ALEXANDRIA, Va.—A 2013 NCUA white paper recommends that Congress reform the National Credit Union Share Insurance Fund—establishing a risk-based NCUSIF premium system and approving legislation to remove the statutory cap from the NCUSIF equity ratio.
After the white paper was made public, NAFCU issued a statement saying it is "deeply concerned" about many of the changes.
In the white paper, NCUA stated that the normal operating level, currently set between 1.2% and 1.5% of insured shares, with the NCUA board traditionally setting the normal operating level at 1.3% of insured shares, won’t work in the future. The white paper’s existence was first reported by Keith Leggett on his blog. Leggett recently retired from the American Bankers Association.
“The agency has concluded that going forward a 1.3% equity ratio for the NCUSIF cannot be viewed as normal,” wrote Leggett.
The September 2013 white paper was obtained by Leggett through a Freedom of Information Act request.
Leggett quoted the white paper as stating that NCUA believes that "the NCUSIF needs an equity ratio of at least 2% to provide an asset base that would better enable the NCUSIF to withstand the types of pressure that arose during the recent financial crisis and recession."
The agency estimated that the NCUSIF equity ratio needed to be at 2.17% of insured shares to prevent any depletion of a credit union's 1% NCUSIF capitalization deposit during the recent financial crisis and recession.
With release of the white paper, NAFCU CEO Dan Berger said the association is “deeply concerned the agency’s recommended changes would be costly and exacerbate the burden on an already extremely safe and sound industry – an industry that did not cause the financial crisis.”
Berger noted that in February of 2015 NAFCU wrote to NCUA and requested that it fully disclose its long-term plan for mitigating perceived risk in the credit union industry.
“We specifically noted NCUA’s legislative priority of establishing risk-based share insurance premiums-a priority that was buried in a footnote of NCUA’s congressional testimony in February before the Senate Banking Committee,” said Berger. “In her response, NCUA Chairman Debbie Matz specifically did not address the agency’s ideas for legislative reforms to the share insurance fund. NAFCU is carefully reviewing the September 2013 white paper to assess the full impact these legislative reform ideas would have on credit unions and their 100 million members. Like risk-based capital, these issues need to be discussed and considered in an open and transparent forum.”
The white paper recommended that Congress should also amend the Federal Credit Union Act to enable NCUA to calculate premiums paid by insured credit unions based on assets minus net worth, rather than insured shares.
“NCUA wrote that basing premiums on total assets minus net worth would better account for the risks posed by highly leveraged institutions,” said Leggett. “The implication of shifting premiums to an asset minus net worth assessment base is that the share of premiums paid by larger credit unions and corporate credit unions would increase, while the premium burden for credit unions with less than $1 billion in assets would fall.”
The agency also proposed that Congress change the Federal Credit Union Act to enable the NCUA board to develop a risk-based premium system for credit unions, arguing that by moving from a proportional to a risk-based premium system would increase both fairness and incentives for operating safely, wrote Leggett. “In addition, the proposed legislative language submitted by NCUA would allow the board to establish a different risk-based premium system for credit unions defined as small. However, the white paper does not specify how the risk-based premiums will be calculated.”
'Deeply Concerned'
NAFCU President and CEO Dan Berger said the trade association is "deeply concerned" about the recommended changes.
In a written statement, Berger said the suggested changes "would be costly and exacerbate the burden on an already extremely safe and sound industry – an industry that did not cause the financial crisis. In February, NAFCU wrote NCUA requesting that the agency fully disclose its long-term plan for mitigating perceived risk in the credit union industry. We specifically noted NCUA’s legislative priority of establishing risk-based share insurance premiums--a priority that was buried in a footnote of NCUA’s congressional testimony in February before the Senate Banking Committee. In her response, NCUA Chairman Debbie Matz specifically did not address the agency’s ideas for legislative reforms to the share insurance fund. NAFCU is carefully reviewing the September 2013 white paper to assess the full impact these legislative reform ideas would have on credit unions and their 100 million members. Like risk-based capital, these issues need to be discussed and considered in an open and transparent forum.”