In a speech on February 26 at the Credit Union National Association's Government Affairs Conference, National Credit Union Administration (NCUA) Chairman McWatters highlighted the agencies accomplishments and promised continuing cooperation between NCUA and credit union stakeholders.
Chairman Mcwatters promised the attendees of continued inclusion, accountability, and transparency in the agency's decision-making.
He further reassured the audience that "[w]hile we may agree to disagree on certain issues, please understand your voices are heard."
Chairman McWatters commented that credit unions and community banks could work together in good faith to address common challenges facing Main Street financial institutions.
Accomplishments over the last year include closing the Temporary Corporate Credit Union Stabilization Fund four years early, payment of an equity distribution of $736 million to credit unions, and the avoidance of a premium assessment of $1.3 million. He also pointed out the restructuring efforts at the agency.
However, the speech did not break any new ground on forthcoming regulatory initiatives at NCUA.
Read the speech.
Showing posts with label TCCUSF. Show all posts
Showing posts with label TCCUSF. Show all posts
Monday, February 26, 2018
Wednesday, February 21, 2018
OIG: Setting of Normal Operating Level at 1.39 Percent Was Reasonable
The National Credit Union Administration (NCUA) Office of the Inspector General (OIG) determined that NCUA's process and basis for setting the Normal Operating Level (NOL) at 1.39 percent was reasonable.
The OIG was responding to a request from Callahan & Associates regarding the legality of transferring the funds of the Temporary Corporate Credit Union Stabilization Fund to the National Credit Union Share Insurance Fund (NCUSIF) and increasing the NOL of the NCUSIF from 1.30 percent to 1.39 percent.
The OIG limited its analysis to raising the NOL from 1.30 percent to 1.39 percent. The OIG stated that it was beyond its purview "to conduct a legal review of the Board's statutory authority."
The OIG reviewed applicable legislation and rationale for increasing the NOL to 1.39 percent. In addition, the OIG compared NCUA's rationale for increasing the NOL with the Federal Deposit Insurance Corporation's rationale for raising the Designated Reserve Ratio for the Deposit Insurance Fund in 2011.
The OIG pointed out that the decision to raise the NOL to 1.39 percent was to preserve public confidence in the NCUSIF, to prevent an impairment in credit unions' one percent NCUSIF capitalization deposit, and to ensure the NCUSIF can withstand a moderate recession without the equity ratio falling below 1.20 percent over a five-year period.
Read the letter.
The OIG was responding to a request from Callahan & Associates regarding the legality of transferring the funds of the Temporary Corporate Credit Union Stabilization Fund to the National Credit Union Share Insurance Fund (NCUSIF) and increasing the NOL of the NCUSIF from 1.30 percent to 1.39 percent.
The OIG limited its analysis to raising the NOL from 1.30 percent to 1.39 percent. The OIG stated that it was beyond its purview "to conduct a legal review of the Board's statutory authority."
The OIG reviewed applicable legislation and rationale for increasing the NOL to 1.39 percent. In addition, the OIG compared NCUA's rationale for increasing the NOL with the Federal Deposit Insurance Corporation's rationale for raising the Designated Reserve Ratio for the Deposit Insurance Fund in 2011.
The OIG pointed out that the decision to raise the NOL to 1.39 percent was to preserve public confidence in the NCUSIF, to prevent an impairment in credit unions' one percent NCUSIF capitalization deposit, and to ensure the NCUSIF can withstand a moderate recession without the equity ratio falling below 1.20 percent over a five-year period.
Read the letter.
Thursday, February 15, 2018
Problem CUs Fell, NCUSIF Reserves Up Significantly, and NCUA Board Declares Dividend Distribution
The number of problem credit unions fell during the fourth quarter of 2017, according to the National Credit Union Administration (NCUA).
At the end of the fourth quarter of 2017, there were 196 problem credit unions. In comparison, there were 204 problem credit unions at the end of the third quarter.
A problem credit union has a composite CAMEL rating of 4 or 5.
Total assets and shares (deposits) in problem credit unions fell during the fourth quarter. Assets in problem credit unions were $9.6 billion at the end of the fourth quarter -- down from $10.2 billion at the end of the third quarter of 2017. Shares in problem credit unions decreased from $9.0 billion as of September 30 to $8.7 billion as of December 31.
