WASHINGTON–NCUA should not tinker with the National Credit Union Share Insurance Fund, nor is there any reason to charge a premium in 2017, according to a new white paper released by CUNA.
The trade group acknowledged that a premium to bolster the fund next year is a “very remote possibility.” The NCUA board was briefed on the state of the fund’s equity level during its last meeting by agency staff. The equity ratio is currently at 1.27%; the NCUA board has traditionally set a 1.30% equity ratio as the ideal level. Staff had indicated there could be a need for a three to six point NCUSIF premium in 2017 if the board wants to return the equity ratio to its target. CUToday.info has more coverage here.
“Although the normal operating level of the equity ratio of the fund is currently 1.3% of insured shares, NCUA’s practice over the past three decades has established a normal operating range of 10 basis points below that level, from 1.2% to 1.3%,” according to the paper, which was authored by CUNA Chief Policy Officer Bill Hampel. “Under NCUA’s base case assumptions, the fund will end 2017 with the fund ratio at 1.25%; under its pessimistic assumptions, at 1.24%. In its 30-year history, the fund has six times ended the year with an equity ratio of 1.25% or lower without charging a premium.”
Premiums, said Hampel, have been reserved for cases when the fund would end the year very close to or below the 1.2% level that triggers a premium requirement.
Should the NCUA charge a 2017 premium, however, despite the fact that the fund’s equity ratio will be in the middle of the normal operating range, the paper suggests a likely change in future fund management policy, including the likelihood of raising the normal operating level of the fund above 1.3%.
“CUNA believes there is no good reason to tinker with the natural person credit union share insurance fund that has performed so reliably over the entire thirty years of its current form of capitalization, despite turbulent financial markets over that period,” the paper reads. “Reforms may well be necessary for the FDIC, which suffered two periods of massive volatility in the bank insurance fund ratio. NCUSIF experienced no similar volatility, so FDIC-like reform of the credit union fund is completely unnecessary.”
Hampel added that changes to the “structure and operation of corporate credit unions since the financial crisis have made them safe and sound partners to natural person credit unions that present negligible risk to the share insurance fund.”
The paper is available here.