Removing Barriers Blog

CUNA Files Comment Letter with NCUA on Corporate Stabilization Fund Closing
Posted August 31, 2017 by CUNA Advocacy

Today, CUNA filed a comment letter with the NCUA fully supporting NCUA’s proposal to close the Corporate Stabilization Fund, merge the fund assets in to the National Credit Union Share Insurance Fund (NCUSIF), and repay credit unions a portion of corporate stabilization premiums in 2018. The proposal has some issues though, because it does authorize increasing the normal operating level of the NCUSIF to 1.39% up from its historical 1.3% by using Corporate Stabilization Funds. CUNA strongly opposes this increase and urges the agency to show a path back to 1.3% as legacy assets mature.

We want CUNA members to be aware that a few other commenters have suggested that NCUA’s plan is not legal, that the agency does not need to merge Stabilization Fund into the NCUSIF to repay credit union assessments, and that the agency is somehow stealing credit unions’ money. These claims make for an exciting comment letter but lack merit, and will only delay payment to credit unions of past corporate assessments. 

NCUA has the authority to close the Stabilization Fund once certain conditions have been met.  And with these conditions being met, NCUA is smart to close the Stabilization Fund as it has served its purpose.  Upon closing the fund, the Federal Credit Union Act (FCUA) requires that Stabilization Fund assets be deposited into the NCUSIF.  The statute requiring this could not be any clearer. An argument has been made by some that NCUA should follow a different path not authorized by the FCUA. This scheme would require the NCUA to leave the Insurance Fund open to make distributions directly from the Stabilization Fund to credit unions or distributions to the NCUSIF, which would then make distributions to credit unions. CUNA might prefer a different repayment scheme if the law allowed for it, but it does not under any sound legal analysis. Therefore, the NCUA would be at serious risk of litigation if it were to pursue one these other methods of repayment.

The NCUSIF currently sits at approximately 1.25%.  The FCUA allows NCUA to assess fees to credit unions to boost the fund up to 1.3%. NCUA cannot charge additional assessments once the fund reaches 1.3% but can rebate funds in excess of 1.3%. NCUA has communicated to credit unions that it plans to charge an assessment to boost the fund to 1.3% absent closing the Corporate Stabilization Fund but will not have to charge an assessment if it merges the Corporate Stabilization Fund into the NCUSIF because the merging of the funds will put the NCUSIF over 1.46%. Once the funds are merged, NCUA plans to set the NOL at 1.39%, which will cause any funds in excess of that amount to be distributed to credit union through a NCUSIF distribution. NCUA is not legally required to make a distribution to credit unions until the fund goes over 1.5%.

Because NCUA cannot by law rebate NCUSIF funds if the fund falls under 1.30%, the repayment mechanism does not allow the agency to completely repay credit unions all of the Stabilization Fund assets.  Again, this is because part of Stabilization Fund assets will be used to return the NCUSIF to 1.30%. NCUA has discretion to return any amounts over 1.3% to credit unions.  As stated previously, the FCUA requires this repayments mechanism.

NCUA proposed temporarily increasing the NOL by .04% for additional risk to the NCUSIF related to legacy assets that have not matured and another .05% for economic risk. CUNA supports returning the NOL to 1.3% and an NOL of 1.34% temporarily, which should be reduced to 1.3% as legacy assets mature over the next several years. A permanent NOL over 1.3% is unnecessary and not supported by economic models. This has consistently been CUNA’s position.

The argument for direct distribution from the Stabilization Fund is made because if the NCUSIF never receives the Corporate Stabilization Fund’s assets, then it cannot use the assets to raise the NOL above 1.3%. This would be a reasonable argument but for the fact NCUA does not have the legal authority to go this route and, in reality, would never do so when one considers its goal is to set an NOL above 1.3%. Arguing that NCUA should do this would require that it ignore the FCUA's requirements for a reason that contradicts its goals.

CUNA believes the better position is to work with the NCUA Board to ensure the NOL returns to 1.3% over a reasonable period of time and that distributions are made in a transparent manner that properly reflect what each credit union paid into the Stabilization Fund.  We also want the agency to account for these amounts the portion of the Stabilization Fund used to boost the fund to 1.3%.

CUNA has worked with the NCUA over the past several years on closing the Stabilization Fund and thus we fully support NCUA’s plan to close the fund and provide credit unions with some repayment of corporate stabilization premiums in to 2018. We will continue to work with the NCUA in a constructive manner to return more Corporate Stabilization Fund assets to credit unions by returning the NOL to 1.3%. We will also make sure the accounting for assets is transparent, so credit unions receive repayment in the most equitable manner.

CUNA will strongly oppose any repayment scheme or study by the NCUA that would cause a delay in repayment beyond 2018.