WASHINGTON (7/30/13)--With the growing likelihood that corporate stabilization losses are largely paid for, the Credit Union National Association has called for the end of any further corporate stabilization assessments.
According to CUNA Chief Economist Bill Hampel, assessments in excess of what is needed to cover losses would likely be rebated back to credit unions. That is both good and bad news.
"While rebates in and of themselves are good, to the extent rebates occur, it means prior assessments were higher than they needed to be. Rebates add to net income, but their existence means assessments previously subtracted from net income," Hampel said. "Understating Return on Assets for the next few years, and overstating it later would create incorrect signals about credit union performance," he added.
CUNA has consistently questioned why the National Credit Union Administration covered all the corporate losses in a five-year period. The agency had originally planned a 13-year lifespan for the Temporary Corporate Credit Union Stabilization Fund (TCCUSF), and following that plan would have minimized the high up-front cost to credit unions, Hampel said.
NCUA last week announced a 2013 TCCUSF assessment of eight basis points (bp), which will amount to about $700 million. With this assessment, credit unions will have paid $4.8 billion in TCCUSF assessments since the fund was established. The projected net remaining assessments over the life of the TCCUSF, based on last December's valuation of the legacy assets, now range from $0.9 billion to $3.2 billion. However, as the performance of the legacy assets continues to improve, the range of remaining assessment estimates is likely to fall further.
"The improving performance of corporate legacy assets and positive housing and economic trends could mean the end of corporate assessments," said Hampel.
The NCUA board will consider the 2014 assessment range in November, and CUNA will continue to encourage NCUA to refrain from charging a TCCUSF assessment next year, and instead monitor how the economy in general and housing markets progress.
The other key factor in winding down the corporate stabilization fund is how fast the NCUA pays back the $4.7 billion line of credit it took out from the U.S. Treasury. After this year's payment is made, outstanding borrowing to the Treasury will total no more than $4.075 billion, NCUA staff said at last week's NCUA Board meeting. Paying down the credit line builds a cushion for emergency liquidity needs the agency or share insurance fund might encounter.
In the past, the Central Liquidity Facility (CLF) provided access to large amounts of emergency liquidity to the NCUA, but in its present form, the CLF no longer serves that purpose.