NCUA reported that almost 89 percent of problem credit unions have less than $100 million in assets, while less than 2 percent have more than $500 million in assets.
At the end of the fourth quarter, 0.80 percent of total insured shares were in problem credit unions. At the end of the third quarter, 0.84 percent of total insured shares were in problem credit unions.
In a related news, reserves for the National Credit Union Share Insurance Fund (NCUSIF) increased from $286 million at the end of the third quarter of 2017 to $925.5 million at the end of 2017. There will be more to come on this increase in reserves, once NCUA releases its audited financial statements for the NCUSIF.
Despite the increase in NCUSIF reserves, NCUA Board declared a distribution from the NCUSIF of $735.7 million for December 2017, which will be paid in the third quarter of 2018. The merger of the Temporary Corporate Credit Union Stabilization Fund into the NCUSIF made the distribution possible. Otherwise, insured credit unions faced a premium of 12.2 basis points per insured shares to restore the NCUSIF to its prior normal operating level of 1.30 percent of insured shares.
At the end of the fourth quarter of 2017, there were 196 problem credit unions. In comparison, there were 204 problem credit unions at the end of the third quarter.
A problem credit union has a composite CAMEL rating of 4 or 5.
Total assets and shares (deposits) in problem credit unions fell during the fourth quarter. Assets in problem credit unions were $9.6 billion at the end of the fourth quarter -- down from $10.2 billion at the end of the third quarter of 2017. Shares in problem credit unions decreased from $9.0 billion as of September 30 to $8.7 billion as of December 31.
NCUA reported that almost 89 percent of problem credit unions have less than $100 million in assets, while less than 2 percent have more than $500 million in assets.
At the end of the fourth quarter, 0.80 percent of total insured shares were in problem credit unions. At the end of the third quarter, 0.84 percent of total insured shares were in problem credit unions.
In a related news, reserves for the National Credit Union Share Insurance Fund (NCUSIF) increased from $286 million at the end of the third quarter of 2017 to $925.5 million at the end of 2017. There will be more to come on this increase in reserves, once NCUA releases its audited financial statements for the NCUSIF.
Despite the increase in NCUSIF reserves, NCUA Board declared a distribution from the NCUSIF of $735.7 million for December 2017, which will be paid in the third quarter of 2018. The merger of the Temporary Corporate Credit Union Stabilization Fund into the NCUSIF made the distribution possible. Otherwise, insured credit unions faced a premium of 12.2 basis points per insured shares to restore the NCUSIF to its prior normal operating level of 1.30 percent of insured shares.
Friday, October 13, 2017
NCUA Chairman McWatters: Equity Ratio of 1.30 Percent Not Sufficient to Weather 2007-2009 Recession
National Credit Union Administration Chairman McWatters sets the record straight that the National Credit Union Share Insurance Fund's Normal Operating Level of 1.30 percent was not sufficient to weather the 2007-2009 financial crisis and recession.
McWatters stated:
McWatters stated:
"Some in the credit union community contend a 1.30 percent normal operating level has historically been sufficient to address risks to the Share Insurance Fund, including during the 2007–2009 financial crisis. This is simply not true. The very existence of the Stabilization Fund and the fact the NCUA borrowed $5.1 billion from the U.S. Treasury to fund resolution obligations, demonstrates that the credit union community was not prepared to handle the impact of the large losses that resulted from the failure of five federally insured corporate credit unions as a result of the 2007–2009 recession.Hopefully, McWatters' statement puts to rest the false narrative being pushed by certain credit unions and their trade associations that the equity ratio of 1.30 percent for the National Credit Union Share Insurance Fund was adequate.
These corporate credit unions were not some wholly separate and anomalous externality. They were insured credit unions created, funded, and governed by natural-person credit unions. As noted previously, without the Stabilization Fund, all of the equity in the Insurance Fund would have been consumed by these losses.
The corporate system is better regulated now, and much smaller than it used to be. Therefore, the exposure to future losses from corporate credit unions should be significantly reduced. However, one cannot ignore the fact that the Insurance Fund was imperiled by the risk exposure of this portion of the credit union community.
