The NCUA outlined prospects for the timing of Temporary Corporate Credit Union Stabilization Fund refunds Thursday, and presented a detailed summary of the condition of the funds. The board briefing did not feature a vote, but the agency posted a summary of the fund, as well as staff comments to its website.
“CUNA welcomes actions to begin paying assessment rebates sooner than later,” said Bill Hampel, CUNA’s chief policy officer. “But we are concerned that doing so might cause NCUA to raise the normal operating level of the share insurance fund above 1.3%. We don’t believe that would be necessary.”
NCUA reported that the current accounting positive balance of the fund is $1.5 billion, and the expected economic surplus of the fund when the NCUA Guaranteed Notes (NGN) mature in 2021 is projected to be between $3.4 billion and $4.9 billion.
These positive results were attributed to both improving performance of the underlying legacy assets from the five corporates conserved back during the financial crisis, and net legal settlements of $3.2 billion from the investment banks that issued the legacy assets.
The $3.4 to $4.9 billion final surplus will be distributed in the form of both replenishment of capital holders at some of the corporates ($0.9 to $1.7 billion) and rebates of corporate stabilization assessments ($2.5 to $3.2 billion).
NCUA staff emphasized that these figures are based on estimated cash flows, and could change in either direction.
Assessment rebates cannot occur until the stabilization fund is closed and combined with the share insurance fund, according to the agency. The surplus from the stabilization fund would then be paid out as a dividend from the share insurance fund.
If the stabilization fund is kept open until the NGNs mature, the refunds would not occur until 2021. If the two funds are combined before then, a partial share insurance dividend, from the accounting surplus, could be paid sooner.
Closing the stabilization fund in 2017 would result in a 15 basis point increase in the equity ratio of the share insurance fund, most of which would be paid out as a dividend if the normal operating level of the fund remains at 1.3%
According to the NCUA, a possible drawback of closing the stabilization fund early would be exposing the share insurance fund’s equity ratio to greater volatility stemming from changes in the future cash flows from what are now the assets and liabilities of the stabilization fund.