The NCUA board on Thursday agreed to seek comments on a plan to close the Temporary Corporate Credit Union Stabilization Fund at the end of September—a move that eventually could result in a Share Insurance Fund distribution to federally insured credit unions of $600 million to $800 million next year.
The stabilization fund had been scheduled to close in 2021.
Under federal law, the stabilization fund has been used to provide the agency with the ability to mitigate costs from stabilizing the corporate credit union system.
The board also agreed to seek comment on a plan to increase the normal operating level of the Share Insurance Fund from 1.30% to 1.39%.
“The Stabilization Fund has, accordingly, served its purpose of retaining the resolution costs of the five failed corporate credit unions within the credit union system, at no cost to taxpayers,” NCUA Board Chairman J. Mark McWatters said.
He said that increasing the equity ratio would allow the Share Insurance Fund to withstand a moderate recession.
“Prudent administration of the Share Insurance Fund and the related protection it provides for member deposits are paramount and fundamental to maintaining a safe and sound national credit union system,” McWatters said.
Board member Rick Metsger said that the agency estimates that during the next several years, between $2.6 billion and $3 billion in dividends will be returned to credit unions.
Metsger said that while comments on the proposals are due on Sept. 5, stakeholders should send in comments as soon as possible.
“While we want to hear your comments on this proposal, time is of the essence if credit unions want to receive a dividend in 2018,” he said. “We need to merge the funds by September 30 if we want to be able to declare a dividend at the end of the year that’s payable in 2018.”
NAFCU President B. Dan Berger applauded the opportunity to discuss folding the stabilization fund, but immediately expressed concern about the increase in the operating level of the insurance fund.
“At first glance, the proposed substantial increase in the normal operating level is unacceptable, and NAFCU will strongly urge the agency to avoid such a dramatic move,” he said.
The notice soliciting comment also states that the board is aware of industry opinions that a distribution to credit unions directly from the stabilization fund is permitted under federal law. The notice states that the board does not believe that is permitted under federal law.
Berger also disputed that assertion.
“We believe the NCUA has the legal authority to return assets to credit unions directly,” he said. “The money credit unions pay to the NCUA comes from its members, and it should be returned to the fullest extent possible.”
NCUA CFO Rendell Jones also told the board that only two credit unions have failed so far during 2017, while 14 failed last year. He said that the number of problem credit unions stands at 210, up 13 from March.
He also told the board that the agency’s operating budget is running $5.8 million less than the projected budget. Some of that savings came as a result of the agency having 50 unused full-time equivalency positions.
The board also agreed to publish a proposed rule that governs Share Insurance Fund Equity Distributions and a proposal to amend rules governing emergency mergers.
