Tuesday, December 7, 2010

NCUA's Equitable Sharing Provision of TCCUSF Expenses

NCUA is proposing to add a new amendment to its corporate credit union rule that would provide for the equitable sharing of Temporary Corporate Credit Union Stabilization Fund (TCCUSF) expenses among all members of corporates, including both credit union and noncredit union members.

The new proposed Section 704.21 provides that when the NCUA Board assesses a TCCUSF premium on federally-insured credit unions (FICUs), NCUA will request existing non FICU members to make voluntary payments to the TCCUSF. In the event one or more of these non FICUs declines to make the requested payment, or makes a payment in an amount less than requested, the proposal requires the corporate conduct a member vote on whether to expel that non FICU. NCUA writes that non FICU members will not likely pay without some encouragement. (Emphasis added)

The proposed amendment defines non FICU to mean every corporate member that is not insured by the National Credit Union Share Insurance Fund (NCUSIF). This would include trade associations, CUSOs, non credit union cooperatives, banks, insurance companies, and privately insured credit unions.

Through this proposed amendment, NCUA is seeking to shift the cost of the TCCUSF expense from FICUs to non FICUs, even though the real beneficiaries from creation of the TCCUSF are the NCUSIF and FICUs, not non FICUs.

If it weren’t for the creation of the TCCUSF, FICUs were looking at a huge one-time assessment in 2009 associated with NCUA’s efforts to stabilize the corporate credit union network and the conservatorships of U.S. Central and Western Corporate Federal Credit Unions. FICUs were facing a one-time assessment of 99 basis points to restore the NCUSIF back to its normal operating level of 1.30 percent of insured deposits – 69 basis points write down of its one percent NCUSIF capitalization deposit and a premium assessment of 30 basis points. Testifying before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit on May 29, 2009, NCUA Chairman Fryzel stated that the 99 basis point cost to FICUs would equate to a 72 basis point reduction in each FICU’s return on assets and 65 basis point reduction in net worth.

Furthermore in a June 2009 letter to FICUs, NCUA wrote how both the NCUSIF and FICUs benefited from the creation of the TCCUSF. The TCCUSF “allows the Board to improve the NCUSIF’s equity ratio to better position the NCUSIF to cover future insurance losses. Essentially, it means insured credit unions will not bear a significant, current, concentrated, onetime burden for stabilizing the corporate system.”

Non FICU members of corporates, however, did not face this one-time assessment. Non FICUs did not benefit from shifting the obligation of resolving failed corporate credit unions from the NCUSIF to the TCCUSF and from the spreading out of the cost associated with corporate resolutions over a number of years.

Moreover, to call this payment voluntary or a gift is a sham.

NCUA would like you to believe that it is an innocent by-stander and not influencing the actions of non FICUs regarding the fictitious voluntary payments. NCUA wrote that it “does not ultimately make the determination of whether a non FICU should make a payment to the TCCUSF or the amount of the payment. The non FICU makes that determination. NCUA also does not make the determination of the adequacy of any payment. The members of the affected corporate make that determination when deciding whether or not to expel the non FICU member.”

In fact, NCUA is sending an invoice to non FICUs. If a non FICU does not pay up the requested amount, the corporate is required to hold a special meeting of the members to vote on the expulsion of the non-paying, non FICU member.

Most casual observers would hardly view this as voluntary and definitely not a gift. According to The American Heritage College Dictionary Third Edition, the word “voluntary” means “1) arising from or acting on one’s own free will or 2) acting, serving, or done willingly and without constraint or expectation of reward.”

Is this payment being done willingly without constraint?

In my opinion, non FICUs are being coerced into making this payment by a rogue agency that is abusing its powers.


  1. Well summarized! There are other words you could use for what they are doing or trying to do, extortion is one. If you look up that word, it best describes the actions of NCUA's proposed rules. If the NCUA had not been asleep at the switch as it relates to the Corporate Unions, maybe this bailout money would not be needed and this whole mess could have been avoided. NCUA is looking to deflect the spotlight from them to someone else so everyone will sight of who really dropped the ball here and has in part lead to all of these assessments. Man who lives in glass house should not throw stones!

  2. Bank failure costs are now commonly shared w the public; NCUA got this idea to socialize the losses from the Federal Agency next-door. It's a beautiful world if you are a regulator looking in a mirror.



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