NCUA to Allow Voluntary Prepayments of Stabilization Fund Assessments

Revised program could reduce 2011 assessments by 6.4 basis points of insured shares.

June 29, 2011

The NCUA Board adopted a plan to permit voluntary prepayments of $500 million in Corporate Stabilization Fund assessments.

The program has the potential to decrease the currently projected 2011 stabilization fund assessment by 6.4 basis points (bp), from 24.9 to 18.5 bp of insured shares.

NCUA says it designed this program with these principles in mind:

  • Setting assessments in a counter-cyclical manner relative to credit union performance and providing resolution to the corporate crisis during this economic cycle;
  • Maintaining a meaningful contingency in Treasury borrowing capacity; and
  • Using credit union prepayments to reduce near-term stabilization fund assessments.

NCUA made several changes to its original voluntary stabilization fund prepayment plan. The agency:

  • Committed to using all received prepayments to decrease 2011 assessments dollar-for-dollar;
  • Increased the program’s size from $300 million to $500 million;
  • Increased the maximum amount a credit union may voluntarily prepay to 48 bp of insured shares as of March 31; and
  • Adopted a more inclusive minimum participation standard of $1,000 or at least 5 bp of insured shares as of March 31. This allows 98% of credit unions to participate in the program.

Elements remaining from the original proposal:

  • Participation will be voluntary and open to all federally insured credit unions able to meet the minimum participation amount;
  • Liquidity will be provided to the stabilization fund through an advance of assessments from participating credit unions; and
  • Credit unions must commit to raising $500 million for the agency to implement the voluntary prepaid assessment program.

Participating credit unions will not accrue interest on prepaid assessments.

NCUA will apply the program amounts as offsets against stabilization fund assessments for the years 2013 and thereafter, subject to any remaining balance. Voluntarily prepaying future assessments will not change the ultimate cost of the Corporate System Resolution.

Program information and instructions regarding participation are available here. Participating credit unions must download and return the participation form by July 29.

On Aug. 9, NCUA will tally the participation level to see if credit unions commit to $500 million. If not, the program won’t be executed and the regular scheduled assessment would be billed.

If credit union commitments exceeded the program amount, participating institutions will be debited a prorated amount of their commitment on Aug. 18, and a reduced assessment would follow.