ALEXANDRIA, Va. (11/2/12)--The National Credit Union Administration (NCUA) on Thursday revised projections for the total cost of corporate credit union stabilization assessments to between $6 billion and $8.9 billion, a $400 million reduction from the previous maximum cost of $9.3 billion.
The NCUA in a release said the $400 million reduction in estimated costs reflects the performance of legacy assets held by the agency, and the NCUA's updated assessment of the macroeconomic factors used in projecting the future performance of NCUA Guaranteed Notes (NGNs). Funds that the agency has recovered through recent lawsuits against Wall Street firms are also added in to the $400 million total.
Credit unions have already paid $4.1 billion in assessments to the Temporary Corporate Credit Union Stabilization Fund (TCCUSF), including a 2012 TCCUSF assessment of 9.5 basis points (bp) of their insured shares as of June 30. With the new estimates, they will need to pay between $1.9 billion and $4.8 billion in additional assessments before the stabilization fund expires in 2021.
Credit Union National Association (CUNA) Chief Economist Bill Hampel said the 2013 TCCUSF assessment is likely to be in the range of 5 bp to 10 bp. A 2013 TCCUSF assessment of no more than 5 bp "would be sufficient to responsibly make headway on paying down the fund, pending further information on what the ultimate losses will actually be," he said.
Hampel noted the $400 million cost cut slightly reduces the expected amount of remaining corporate stabilization assessments to be paid by credit unions. "Just how much depends on the length of time over which the NCUA board decides to extend the remaining assessments," he added.
The $400 million reduction lowers the projected mid-point of the remaining assessments to be paid by $200 million, from $3.55 billion to $3.35 billion, Hampel said. "If the NCUA were to collect this midpoint assessment amount over a nine-year period, the annual assessments would need to be 3.5 bp of insured shares. At the previous loss estimates, the annual required assessment would have been 3.8 bp."
If NCUA officials chose to pay down the TCCUSF in five years instead of nine, annual assessments would be 7 bp under the new, lower loss projections. The bp projection under the previous loss estimates would have been 7.5 bp, according to Hampel.
All of these CUNA estimates assume 5% annual growth in insured shares, he said.
Keeping the next few years' assessments on the low-end will reduce the chance that assessments might actually overfund the actual losses, requiring a rebate at some point in the future, Hampel noted.
Market values of the remaining securities in the NCUA's legacy asset portfolios are rising, and continued recovery in the housing market could reduce the agency's projected corporate credit union loss estimates even further, he added. However, credit unions should not count on this reduction until it happens, Hampel said.
For the full NCUA release, use the resource link.