There is no good reason for the NCUA to tinker with the National Credit Union Share Insurance Fund, CUNA wrote in a white paper released today on the very remote possibility of a 2017 insurance premium. The NCUA has signaled the possibility of a 3 to 6 basis point premium in 2017, which CUNA believes is surprising given the current and prospective condition of the fund, as well as the agency’s past practice.
“Although the normal operating level of the equity ratio of the fund is currently 1.3% of insured shares, NCUA’s practice over the past three decades has established a normal operating range of 10 basis points below that level, from 1.2% to 1.3%,” reads the paper, authored by CUNA Chief Policy Officer Bill Hampel. “Under NCUA’s base case assumptions, the fund will end 2017 with the fund ratio at 1.25%; under its pessimistic assumptions, at 1.24%. In its thirty-year history, the fund has six times ended the year with an equity ratio of 1.25% or lower without charging a premium.
“Premiums have been reserved for cases when the fund would end the year very close to or below the 1.2% level that triggers a premium requirement,” Hampel added.
Therefore, if the NCUA follows past practices and policies managing the fund, a premium in 2017 is a “remote possibility,” CUNA believes.
However, should the NCUA charge a 2017 premium despite the fact that the fund’s equity ratio will be in the middle of the normal operating range, that suggests a likely change in future fund management policy, including the likelihood of raising the normal operating level of the fund above 1.3%.
“CUNA believes there is no good reason to tinker with the natural person credit union share insurance fund that has performed so reliably over the entire thirty years of its current form of capitalization, despite turbulent financial markets over that period,” the paper reads. “Reforms may well be necessary for the FDIC, which suffered two periods of massive volatility in the bank insurance fund ratio. NCUSIF experienced no similar volatility, so FDIC-like reform of the credit union fund is completely unnecessary.
“Changes to the structure and operation of corporate credit unions since the financial crisis have made them safe and sound partners to natural person credit unions that present negligible risk to the share insurance fund,” Hampel added.