NCUA’s Normal Operating Level (NOL) should be returned to the historical 1.30%, CUNA wrote the agency in response to a request for comment for setting the NOL. The NOL is an equity ratio set by the NCUA Board that may not be less than 1.20% and not more than 1.50%.
NCUA adopted a policy for setting the NOL in 2017, establishing a periodic review of the equity needs of the share insurance fund.
“We continue to call for the NOL to be returned to its historical 1.30%. Since being increased in 2017, we have repeatedly urged the NCUA to reduce the NOL… the reasons for which the NOL was increased in 2017 are no longer relevant or present today, obviating the need for the NOL to continue at its inflated level,” the letter reads.
Most of the 2017 NOL increase to 1.39% was related to legacy asset volatility associated with the corporate credit union resolution, CUNA adds.
“During the Fund’s 30-plus-year history, approximately one third of the time it has paid a dividend, and a premium has been required only 10% of the time. It has never ended a year with an equity ratio of less than 1.20%. The lowest year-end ratio has been 1.23%, which occurred in 2009, and on two occasions a premium was required to maintain the 1.20% ratio,” the letter reads. “The past practice of the NCUA has clearly been to levy an insurance premium only when not doing so would have left the Fund with an equity ratio nearly at or below 1.21%.”
The letter also notes that the NOL has been set 1.30% for most of its history, the level above which Congress stipulated that a premium cannot be charged, which “strongly suggests that Congress believed a NOL above 1.30% was unlikely to be necessary.”
CUNA also reiterated its opposition to the idea that NCUA may need to charge a share insurance fund premium in the near future, as well as any legislative changes that:
Increases the share insurance fund’s capacity for removing the 1.50% statutory ceiling on the NOL.
Removes the interim limitation on assessing premiums when the equity ratio exceeds 1.30%
Grants the NCUA Board direction on the assessment of premiums.
Provides the NCUA Board with the option to use risk-based premiums and total assets as the assessment basis, not insured shares.
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