Reporters meeting with NCUA board members. Photo from NCUA.Defending their decision to increase the agency’s operating level, NCUA board members said they are prudently protecting the Share Insurance Fund and are not engaging in a “cash grab.”
In lengthy statements at Thursday’s meeting and a roundtable discussion with reporters, Chairman J. Mark McWatters and board member Rick Metsger said increase in the agency’s Normal Operating Level will safeguard the agency.
The board approved a plan Thursday to merge its corporate stabilization fund with the Share Insurance Fund—a move that could result in a rebate of between $600 million and $800 million to federally insured credit unions in March.
“This is only the beginning” Metsger said, adding that additional dividends can be expected in future years.
The board also approved a plan to increase its NOL from 1.30% to $1.39%–a move that was opposed by many credit unions.
“To do otherwise would be irresponsible and represent undue risk to the credit union community,” McWatters said.
If the funds were not merged, the year-end ratio of the Share Insurance Fund is projected to be 1.25% at best. It would be expected to continue to decrease, McWatters said, adding that would result in federally insured credit unions having to be charged a premium.
McWatters and Metsger said that the NOL will be analyzed every year and it will be lowered if it can be done without posing additional risks.
“Nothing about this operating level…is designed to be static,” Metsger said.
The agency used the Federal Reserve Board’s economic scenarios in deciding that the NOL needed to be increased. “This approach simply seeks to provide reasonable protection from a moderate economic recession,” McWatters said.
Metsger said it is absurd to suggest, as one trade association did, that the NOL should be lowered to its statutory floor of 1.20%.
“That is something you would only do in a time of economic utopia, when you have no risk on your books and there are no clouds on the horizon,” he said.
McWatters said that the corporate stabilization fund was vital to weathering the failure of five corporate credit unions. “If the Stabilization Fund had not been created, these losses would have been borne by the Share Insurance Fund,” he said.
He added that the funds for the stabilization funds were provided by credit unions and a loan from the U.S. Treasury. That loan has been repaid, with interest. “In short, the Stabilization Fund contained the costs of the failed corporates within the credit union system, at no loss to taxpayers,” he said.
“It really is a historic time,” Metsger told reports following the meeting. “Not a single taxpayer dollar was used to resolve this.”
CUNA President/CEO Jim Nussle said that the trade group will continue to press for a lower NOL.
“CUNA wrote to the agency saying the proposed NOL was too high, but the agency indicated it was retaining this level to provide additional cushion to the share insurance level if there were to be an economic downturn,” Nussle said. “Going forward, we will continue to engage with the agency to ensure any raise is merely temporary.”
NAFCU President/CEO B. Dan Berger said he remains unhappy with the decision to increase the NOL so much.
“Raising the NOL by 9 basis points is unprecedented and unnecessary,” he said. ‘Two-thirds of all who commented on the proposal – including our members – opposed such a dramatic increase and rightly so.”