Others contend that the credit union community weathered the financial crisis just fine with the caveat “if you don’t include the corporate credit union losses.” This contention also is not consistent with established historical fact. The number of troubled credit unions, including large institutions, increased materially during the Great Recession. The Share Insurance Fund’s equity ratio fell below 1.20 percent even without the corporate credit union losses. Meaning, the equity ratio fell below 1.20 percent only because of natural-person credit union losses and insured share growth.
The result was two Share Insurance Fund premiums totaling 22.7 basis points or $1.66 billion. The actual decline in the equity ratio from the 2007–2009 severe recession was predominantly the result of the increase in loss reserves for natural-person credit unions, as required under accounting standards applicable to the Insurance Fund and, to a lesser extent, elevated insured share growth. Realized Share Insurance Fund losses were significantly elevated as well. From 2008–2012, 112 natural-person credit unions failed at a cost of $807 million to the Insurance Fund.
Clearly, a 1.30 percent normal operating level for the Share Insurance Fund was not adequate to handle the 2007–2009 severe recession."
Thursday, September 28, 2017
TCCUSF to Close in 2017, NCUSIF NOL Increased to 1.39 Percent
The National Credit Union Administration (NCUA) Board voted to close the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) in 2017.
The funds, property, and other assets and liabilities of the TCCUSF will be transferred to the National Credit Union Share Insurance Fund (NCUSIF) on October 1, 2017.
In addition, the NCUA Board raised the normal operating level (NOL) for NCUSIF from 1.30 percent to 1.39 of insured shares, despite the objection of many credit union commenters.
The NCUA Board spent part of the meeting challenging the false narrative that an NCUSIF equity ratio of 1.30 percent would withstood the financial crisis. The Board presentation noted that even without the corporate credit union losses, the NCUSIF equity ratio in 2009 and 2010 would have fallen below 1.20 percent, the threshold requiring premium assessments. Without the premium assessment, the NCUSIF equity ratio would have dropped to 1.07 percent.
The Board also adopted a policy for setting the normal operating level.
Any change to the normal operating level of more than 1 basis point shall be made only after a public announcement of the proposed adjustment and opportunity for comment. In soliciting comment, the NCUA will issue a public report, including data supporting the proposal.
When setting the normal operating level, the Board will seek to satisfy the following objectives:
The funds, property, and other assets and liabilities of the TCCUSF will be transferred to the National Credit Union Share Insurance Fund (NCUSIF) on October 1, 2017.
In addition, the NCUA Board raised the normal operating level (NOL) for NCUSIF from 1.30 percent to 1.39 of insured shares, despite the objection of many credit union commenters.
The NCUA Board spent part of the meeting challenging the false narrative that an NCUSIF equity ratio of 1.30 percent would withstood the financial crisis. The Board presentation noted that even without the corporate credit union losses, the NCUSIF equity ratio in 2009 and 2010 would have fallen below 1.20 percent, the threshold requiring premium assessments. Without the premium assessment, the NCUSIF equity ratio would have dropped to 1.07 percent.
The Board also adopted a policy for setting the normal operating level.
Any change to the normal operating level of more than 1 basis point shall be made only after a public announcement of the proposed adjustment and opportunity for comment. In soliciting comment, the NCUA will issue a public report, including data supporting the proposal.
When setting the normal operating level, the Board will seek to satisfy the following objectives:
- Retain public confidence in federal share insurance;
- Prevent impairment of the one percent contributed capital deposit; and
- Ensure the Insurance Fund can withstand a moderate recession without the equity ratio declining below 1.20 percent over a five-year period.
Wednesday, September 6, 2017
NCUSIF Equity Ratio of 1.30 Percent Is Not Normal
The National Credit Union Administration (NCUA) Board is proposing to increase the normal operating level of the National Credit Union Share Insurance Fund (NCUSIF) to 1.39 percent from its current level of 1.30 percent.
The Board will pay for the increase in the normal operating level to 1.39 percent by closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) in 2017, prior to its scheduled closing date in June 2021, and distributing all assets, property, and funds of TCCUSF to the NCUSIF.
By law, the normal operating level must be set by the NCUA Board between 1.20 percent and 1.50 percent of insured shares.
However, this proposal has been greeted by most of the credit union community like a skunk at the church picnic.
The Credit Union National Association (CUNA) believes a normal operating level of 1.39 percent is too high. But CUNA stated it is willing to accept a temporary 4 basis point increase in the equity ratio to insulate the NCUSIF from legacy asset volatility.
