ALEXANDRIA, Va.–With CUNA and NAFCU divided in their positions on whether NCUA should move to begin making payouts from the Corporate Stabilization Fund in 2018, many other credit unions and associations have also filed comment letters with the agency.
Below are three different views, chosen to reflect the spectrum of responses, that have been shared with NCUA, ranging from how any distribution should be calculated, to a claim the NCUA plan is “fraught with conjecture and hope,” to one league sharing a plan by a CU CEO it says is much more straightforward than what NCUA has come up with.
‘Do Not Reverse Long-Standing Policy’
National Association of State Credit Union Supervisors (NASCUS)
NASCUS noted that with any future equity distributions from the NCUSIF (distributions not related to the closing of the TCCUSF), NCUA is proposing to begin using a credit union’s average insured shares based on the previous four quarter call reports to determine proportionate shares of the distribution.
“NCUA asserts that the proposed change represents a better distribution methodology that balances the interests of large and small credit unions. We agree,” the trade group said. “NASCUS supports NCUA’s proposal to amend the distribution calculation by using a four quarter-end look back to determine insured shares. Furthermore, NASCUS believes that limiting the look-back to the immediate previous four quarters is sufficient to account for seasonal fluctuation while maintaining a reasonable workload balance for NCUA in calculating a credit union’s share of a distribution.”
However, while NCUA has said the year-end approach would obviate the need for a new provision denying credit unions terminating their NCUSIF coverage their pro-rated share of a distribution, NASCUS said it opposes denying a converting credit union its pro-rata share of an NCUSIF equity distribution and therefore we oppose the year-end call report methodology.
NASCUS said it also disagrees with NCUA’s proposal to reverse its long-standing policy of recognizing the contributions to a NCUSIF equity surplus of credit union that’s terminate their NCUSIF coverage during the year for which an equity dividend is declared.
“Presumably, a credit union that terminates its NCUSIF coverage in a year for which an equity distribution is declared nonetheless contributed to the accumulation of equity in the insurance fund,” NASCUS wrote. “For those credit unions, and their members, honoring the longstanding commitment to return their pro-rata share of a distribution is the right return the equity value to all credit union members in a distribution year is not open- ended. The existing methodology only applies to credit unions, and their members, that were NCUSIF insured during the year giving rise to the dividend.”
‘Fraught With Conjecture And Hope’
State Employees Credit Union, Raleigh, N.C.
The $36-billion State Employees Credit Union reminded that from 2009 through 2013 its members invested over $162 million in the two insurance funds through additional premiums and assessments.
“In addition, SECU members lost over $21 million invested in membership capital shares of various corporate credit unions,” wrote SECU CEO Michael Lord. “We currently have $293 million of member dollars invested in the NCUSIF. We have an intense interest in how the insurance funds are managed and when and how distributions are made from the assets of the funds (which are credit union monies). Finally, we are concerned with the potential for future premiums or assessments and the imposition by NCUA of a stealth premium assessment by summarily moving the Normal Operating Level of the NCUSIF from 1.30% to 1.39%.”
Lord wrote that SECU does not support the “NCUA proposal to rush into a premature closure of the TCCUSIF,” and asked for a one-year delay in order to provide more time for review.
“It took more than eight years to get to our current position; it is not reasonable for our nation’s credit unions to be given 45 days to consider the potential impacts of such a rushed and potentially impactful proposal. There has been no real opportunity for thorough investigation, deliberation and thoughtful consideration of the future ramifications of such significant changes,” wrote Lord. “The dramatic number of assumptions on which the proposed merger of the funds, distributions to credit unions and remaining estimates of future fund balances are fraught with conjecture and hope. We do not know what the future holds with certainty and the TCCUSIF assets will be with us throughout several more economic cycles. It is prudent and reasonable to put off merging the fund into the NCUSIF until greater clarity is provided through the actual performance of fund assets.”
Lord added the actual returns of the “corpus of the membership capital invested by specific credit unions in the failed corporate credit unions should be returned to the investor credit unions and should not be used to bolster the NCUSIF.”
Lord said it is NCUA’s view that any increase in the Normal Operating Level of the NCUSIF from 1.30% to 1.39% amounts to a “taking” of monies from the investing credit unions—“the assessing of an insurance premium without declaring an assessment. Transparency dictates that it is fairer to declare an assessment than to artificially impose one. Once the funds are merged the waters are unnecessarily muddied.”
CEO’s Plan Is More Straightforward
Wisconsin Credit Union League
Many of the state credit union leagues submitted letters that were similar in language and consistent with CUNA’s position, which has called for payouts to begin in 2018. But one league also added a point not found in many of the other letters.
While the Wisconsin CU League said of its member CUs, “They deserve to be repaid, as much as possible and as quickly as possible, so that they can use the funds to better serve their member-owners,” it added that when it comes to the NCUA board’s rather lengthy methods for calculating equity disbursements related to corporate stabilization–the so-called first-in-first-out basis (FIFO) and the last-in-first-out basis (LIFO)–one CEO in the state has raised questions over the need for either approach.
“I think NCUA’s proposal is overly complicated and perhaps inequitable in how it distinguishes between corporate system resolution assessments that were collected in different assessment periods,” the league comment letter says, quoting the CEO. “I don’t see any good reason to use a LIFO or FIFO method, when NCUA could simply make distributions based on the total assessments a credit union paid over the entire period NCUA made assessments. The simplest and most equitable way to return any assessments that aren’t ultimately needed would be to look at how much each credit union paid in total assessments, relative to the total assessments NCUA collected, regardless of when the assessments were paid.”
The league said it agrees with the CEO, asking, “Wouldn’t it be more straightforward to calculate a FICU’s share of each equity disbursement payment based on the total corporate assessments it paid from 2009-2013? Participating credit unions would still receive distributions that are commensurate with their level of corporate assessments, but the NCUA would avoid unnecessarily complex LIFO and FIFO calculations.”
The WCUL added that if LIFO and FIFO are the only available options, it would support LIFO.
In addition, the league said it understands the need for §741.13 to be a temporary provision, but it questions whether it should apply to all equity distributions declared for specific calendar years (2017 through 2021).
“Is it a certainty that all of the so-called Legacy Assets will be liquidated by the end of 2021 and that no more equity disbursements will be made after that point related to closure of the Stabilization Fund?” the league asked. “If not, perhaps those sections could be written to reflect a Dec. 31, 2022 sunset date that is subject to extension by order of the Board.”
The Wisconsin league also recommended that should NCUA decide to raise the NOL above 1.34% for reasons having to do with the Share Insurance Fund’s future projected operations, it said an “amount necessary to make that increase should be debited to total assessment refunds based on current insured shares. It should be noted that CUNA supports a NOL of 1.3%, but we will not oppose NCUA’s proposed 4 basis points while the NCUSIF holds volatile assets from the TCCUSF.”