National Credit Union Share Insurance Fund Equity Distributions

SUMMARY

NCUA plans to close the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) in 2017 and transfer assets to the National Credit Union Share Insurance Fund (NCUSIF).   This proposed rule would amend NCUA's share insurance rule to allow for an equity distribution from the NCUSIF.  More specifically, the proposed rule would provide federally insured credit unions (FICUs) with greater transparency regarding the calculation of a FICU's proportionate share of a declared equity distribution from the and to add a temporary provision to govern NCUSIF equity distributions resulting from the Corporate System Resolution Program. 

Background

This proposal would update NCUA's insurance regulation to specifically add section 741.13 (NCUSIF equity distributions related to Corporate System Resolution Program), which as detailed by its heading provides the method for making equity distributions to credit unions related to the stabilization fund.

Methods of Distribution

The NCUA specifically proposes to amend section 741.4(e) to adopt a method for calculating a FICU's proportionate share of a declared NCUSIF equity distribution. Historically the NUCA has determined the amount of a FICU's proportionate share based on the FICU's daily NCUSIF capitalization deposit balance. This method is not clearly stated in §741.4(e) or any formal guidance.

NCUA goal in developing a method for calculating a FICU's proportionate share:

  • Is based on a FICU's insured shares;
  • Uses the most current and accurate data readily accessible through a FICU's quarterly Call Reports;
  • NCUA can reasonably administer without additional regulatory burden on FICUs or administrative burden on the agency; and
  • does not give an unfair advantage to one class of FICUs over another.

Current Equity Distribution Method

Under this method, NCUA determines a FICU's proportionate share of an NCUSIF equity distribution by dividing the total dollar amount of the NCUSIF equity distribution by the total dollar amount of the NCUSIF capitalization deposits. Expressed as a percentage, this quotient represents the distribution (or dividend) rate. NCUA then divides the distribution rate by 365 (the number of calendar days in a year) to arrive at a daily distribution rate. Finally, NCUA applies this dividend rate to a FICU's daily NCUSIF capitalization deposit balance to determine that FICU's proportionate share.

According to the NCUA the advantage of this method is that it treats an NCUSIF equity distribution similarly to a dividend on an investment such as a share certificate.  The disadvantage is that this method may give a FICU with $50 million or more in assets an unfair advantage over smaller FICUs. NCUA adjusts a smaller FICU's NCUSIF capitalization deposit annually in April using insured shares reported on the December 31 Call Report meaning that the first 3 months of the calendar year applicable to the NCUSIF equity distribution, the daily NCUSIF capitalization deposit balance is based on Call Report data that is almost two years old with the remainder of the calendar year, the daily NCUSIF capitalization deposit balance is based on the previous year's Call Report data.  The NCUA adjusts a larger FICU's NCUSIF capitalization deposit semiannually in April using insured shares reported on the December 31 Call Report and in October using insured shares reported on the June 30 Call Report, which captures share growth.

Four Quarter Average of Insured Shares Method

NCUA's preferred method  uses the average of the four quarter-end insured share balances reported on the FICU's Call Reports during the calendar year applicable to an NCUSIF equity distribution.  This method is the most complex for NCUA but is most equitable in that it better captures seasonal fluctuations. 

Year-End Insured Share Balance Method

The NCUA Board is also considering using the insured share balances reported on the FICU's December 31 Call Report during the calendar year applicable to an NCUSIF equity distribution method. Under this method, NCUA would determine a FICU's proportionate share by dividing the dollar amount of an NCUSIF equity distribution by the aggregate amount of insured shares in all FICUs as reported on the December 31 Call Report for the year applicable to the distribution. That proportionate share would then be multiplied by the amount of insured shares reported in the FICU's December 31 Call Report for the year applicable to the distribution to determine each FICU's proportionate share.

This method is simpler for NCUA to calculate but does not capture seasonal fluctuations. 

NCUSIF Equity Distributions Related to the Corporate System Resolution Program

The NCUA proposes to adopt a temporary provision to govern any NCUSIF equity distributions resulting from the Corporate System Resolution Program. For purposes of this temporary provision, any NCUSIF equity distributions declared for calendar years 2017 through 2021 are deemed to be ''resulting from the Corporate System Resolution Program.''

NCUSIF Equity Distribution on First-In, First-Out Basis

Under a FIFO approach, the NCUA would make an NCUSIF equity distribution to each FICU up to the total dollar amount of corporate assessments paid by that FICU during the relevant assessment period beginning with the first assessment period in 2009.

NCUSIF Equity Distribution on Last-In, First-Out Basis

Under a LIFO approach, the NCUA would make an NCUSIF equity distribution to each FICU up to the total dollar amount of premiums paid by that FICU during the relevant assessment period beginning with the last assessment period.

NCUA favors the LIFO method because that method ensures that FICUs  “receive NCUSIF equity distributions for their most recent corporate assessments first, with smaller assessments that took place at the start of the Corporate System Resolution Program being repaid over time as the NGNs mature.”  NCUA is proposing LIFO in section  741.13 but is taking comments on both methods.

Credit Unions That Terminate Insurance

The NCUA Board also proposes to amend §741.4(j)(1)(ii)  to prohibit a FICU that terminates federal share insurance coverage during a particular calendar year from receiving an NCUSIF equity distribution for that calendar year.  According to the NCUA this will provide greater fairness to FICUs that remain federally insured.

Comment to CUNA Staff Provide feedback here
Agency/Entity National Credit Union Administration
Agency Comment Deadline 09/05/2017
Docket/Identifying #

RIN 3133-AE77

CUNA Contact

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