Joining the chorus, the National Association of Federally-Insured Credit Unions believes the current normal operating level for the NCUSIF is appropriate and a dramatic increase in the NCUSIF equity ratio to 1.39 percent in unnecessary.
Some credit unions commented that a normal operating level of 1.30 percent was sufficient to weather the recession and financial crisis.
However, this viewpoint that a normal operating level of 1.30 percent was sufficient to weather the financial crisis is not supported by the evidence.
The TCCUSF was created by Congress in 2009, because credit unions were looking at a 91 basis point hit to the NCUSIF in 2009. This means that credit unions would have been required to immediately expense a portion of their one percent NCUSIF capitalization deposit, as well as pay a premium assessment.
According to a September 2013 White Paper on the NCUSIF, the agency staff concluded that going forward a 1.3 percent equity ratio for the NCUSIF cannot be viewed as normal. The White Paper stated that "the NCUSIF needs an equity ratio of at least 2 percent to provide an asset base that would better enable the NCUSIF to withstand the types of pressure that arose during the recent financial crisis and recession." The agency estimated that the NCUSIF equity ratio needed to be at 2.17 percent of insured shares to prevent any depletion of a credit union's one percent NCUSIF capitalization deposit during the recent financial crisis and recession.
Moreover, there will be inevitable comparison between the NCUSIF to the Federal Deposit Insurance Corporation's Deposit Insurance Fund (DIF). The Federal Deposit Insurance Corporation has stated that a designated reserve ratio of at least 2 percent is an integral part of its comprehensive, long-range management plan for the DIF.
While credit unions will oppose any increase in the NCUSIF normal operating level, there will be political pressure on NCUA to increase the normal operating level.
As a first step, the NCUA Board should raise the normal operating level to its maximum level permitted by law of 1.50 percent, instead of the proposed 1.39 percent.
A second step would require legislation removing the statutory cap on the NCUSIF normal operating level.
Removing the statutory cap on the normal operating level would provide the NCUA Board with greater flexibility to manage the NCUSIF normal operating level. An equity ratio of 2 percent for the NCUSIF would provide an asset base, which could withstand losses that arose during the financial crisis and the Great Recession. It would also ensure parity between the NCUSIF and the DIF.
The Board will pay for the increase in the normal operating level to 1.39 percent by closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) in 2017, prior to its scheduled closing date in June 2021, and distributing all assets, property, and funds of TCCUSF to the NCUSIF.
By law, the normal operating level must be set by the NCUA Board between 1.20 percent and 1.50 percent of insured shares.
However, this proposal has been greeted by most of the credit union community like a skunk at the church picnic.
The Credit Union National Association (CUNA) believes a normal operating level of 1.39 percent is too high. But CUNA stated it is willing to accept a temporary 4 basis point increase in the equity ratio to insulate the NCUSIF from legacy asset volatility.
Joining the chorus, the National Association of Federally-Insured Credit Unions believes the current normal operating level for the NCUSIF is appropriate and a dramatic increase in the NCUSIF equity ratio to 1.39 percent in unnecessary.
Some credit unions commented that a normal operating level of 1.30 percent was sufficient to weather the recession and financial crisis.
However, this viewpoint that a normal operating level of 1.30 percent was sufficient to weather the financial crisis is not supported by the evidence.
The TCCUSF was created by Congress in 2009, because credit unions were looking at a 91 basis point hit to the NCUSIF in 2009. This means that credit unions would have been required to immediately expense a portion of their one percent NCUSIF capitalization deposit, as well as pay a premium assessment.
According to a September 2013 White Paper on the NCUSIF, the agency staff concluded that going forward a 1.3 percent equity ratio for the NCUSIF cannot be viewed as normal. The White Paper stated that "the NCUSIF needs an equity ratio of at least 2 percent to provide an asset base that would better enable the NCUSIF to withstand the types of pressure that arose during the recent financial crisis and recession." The agency estimated that the NCUSIF equity ratio needed to be at 2.17 percent of insured shares to prevent any depletion of a credit union's one percent NCUSIF capitalization deposit during the recent financial crisis and recession.
