CUNA CEO addresses CU stabilization plan concerns

WASHINGTON (6/1/09)—Although he said he could not fully predict what the implementation of the National Credit Union Administration's (NCUA) corporate stabilization plan would mean for credit unions, Credit Union National Association (CUNA) President/CEO Dan Mica answered some of the most frequently mentioned concerns in a recent letter to credit union officials.

The NCUA's current plan, which was signed into law by President Barack Obama on May 21, would allow credit unions to spread the cost of National Credit Union Share Insurance Fund (NCUSIF) replenishment over a longer period of time, with a total of eight years to deal with the cost of a premium assessment that has resulted from losses at wholesale corporate credit unions. Any impairment related to the NCUSIF replenishment may be booked over a seven-year period.

In the letter, Mica estimated that credit unions could be charged a premium of 10-15 basis points of insured shares this year. The amount of future insurance premiums could increase, decrease, or remain the same.

The exact amount of the premiums would "depend on what the actual losses turn out to be on the securities held by the corporates, and by the extent of insurance losses from any difficulties that arise from natural person credit unions," according to CUNA estimates.

While many credit unions have said that they would "just as soon pay the losses" and write down their NCUSIF-related costs all at once, CUNA believes that spreading out the cost over time is doing a service to all credit unions, including those that have been hit hard by the economic crisis.

Also, any write downs that have already been made will likely need to be reversed, as the affected deposits will no longer be impaired.

NCUA has not announced exactly when credit unions will need to make any adjustments to their accounting, but CUNA believes that all federally insured credit unions will apply the same accounting methods to their NCUSIF costs by years end.

The NCUA is expected to address NCUSIF implementation at its next board meeting, scheduled for June 18.

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