New NCUA bill would spread out replenishment

ALEXANDRIA, Va. (3/27/09)--The National Credit Union Administration (NCUA) announced Thursday that it has drafted legislation allowing credit unions to spread the cost of the National Credit Union Share Insurance Fund (NCUSIF) replenishment over as many as seven years.

At issue is the cost to natural person credit unions of recent actions by the NCUA to stabilize the corporate credit union system.

In January the NCUA issued a guarantee for uninsured shares at all corporate credit unions through February 2009, and established a voluntary guarantee program for uninsured shares of all corporate credit unions through Dec. 31, 2010. The agency also issued a $1 billion capital note to U.S. Central Corporate FCU (U.S. Central).

The NCUA at the time also declared a premium assessment to restore the NCUSIF equity ratio to a statutory minimum of 1.20% and said the premium would be collected in 2009.

As noted, the NCUA proposed legislation would allow credit unions to spread out the cost.

The proposed legislation would create a mechanism, the Corporate Credit Union Stabilization Fund, to absorb losses associated with the corporate credit union stabilization actions and spread out the associated costs to federally insured credit unions over seven years.

According to NCUA documents, the agency would use the Stabilization Fund to pay expenses associated with the ongoing problems in the corporate system. The fund may borrow money from the U.S. Treasury on a revolving basis.

The NCUA noted its draft legislation would take a current $100 million borrowing authority for the NCUSIF and increase it to $6 billion. However, the draft bill stipulates that the maximum combined borrowing for the new stabilization fund and the NCUSIF would be capped at $6 billion at any one time.

The stabilization fund would be required to repay the Treasury, with interest, all amounts borrowed, but has discretion to time each repayment and the amount of principal included with each repayment.

The NCUA also said its new fund would make assessments on federally insured credit unions as it determined necessary to make each repayment. The Board must close the Stabilization Fund down seven years after the initial borrowing.

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NCUA's Corporate Stabilization Plan


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