Proposed ‘solutions’ to NCUSIF equity ratio unnecessary

September 29, 2020

Proposed “solutions” to NCUA’s low National Credit Union Share Insurance Fund (NCUSIF) equity ratio are unnecessary, CUNA Chief Economist Mike Schenk wrote in Credit Union Times Tuesday. Schenk’s piece was written in response to NCUA reporting at its September meeting the NCUSIF equity ratio was at 1.22% in June due to historic deposit growth stemming from the pandemic.

If the ratio fell below 1.2%, NCUA would be forced to make a restoration plan, such as assessing a premium, but Schenk notes NCUA is scheduled to receive additional capital next month when credit unions with more than $50 million in assets “true up,” their NCUSIF deposit to 1% of insured shares.

“With this additional capital, the NCUA projects the NCUSIF equity ratio will finish 2020 at 1.32% — a reading that is well above the level it has operated at over the past 30 years, substantially higher than the 1.20% threshold, which requires the NCUA to take corrective action,” Schenk writes. “What’s more, this equity ratio level of 1.32% would also be comfortably above the level that CUNA has continued to call on the NCUA to set as the Normal Operating Level: 1.30%.”

Schenk added that credit union finances underline the system’s health and resilience, as NCUA’s update shows that CAMEL codes 4 and 5 credit unions are decreasing, and there has been one small credit union fail this year, with an “almost imperceptible” affect on the NCUSIF.

“In short, there is no foreseeable need for a deposit insurance premium assessment, and the steps NCUA is taking to true-up the fund is consistent with that perspective,” Schenk writes. “The economy is fragile, and the prolonged trajectory of the COVID-19 crisis will undoubtedly continue to stress credit unions, making a strong NCUSIF even more important. By truing up the fund now, the NCUA and credit unions are taking a responsible step to reinforce the insurance fund’s soundness and forestall more aggressive action for the foreseeable future.”