Thursday, October 7, 2010

Credit Unions Paid Higher Premiums in 2010 Than FDIC-Insured Banks

I was recently asked how would FDIC premium assessment rates compare to premium rates paid by credit unions.

The short answer is that a well run (CAMEL 1 or 2) and well capitalized credit union had a higher premium assessment rate in 2010 than comparably situated FDIC-insured banks. The same is likely to be true for 2011 and 2012.

Currently, the base assessment rate for FDIC-insured banks 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 (and unsecured debt), which can increase or lower the premium rate paid. The ultimate range is between 7 and 24 basis points. If you go here, you can see the risk-based premium matrix for FDIC insured banks.

In comparison, credit unions faced a combined NCUSIF and Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessment of 25.82 basis points for 2010.

Going forward, the base assessment rate for FDIC-insured institutions will be raised 3 basis points beginning in 2011. So, the base rate will be between 15 and 19 basis points. But the actual premium rate will be subject to the same adjustments.

NCUA on the other hand stated that the resolution of toxic assets in the corporate credit unions means that "credit unions can expect higher assessments in 2011 and 2012 with assessments anticipated to level off thereafter." Go to page 5 (question 15) of the FAQ.

Therefore, credit unions should anticipate a premium rate higher than the 13.42 basis points they paid in 2010 to the corporate credit union stabilization fund in 2011 and 2012. On top of that, credit unions should prepare for a NCUSIF assessment, which NCUA will disclose in November during its Board meeting.

Moreover, this analysis does not take into consideration the opportunity cost associated with the one percent NCUSIF capitalization deposit, which is a non-earning asset.


  1. The FDIC reserve ratio was -0.28% at mid-year 2010, whereas the Congressionally-mandated level is 1.35% of insured shares. That means banks will pay assessments equal to 1.63% of current insured shares to restore the FDIC to its normal operating level. These payments will occur over the next seven years.

    In contrast, the NCUSIF reserve ratio is now 1.30%. With a very conservative estimate of $8.1 billion in coporate stabilization costs the adjusted NCUSIF ratio is 0.24%. Credit unions will thus pay assessments equal to 1.01% of current insured shares to restore the NCUSIF to its 1.25% normal operating level. These payments will occur over the next 11 years.

  2. Anonymous:

    I saw this analysis by CUNA.

    You will also note that CUNA's analysis glossed over the risk-based premiums and additional premium adjustments for brokered deposits, unsecured liabilities (including capital for smaller banks) and secured liabilities. In March 2010, the FDIC reported that 1717 banks paid an annual assessment between 7 basis points and 12 basis points, which is below the base rate of 12 thru 16 basis points.

    Second, CUNA took the mid-range of the losses from the corporate CUs. If you take the higher end estimate of $9.1 billion, the cost to natural person credit unions wil be 1.22 percent of insured deposits.

    Finally, I believe CUNA low balled the NCUSIF premium assessment for next year at 5 basis points. NCUA staff in September stated that the baseline case for the NCUSIF as of December 2011 is that the NCUSIF ratio will be 1.17 percent. Assuming the goal is for the normal operating level to be 1.30 percent, then this translates into a premium of 13 basis points next year.



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