The NCUA has proposed merging the Temporary Corporate Credit Union Stability Fund into the National Credit Union Share Insurance Fund, and soon.
And for the first time the regulator has asked credit unions themselves for input on how it’s managed those two funds that contain billions in their money. We now have a board that appears to be listening to the industry. Let’s provide them some input on this critical issue while there’s still time.
The merger proposal sounds good, but the problem is that the way the regulator plans to execute the merger would cost credit unions much of the $1.8 billion or more that should be going back to its rightful owners, the members of America’s federally-insured credit unions.
That’s because as written, the proposal, which is open for comment until Tuesday, Sept. 5, would see the agency keep for itself nearly a billion dollars that it says is needed to secure the newly-enlarged NCUSIF against potential future losses caused by credit unions that might fail in a struggling economy.
The TCCUSF is scheduled to shut down in 2021 and, it would seem, that hastening its demise would get the money back to credit unions sooner.
But what’s really happening is that the NCUA just keeps feathering its own bed. The agency’s budget has grown dramatically over the past several years, sucking up nearly all the profit the NCUSIF made investing the premiums paid into it by credit union member since its creation in 1980.
Adding sin to folly, now the regulator is proposing to increase what it calls the Normal Operating Level for the NCUSIF from 1.3% to 1.39%.
In its own version of voodoo economics, the NCUA staff argues that the NCUSIF is taking on more risk by absorbing the assets and liabilities of the TCCUSF.
Just being prudent, the staff argues. But it’s using the same modeling that resulted in billions of unnecessary premiums and excess reserves in the corporate bailout fund.
One example: The regulator is assuming that a moderate recession would cause the NCUSIF to suffer insurance losses over the next five years that would exceed the losses the share fund saw from bailing out natural-person credit unions in the past nine years, including during the banking crisis of the Great Recession.
In other words, there’s no connection to what the regulator is charging for anticipated losses to the fund and what’s really happening.
If a credit union did this kind of modeling in its own loan loss reserves, there isn’t a CPA in the country that would approve those statements.
This is also the agency that touts its success in winning back $4.3 billion so far from the Wall Street bankers who sold the corporate credit unions the toxic securities that caused this whole mess. The problem here is two-fold: 1) Those investments were made under the watchful eye of NCUA examiners, including in some cases examiners stationed in-house; 2) The NCUA’s expenditure of a billion dollars in legal fees was deemed so excessive as to catch congressional attention.
We have until Tuesday, Sept. 5, to tell the NCUA why we think the merger is a good idea but raising the Normal Operating Level isn’t.
An ethical, responsible merger of these two funds could return the NCUSIF to its original intent: Ensuring a safe harbor for credit union members’ capital as the backbone of a thriving, relevant cooperative financial services movement.
Please, make your opinions known.
Chip Filson is Chairman of Callahan & Associates. He can be reached at 202-223-3920 or chip@callahan.com.
