“Consternation” is a good word to describe credit unions’ reactions to NCUA’s corporate stabilization assessments and insurance premiums. While it’s probably impossible to completely eliminate those bad feelings, here’s some (relatively) good news.
Last November, CUNA published a white paper analyzing prospective deposit insurance assessments for credit unions, through NCUA, and banks, through the Federal Deposit Insurance Corp. (FDIC). CUNA’s economists updated this analysis in March 2011, concluding that then-available information suggested “average deposit insurance costs over the next 11 years will be slightly higher—by 1 basis point (bp), on average—at credit unions (7.7 bp) than at similarly sized banks (6.7 bp).”
At that time, we estimated low-risk FDIC banks would pay an 11-year total of 73.4 bp on insured shares and credit unions would pay an 11-year total of 84.8 bp on insured shares—a difference of 11.4 bp on insured shares or about 1 bp per year. (For a more detailed description of expected NCUA assessments, visit cuna.org/econ; select “research and policy white papers” and “Update to Comparing Future NCUA and FDIC Assessments.”)
Recent events and new data suggest the small, long-run assessment advantage estimated for FDIC-insured banks has now completely disappeared.
Here are three developments:
1. NCUA’s Letter to Credit Unions 11-CU-14 reports that a new analysis suggests the range of expected total losses in corporate credit union legacy assets has recently declined. The midpoint of the range in estimated losses on legacy assets has declined by $2 billion, from $15 billion to $13 billion.
2. The “first year” assessment in our March analysis was paid at the end of September: Collectively, credit unions paid a front-loaded 2011 assessment equal to 25.1 bp on insured shares or $1.96 billion. As explained by NCUA (and in our March 2011 white paper), the front-loading was necessary to meet Temporary Corporate Credit Union Sta¬bi¬lization Fund cash management needs. This $1.96 billion payment, when added to the depleted capital in conserved corporates ($5.6 billion) and 2009-2010 assessments ($1.3 billion) reduces the new midpoint of the range of remaining assessments—from $6.1 billion to $4.1 billion.
3. NCUA provided a range estimate of 0 bp to 7 bp on insured shares for a 2012 insurance premium. Our March analysis assumed no insurance premium in 2012. Based on our review of insurance fund balances, credit union financial positions, and movement-wide asset growth, CUNA’s economists continue to believe there will be no need to charge an insurance premium in 2012.
It’s now reasonable to expect the average annual deposit insurance costs for the next 10 years will be slightly lower (by 2 bp, on average) at credit unions (4.5 bp) than at similarly sized banks with similar risk profiles (6.6 bp).
In the aggregate, we now believe low-risk FDIC banks will pay a 10-year total of 65.8 bp on insured shares, while we expect credit unions will pay a 10-year total of 45.2 bp on insured shares—20.6 bp less than banks.
MIKE SCHENK is CUNA’s vice president, economics and statistics. Contact him at 608-231-4228.