Moreover, there will be inevitable comparison between the NCUSIF to the Federal Deposit Insurance Corporation's Deposit Insurance Fund (DIF). The Federal Deposit Insurance Corporation has stated that a designated reserve ratio of at least 2 percent is an integral part of its comprehensive, long-range management plan for the DIF.
While credit unions will oppose any increase in the NCUSIF normal operating level, there will be political pressure on NCUA to increase the normal operating level.
As a first step, the NCUA Board should raise the normal operating level to its maximum level permitted by law of 1.50 percent, instead of the proposed 1.39 percent.
A second step would require legislation removing the statutory cap on the NCUSIF normal operating level.
Removing the statutory cap on the normal operating level would provide the NCUA Board with greater flexibility to manage the NCUSIF normal operating level. An equity ratio of 2 percent for the NCUSIF would provide an asset base, which could withstand losses that arose during the financial crisis and the Great Recession. It would also ensure parity between the NCUSIF and the DIF.
Friday, July 21, 2017
NCUA Proposes to Close TCCUSF and Raise NCUSIF Equity Ratio to 1.39 Percent
The National Credit Union Administration (NCUA) Board is seeking comment on a proposed plan to close the Temporary Corporate Credit Union Stabilization Fund (TCCUSF)and to raise the equity ratio of the National Credit Union Share Insurance Fund (NCUSIF) from 1.30 percent of insured shares to 1.39 percent of insured shares.
The TCCUSF was created in May 2009 to handle the resolution of failing corporate credit unions. Without the creation of the TCCUSF, the NCUSIF would have exhausted its retained earnings and would have impaired a significant portion of insured credit unions' one percent NCUSIF capitalization deposit.
The TCCUSF is currently scheduled to be closed in 2021; however, the Federal Credit Union Act gives the NCUA Board the authority to close it before the scheduled closure. The NCUA Board is proposing to close the TCCUSF in 2017.
At closing, the assets and liabilities of the TCCUSF would be distributed to the NCUSIF, as required by law. This distribution will increase the net position and equity ratio of the NCUSIF. NCUA is estimating that the year-end NCUSIF equity ratio will be between 1.45 percent and 1.47 percent of insured shares.
The Board noted that given the nature of the assets and liabilities of the TCCUSF, this could increase the potential volatility of the NCUSIF equity ratio.
The Federal Credit Union Act defines the normal operating level of the NCUSIF equity ratio as between 1.20 percent and 1.50 percent of insured shares.
NCUA proposes to raise the normal operating level to 1.39 percent to help ensure the Share Insurance Fund has sufficient equity to withstand a moderate recession without the equity ratio falling below 1.20 percent, at which point a premium or fund restoration plan would be required by statute.
The NCUA expects that credit unions will receive a NCUSIF distribution (dividend payment) between $600 million and $800 million for 2018.
Comments are due by September 5.
Read the press release.
The TCCUSF was created in May 2009 to handle the resolution of failing corporate credit unions. Without the creation of the TCCUSF, the NCUSIF would have exhausted its retained earnings and would have impaired a significant portion of insured credit unions' one percent NCUSIF capitalization deposit.
The TCCUSF is currently scheduled to be closed in 2021; however, the Federal Credit Union Act gives the NCUA Board the authority to close it before the scheduled closure. The NCUA Board is proposing to close the TCCUSF in 2017.
At closing, the assets and liabilities of the TCCUSF would be distributed to the NCUSIF, as required by law. This distribution will increase the net position and equity ratio of the NCUSIF. NCUA is estimating that the year-end NCUSIF equity ratio will be between 1.45 percent and 1.47 percent of insured shares.
The Board noted that given the nature of the assets and liabilities of the TCCUSF, this could increase the potential volatility of the NCUSIF equity ratio.
The Federal Credit Union Act defines the normal operating level of the NCUSIF equity ratio as between 1.20 percent and 1.50 percent of insured shares.
NCUA proposes to raise the normal operating level to 1.39 percent to help ensure the Share Insurance Fund has sufficient equity to withstand a moderate recession without the equity ratio falling below 1.20 percent, at which point a premium or fund restoration plan would be required by statute.
The NCUA expects that credit unions will receive a NCUSIF distribution (dividend payment) between $600 million and $800 million for 2018.
Comments are due by September 5.
Read the press release.
