CUNA contends corporate assessments should end if current trends continue

The National Credit Union Administration (NCUA) approved a corporate stabilization fund assessment of eight basis points (bp) at the July 25 meeting of its board after reporting on strong performance of the corporate legacy assets.  Credit Union National Associaiton (CUNA) Chief Economist Bill Hampel believes future assessments may not be necessary, based on that performance as well as housing and economic trends.

"This year's assessment amount of about $700 million could well be sufficient to cover the remaining losses on the legacy assets acquired from the five failed corporate credit unions," said Hampel.  "If this is the case, a 2014 assessment may well be unnecessary, and therefore unlikely."

Both NCUA Chair Debbie Matz and board member Michael Fryzel asked NCUA Director of Examination and Insurance Larry Fazio if the assessment could have been lower than 8 bp based on the strong performance of the assets.  Fazio maintained that market conditions could still change and that the NCUA is focused on paying down the $4.7 billion line of credit from the U.S. Treasury Department.

After the payment is made, outstanding borrowing to the Treasury will total no more than $4.075 billion, agency staff said.  Paying down the credit line builds a cushion for emergency liquidity needs the agency or share insurance fund might encounter.  In the past, the Central Liquidity Facility (CLF) provided access to large amounts of emergency liquidity to the NCUA, but in its present form, the CLF no longer serves that purpose.

"Unfortunately, the timing of the assessments is being driven by factors other than actual losses or the latest estimates of losses to be covered.  It is clear that the assessment decision was based more on liquidity concerns than on loss estimates," said Hampel.

The range for 2014 corporate assessments will be set in November, NCUA's Matz said.

Hampel also questioned the NCUA's decision to cover almost all of the losses of corporate stabilization in just the first five years of what could have been a 13-year program.  "Because many of the remaining losses won't actually be realized until a few more years into the future, it would have been preferable for the timing of the assessments to more closely correspond to the timing of the realization of the losses.  That also would have smoothed the effects of the assessments on credit union income statements."