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As we are sure most readers of this blog know, CUNA supports NCUA closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF), merging the funds with the National Credit Union Share Insurance Fund (NCCUSF) and distributing these funds to members in 2018. We disagree with NCUA that the normal operating level (NOL) should be set permanently above 1.3%, but do not take issue with them holding 4 basis points temporarily for risk management. CUNA’s comment letter and direct meetings with NCUA staff have repeatedly stressed the importance of a path to a 1.3% NOL. The NCUA board is set to vote on this Thursday.
We don’t usually handicap NCUA actions publicly, but we're confident that NCUA will vote to close the TCCUSF and rebate credit unions in 2018. This will be a major victory for credit unions for two reasons: 1) credit unions will get a check from NCUA in 2018, and 2) credit unions will not have to pay an assessment to NCUA to boost the NOL to 1.3%.
Let’s be clear here about 1.3%: CUNA is pushing NCUA publicly and privately to return the NOL to 1.3% as soon as possible. We hope to see a path to 1.3% during the NCUA board meeting on this Thursday.
If NCUA keeps the NOL at the proposed 1.39%, the insurance fund would have a larger buffer than needed but credit unions would be less likely to pay a special assessment should a problem, such as impaired taxi cab medallion loans, cause NCUSIF losses.
Even though the clear majority of credit union comments on this proposal favored closure of the fund and the return of credit union resources to credit unions, there are voices within the system that remain steadfast in their position that NCUA should not close the fund and should delay returning funds to credit unions. For example, yesterday NAFCU released this statement:
“Our members' main concern with this plan is raising the NCUSIF's NOL from 1.3 percent to 1.39 percent and the precedent it would set. Not only would this be the highest NOL in the fund's history, it could result in excess money being retained by the agency that credit unions could use to better serve their members. This is why, based on feedback from our members, NAFCU is the only national credit union trade association advocating against the NCUA's proposal.”
Let’s unpack this a bit.
As the last sentence clearly states, NAFCU is advocating against the proposal which means that NAFCU is advocating against credit unions being refunded funds in 2018. The consequence of NCUA taking NAFCU’s position would be an assessment to return the NCUSIF to 1.3% because NCUA is not going to move away from setting the fund at 1.3%. Through its position, NAFCU appears to be distinguishing itself… as the only credit union trade association advocating for a 2018 share insurance assessment.
Further, one is left scratching their head wondering how in the world adopting NAFCU’s position would prevent NCUA from retaining excess funds when NAFCU’s position is that NCUA should retain all the funds until the issue can be studied more. The assets of the TCCUSF are known. The only variable is their value at maturity; this variable is not dependent on whether the funds are merged or not. There is not more money to be gained by holding the assets in the TCCUSF. Some of the assets have matured and there is no reason to delay the return of these funds to credit unions. With all due respect to NCUA, we believe that credit unions are better stewards of their members’ resources than the agency.
There is one last thing to consider in respect to the timing of the closure of the TCCUSF. NCUA has the authority to merge the funds and NOT return money to credit unions because a combined TCCUSF and NCUSIF would still have less than 1.5% in assets. Under the Federal Credit Union Act, NCUA is required to issue dividends from the NCUSIF if the fund exceeds 1.5% in assets but not until then. Because the merger of these funds will not cause the NCUSIF to exceed 1.5%, NCUA is not required to give anything back to credit unions. Fortunately, the current NCUA Board wants to return money to credit unions. Time is of the essence since board member Metsger is serving an expired term, and NCUA could get two new board members soon who could decide to keep the entire TCCUSF in the NCUSIF. This is a real risk that would be exacerbated by the delay that NAFCU seeks.
Here’s the deal: CUNA and NAFCU both want to see NCUA set the NOL at 1.3%. That’s the historic level and frankly, it’s the congressionally intended level. We’re probably not going to get there on Thursday. However, if NCUA adopts something close to what CUNA has suggested – heck, if they adopt what they have proposed – credit unions will begin receiving the excess funds early next year. And if NCUA takes NAFCU’s approach, credit unions will almost certainly pay a premium next year and they might not see any of these funds.
The battle shouldn’t be about whether to close the fund now, it should be about how quickly NCUA can return the NOL to 1.3%. That’s the discussion going forward. With NAFCU’s approach, NCUA gets there with an assessment. Under CUNA’s approach, NCUA gets there with credit unions having rebates in their “pocket.”
We understand the desire to stand on one’s principles but it’s clear to us that there is significant risk and zero benefit for credit unions in NAFCU’s approach on this issue.
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