WASHINGTON–One economist is predicting credit unions are unlikely to see any premiums assessed in the near future to fund the National Credit Union Share Insurance Fund, even as the nation’s banks aren’t able to say the same.
After joking, “I know what this audience wants—a share insurance fund update,” NAFCU’s chief economist, Curt Long, offered the trade association’s Congressional Caucus an update on the state of the NCUSIF, noting the last five years have been marked by “volatility,” but that years ahead look to be less volatile as the fund’s equity ratio improves.
Why the improvement? The decline in share growth which has been as “sharp and dramatic” as was the increase, Long said.
“If any element has come as a surprise to the agency, I think this is it,” said Long. “We have also seen improvement in investment yields in the fund. That’s partly due to a change in policy by NCUA investment committee, having moved to change duration.”
NCUA now invests NCUSIF funds out to 10 years, up from the previous limit of seven.
“This is not so much a new policy as a return to an old policy,” Long clarified, noting some CU failures in the past had created liquidity pressures that required shorter-term investments.
“It’s also a good sign that NCUA doesn’t see any problems on the horizon to prevent them from making that move.”
The changes in the fund’s duration and yields will take a while according to Long, who reminded that investments purchased in 2020 and 2021 were made in an extremely low rate environment and are going to be “with us for a long time.”
Long’s forecast for the NCUSIF equity ratio can be seen in the slide below. He said the forecast is based on three things: stable share growth, present (near zero) loss rate, and current interest rates persisting.
Long noted the FDIC insurance fund has seen a more severe performance decline, including the reserve ratio dropping below its statutory minimum. The federal bank agency is now applying an increased assessment rate to insured banks to boost that ratio.
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