Thursday, June 15, 2017
McWatters: Closing the Stabilization Fund and Reg Relief Are Top Priorities
Credit unions can expect more regulatory relief and streamlined operations from the National Credit Union Administration (NCUA) in the future, Acting Board Chairman J. Mark McWatters said at the annual conference of the National Association of Federally-Insured Credit Unions.
According to the press release, McWatters stated he wants the Board to revisit the risk-based capital and stress testing rules.
Earlier this week, The United States Department of the Treasury (Treasury) recommended raising the asset threshold for credit unions subject to stress testing rule from $10 billion to $50 billion. Also, Treasury recommended that NCUA either eliminate the risk-based capital requirement or raise the asset threshold for credit unions subject to the risk-based capital rule from $100 million to $10 billion.
Acting Chairman McWatters told the attendees that closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) is a top priority. This would allow the agency to return surplus funds to federally-insured credit unions in 2018. A plan for closing the TCCUSF is expected within weeks.
Other areas that McWatters would like to see the agency address include cyber security, fighting fraud, and identifying ways to help small and low-income credit unions to thrive.
According to the press release, McWatters stated he wants the Board to revisit the risk-based capital and stress testing rules.
Earlier this week, The United States Department of the Treasury (Treasury) recommended raising the asset threshold for credit unions subject to stress testing rule from $10 billion to $50 billion. Also, Treasury recommended that NCUA either eliminate the risk-based capital requirement or raise the asset threshold for credit unions subject to the risk-based capital rule from $100 million to $10 billion.
Acting Chairman McWatters told the attendees that closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) is a top priority. This would allow the agency to return surplus funds to federally-insured credit unions in 2018. A plan for closing the TCCUSF is expected within weeks.
Other areas that McWatters would like to see the agency address include cyber security, fighting fraud, and identifying ways to help small and low-income credit unions to thrive.
Monday, May 1, 2017
UBS Settles Lawsuit with NCUA
The National Credit Union Administration (NCUA) has recovered $445 million from UBS for claims arising from losses related to purchases of residential mortgage-backed securities by U.S. Central Federal Credit Union and Western Corporate Federal Credit Union.
The settlement covers claims asserted in 2012 by the NCUA Board as liquidating agent for U.S. Central Federal Credit Union and Western Corporate Federal Credit Union in federal district court in Kansas.
As part of the settlement, NCUA will dismiss its pending suit against UBS, which does not admit fault as part of the agreement.
Net proceeds from recoveries are used to pay claims against the five failed corporate credit unions, including those of the Temporary Corporate Credit Union Stabilization Fund.
Read the press release.
The settlement covers claims asserted in 2012 by the NCUA Board as liquidating agent for U.S. Central Federal Credit Union and Western Corporate Federal Credit Union in federal district court in Kansas.
As part of the settlement, NCUA will dismiss its pending suit against UBS, which does not admit fault as part of the agreement.
Net proceeds from recoveries are used to pay claims against the five failed corporate credit unions, including those of the Temporary Corporate Credit Union Stabilization Fund.
Read the press release.
Wednesday, March 1, 2017
McWatters Outlines His 15-Point Plan for Loosening CU Regulation
National Credit Union Administration (NCUA) Acting Chairman J. Mark McWatters discussed his 15-point plan of loosening credit union regulation at the Credit Union National Association's Governmental Affairs Conference in Washington, D.C.
Acting Chairman McWatters stated that the goal is "to reduce the regulatory and supervisory burden on the credit union community without threatening the safety and soundness of the National Credit Union Share Insurance Fund."
Addressing credit union fears about a possible premium assessment this year, McWatters stated that it is his top priority in 2017 to merge the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) into the National Credit Union Share Insurance Fund (NCUSIF). He stated that such a merger would allow NCUA to minimize or avoid a premium assessment this year and would start a multi-year process of rebating surplus funds from the NCUSIF to federally insured credit unions But before the NCUA Board votes to close the Stabilization Fund, the agency needed to thoroughly research and evaluate accounting, legal, and financial issues.
Another elements of his plan would include revisiting the agency's controversial risk-based net worth regulation and other needlessly burdensome rules.
McWatters also stated that the agency would abolish its examination reliance on “best practices,” which lack statutory or regulatory support.
He called on the agency to develop an improved appeals process for examinations and other matters of controversy. In addition, NCUA needs to create a credit union advisory council in order for the agency to hear and learn from credit unions.
