated that the NCUA’s 2011 and 2012 assessments would be reduced by 16 basis points if the proposal brought in $1.2 billion in funds, dropping each of those assessments to around 11 bp. The assessment levied in 2013 could be around 10 bp, CUNA added. The NCUA will hold its own Q&A session during a May 26 webinar. The agency is also accepting credit union comments on the potential effectiveness of its plan, the level of interest in the plan, and any account treatment considerations until June 20. To register for the NCUA webinar use the resource link.
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