Credit Unions to Pay $1 Billion Assessment for Corporate Credit Union Rescue

The National Credit Union Administration (NCUA) announced yesterday at its June 17th Board meeting federally-insured credit unions will be charged 13.4 basis points assessment to repay borrowed funds from the U.S. Treasury to stabilize the corporate credit union system. This assessment will raise approximately $1 billion and is based upon March 31, 2010 insured shares (deposits). All federally-insured credit unions will be invoiced in July with payment due in August.

In announcing the assessment, NCUA Chairman Debbie Matz said: “The decision to levy this assessment was not taken lightly. We considered numerous factors – including the liquidity needs of the Stabilization Fund, the additional pressure on natural-person credit union earnings, and the future consequences of foregoing the corporate assessment this year.”

NCUA estimates that this assessment will reduce the credit union industry’s ROA by 11 basis points and will lower the net worth ratio by not more than 13 basis points. Staff analysis notes that 552 credit unions that reported positive income as of March 2010 would experience negative core income for the year due to the Corporate CU Stabilization Fund assessment. Sixty three federally-insured credit unions would slip below being well capitalized (net worth ratio of at least 7 percent). An additional 27 credit unions would become undercapitalized and 2 credit unions would become critically undercapitalized as their net worth ratios fall below 2 percent.

An interesting fact raised in the Board Action memorandum that had not been previously disclosed was that the NCUA Board in May authorized the Corporate CU Stabilization Fund to borrow up to $2 billion. The borrowed funds will be placed into the corporate credit union system to enhance liquidity during the summer when share deposit levels at corporate credit unions are traditionally lower. Since the end of May, actual borrowings are $810 million, bringing the total outstanding borrowings of the Corporate CU Stabilization Fund to $1.5 billion.