WASHINGTON—While many credit unions and NAFCU oppose any move by NCUA to increase the NCUSIF’s normal operating level to 1.39%, one analyst is arguing that the level should be closer to 2%—similar to the FDIC’s target for its insurance fund.
Keith Leggett, the former senior vice president and senior economist at the ABA, citing credit union comments to NCUA that a normal operating level of 1.30% was sufficient to weather the recession and financial crisis, added that “this viewpoint that a normal operating level of 1.30% was sufficient to weather the financial crisis is not supported by the evidence.”
The TCCUSF was created by Congress in 2009, because credit unions were looking at a 91-basis point hit to the NCUSIF in 2009, noted Leggett on his Credit Union Watch blog.
“This means that credit unions would have been required to immediately expense a portion of their one% NCUSIF capitalization deposit, as well as pay a premium assessment. According to a September 2013 White Paper on the NCUSIF, the agency staff concluded that going forward a 1.3% equity ratio for the NCUSIF cannot be viewed as normal. The White Paper stated 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 one% NCUSIF capitalization deposit during the recent financial crisis and recession.”
There will be inevitable comparison between the NCUSIF to the Federal Deposit Insurance Corporation's Deposit Insurance Fund (DIF), emphasized Leggett.
“The Federal Deposit Insurance Corporation has stated that a designated reserve ratio of at least 2% is an integral part of its comprehensive, long-range management plan for the DIF.”
While credit unions will oppose any increase in the NCUSIF normal operating level, there will be political pressure on NCUA to increase the normal operating level, insisted Leggett.
“As a first step, the NCUA board should raise the normal operating level to its maximum level permitted by law of 1.50%, instead of the proposed 1.39%,” said Leggett. “A second step would require legislation removing the statutory cap on the NCUSIF normal operating level.”
Removing the statutory cap on the normal operating level would provide the NCUA board with greater flexibility to manage the NCUSIF normal operating level, said Leggett.
“An equity ratio of 2% for the NCUSIF would provide an asset base, which could withstand losses that arose during the financial crisis and the Great Recession. It would also ensure parity between the NCUSIF and the DIF,” said Leggett.