Tuesday, February 21, 2017

Reserves for NCUSIF Losses Rose in 2016

Reserves to cover potential losses to the National Credit Union Share Insurance Fund (NCUSIF) rose in 2016, according to the National Credit Union Administration's Office of the Inspector General (IG).

According to audited financial statement for the NCUSIF, "[t]he NCUSIF ended 2016 with Insurance and Guarantee Program Liabilities of $196.6 million to cover potential losses as compared with $164.9 million for the previous year-end, an increase of $31.7 million." Year-end reserves were up $14 million from $182.6 million as of November 30, 2016.

Reserves were divided into $2.9 million in specific reserves. Specific reserves are identified for those credit unions where failure is imminent and where additional information is available to make reasonable estimate of losses. General reserves were $193.7 million.

However, the audited financial statement notes that estimated losses from conserved Melrose Credit Union were part of the general reserve methodology. The IG goes on to state that "the conservatorship [of Melrose Credit Union] is a distinct and subsequent action from the determination of year-end general reserves. Actual losses could vary and may be materially different from the estimated losses recognized as of December 31, 2016."

Read the audited NCUSIF statement.


  1. Dr. Leggett,
    Can you discuss the reserves of the credit union insurance fund as it compares to the exposure from medallion loans?
    How do the two compare and what does it mean for credit unions?
    Is it feasible that a credit union exists that can "afford" to acquire Melrose?
    Thanks for your help!

  2. A credit union could acquire Melrose (or any other troubled credit union) if determining the true value of the assets vs. its liabilities and then determining the value of the existing Melrose franchise and FOM, seeking assistance from the NCUA/NCUSIF for an amount to cover expected losses and the like. Same way as Telesis was acquired despite being in the hole for millions and millions of dollars.

    1. They can seek, but can NCUSIF pay?
      Will NCUSIF pay?
      It is common knowledge that NCUA doesn't do loss share the fdic did/does.

    2. While true NCUA does not do the loss share like FDIC, the NCUSIF will make a payment to a credit union to help take over a failing/failed credit union. If that is in the NCUSIF's "best" interest.

  3. Does it make sense for NCUA to merge this credit union? There are only two attractive parts to Melrose CU. 1) Nationwide Charter. Does NCUA want to have another CU with this big of footprint for the sake of the 24,000 existing members at Melrose? 2) Deposits. If there is a credit union out there that's a lending machine, the additional deposits could be helpful (along with charter), but would also require NCUA to provide great deal of concessions. Will be interesting to see how this plays out. Merger or Liquidation? Thoughts?

    1. Even a brief review of the bigger credit unions tells you that NCUA is in a corner.
      The losses are too large for any credit union to absorb and also too much for the reserves of the insurance fund.
      Any board that agrees to acquiring melrose should be removed by its members bc the dollar's are not there to do a fair deal to the members of the acquiring credit union.
      Dr. Leggett, your thoughts please.

    2. The NCUSIF has a net position (equity) of $12.7 billion. It has the capacity to handle the losses arising from bad taxi medallion loans.

    3. For every dollar the NCUSIF uses, there's a simultaneous reduction at each credit union right?
      And then don't each of us the credit union, also have to replace the dollar's at the insurance fund?
      How does that work?
      I never understood it.
      Do you know?

    4. NCUSIF is funded by a one percent capitalization deposit, premiums, and retained earnings. Credit unions are required to pay premiums if the NCUSIF equity ratio falls below 1.20 percent. The NCUA Board can assess a premium if the equity ratio is below the normal level, which is set at 1.30 percent of insured shares. The one percent capitalization deposit is only expensed when the NCUSIF equity ratio falls below 1 percent.



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