Future Premium Assessments: NCUSIF Versus FDIC

Recently, NCUA Chairman Deborah Matz was asked at a credit union conference in California whether credit unions should consider avoiding future NCUA premium assessments by converting to a bank or thrift charter. She responded that NCUA’s assessments are miniscule compared to FDIC premium assessments. She also made a huge point about banks prepaying 3 years of assessments in December.

I would like to address NCUA Chairman Matz’s comment.

It is true that FDIC-insured banks prepaid 3¼ years of assessments on December 30, 2009. These prepaid assessments appear as an asset on the books of the banks, just like the one percent NCUSIF capitalization deposit of credit unions. The purpose of the prepaid assessment is to provide FDIC with sufficient working capital to handle an anticipated elevated level of bank failures this year.

However, as premiums come due over the next 3 years, the FDIC will bill each bank for the quarter’s assessment based on the bank’s actual assessment rate and deposits at that time. That amount will be deducted from the bank’s prepaid assessments balance.

Currently, the base assessment rate ranges between 12 and 16 basis points (depending on supervisory evaluations and financial ratios) for banks that are well capitalized and have a CAMELS composite rating of 1 or 2. But the actual risk-based premium rate includes adjustments for secured liabilities, brokered deposits and capitalization, which can increase or lower the premium rate paid. Beginning in 2011, the base assessment rate will go up by 3 basis points. These premium rates will remain in effect until 2018, when FDIC expects the insurance fund to be fully recapitalized. The FDIC believes that premiums at this level will be sufficient to return the insurance fund to its normal operating level, without borrowing from the government.

By way of comparison, NCUA at its November 2009 Board meeting estimated credit unions will be assessed a premium of between 15 and 40 basis points in 2010.

I have not seen where NCUA provides any estimates regarding assessment rates for credit unions after 2010. However, Congress in 2009 authorized NCUA to borrow up to $6 billion from the government to stabilize the corporate credit union system. Federally-insured credit unions are responsible for repaying these borrowings. Depending on the ultimate cost of stabilizing corporate credit unions, some have estimated that federally-insured credit unions could pay an annual assessment of approximately 14 basis points a year thru 2016.

I hope this provides some needed clarity without demagoguery.