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CUNA White Paper Discourages an NCUSIF Premium in 2017
Friday, December 16, 2016 6:45 AM

Credit Union National Association has published a white paper that provides a historical look at the National Credit Union Administration's practice of dividends and premiums with the National Credit Union Share Insurance Fund (NCUSIF) and makes the case for why a premium in 2017 doesn't make sense.

The white paper, "The Case against an NCUSIF Premium in 2017," notes that if NCUA does charge a premium in 2017, it would go against its historical practices and signify a change in future fund management policy, including the likelihood of raising the normal operating level of the fund.

“Although the normal operating level of the equity ratio of the fund is currently 1.3 percent 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 percent to 1.3 percent,” reads the paper, 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 percent; under its pessimistic assumptions, at 1.24 percent. In its thirty-year history, the fund has six times ended the year with an equity ratio of 1.25 percent or lower without charging a premium. Premiums have been reserved for cases when the fund would end the year very close to or below the 1.2 percent level that triggers a premium requirement."

"The recent marginal decline in the equity ratio has been caused by healthy growth of insured shares coupled with low earnings resulting from an extended period of very low interest rates. Insurance losses have not been the culprit," the paper reads.

The white paper also details how NCUA has made overtures for the NCUSIF to reach a much higher operating level and more closely align with banking insurance funds; however, the bank funds have had a much different history, and their issues should not dictate how NCUA manages NCUSIF.

Cornerstone Credit Union League President/CEO Dick Ensweiler said NCUA should not rush to assess credit unions because the fund falls below 1.27 percent. "We urge the agency to take a cautious approach to assessments. The credit union system is strong because changes to the structure and operation of corporate credit unions since the financial crisis have made them safe and sound partners that present negligible risk to the NCUSIF. A 3-6 basis-point assessment is a major expense for credit unions that are already spending additional money, time, and resources on compliance burdens."

Read more at CUNA’s Removing Barriers Blog and Research Roundup.