The agency should require all merger solicitation documents to provide, without limitation, a discussion of any change-in-control payments and other management compensation awards and agreements, and that such disclosures are written in plain language and delivered to voting members in a reasonable time prior to the scheduled merger vote.
He further stated that NCUA would support updating the Federal Credit Union Act to foster credit union opportunity and growth.
Read McWatters' speech.
Acting Chairman McWatters stated that the goal is "to reduce the regulatory and supervisory burden on the credit union community without threatening the safety and soundness of the National Credit Union Share Insurance Fund."
Addressing credit union fears about a possible premium assessment this year, McWatters stated that it is his top priority in 2017 to merge the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) into the National Credit Union Share Insurance Fund (NCUSIF). He stated that such a merger would allow NCUA to minimize or avoid a premium assessment this year and would start a multi-year process of rebating surplus funds from the NCUSIF to federally insured credit unions But before the NCUA Board votes to close the Stabilization Fund, the agency needed to thoroughly research and evaluate accounting, legal, and financial issues.
Another elements of his plan would include revisiting the agency's controversial risk-based net worth regulation and other needlessly burdensome rules.
McWatters also stated that the agency would abolish its examination reliance on “best practices,” which lack statutory or regulatory support.
He called on the agency to develop an improved appeals process for examinations and other matters of controversy. In addition, NCUA needs to create a credit union advisory council in order for the agency to hear and learn from credit unions.
The agency should require all merger solicitation documents to provide, without limitation, a discussion of any change-in-control payments and other management compensation awards and agreements, and that such disclosures are written in plain language and delivered to voting members in a reasonable time prior to the scheduled merger vote.
He further stated that NCUA would support updating the Federal Credit Union Act to foster credit union opportunity and growth.
Read McWatters' speech.
Thursday, January 26, 2017
IH Credit Union, Inc. Becomes Privately Insured
The National Credit Union Administration approved IH Credit Union, Inc. (Springfield, OH) conversion from federal share insurance to private share insurance.
In explaining its change to private share insurance, the credit union wrote: "We believe that the people in Columbus have a much better feel for what is happening in Springfield than government bureaucrats in Washington, D.C."
Moreover, the credit union stated that during the financial crisis NCUA essentially went bankrupt and IH Credit Union was forced to send $1.3 million to Washington. These funds were required to replenish the National Credit Union Share Insurance Fund and to pay for the corporate credit union bailout.
The $298 million credit union will be insured by American Share Insurance (ASI) going forward.
However, it should be noted that ASI had to assess special premiums in the aftermath of the financial crisis.
Read more.
In explaining its change to private share insurance, the credit union wrote: "We believe that the people in Columbus have a much better feel for what is happening in Springfield than government bureaucrats in Washington, D.C."
Moreover, the credit union stated that during the financial crisis NCUA essentially went bankrupt and IH Credit Union was forced to send $1.3 million to Washington. These funds were required to replenish the National Credit Union Share Insurance Fund and to pay for the corporate credit union bailout.
The $298 million credit union will be insured by American Share Insurance (ASI) going forward.
However, it should be noted that ASI had to assess special premiums in the aftermath of the financial crisis.
Read more.
Monday, January 9, 2017
NCUA Makes Case for NCUSIF Premium, Says Impact on CUs Will Be Minimal
National Credit Union Administration (NCUA) Chairman Rick Metsger in a January 6, 2017 letter to Rep. Sean Duffy (R -WI) stated "a premium of 3 to 6 basis points would have a minimal impact on credit unions in the aggregate."
Based upon September Call Report data, the impact of a 6 basis point premium assessment would cause:
However, the base case assumption does not assume an economic downturn or the unexpected failure of one or more large credit unions. NCUA's analysis shows that the NCUSIF equity ratio of 1.32 percent would allow the NCUSIF to withstand two consecutive years of stress and still maintain an equity ratio of at least 1.20 percent. Under the Federal Reserve's severe economic stress scenario, the equity ratio would have to be at 1.44 percent to avoid falling below 1.20 percent over a five-year period and an equity ratio of 1.27 percent to keep the NCUSIF equity ratio from falling below 1.00 percent. It should be noted that by statute NCUA must charge a premium if the equity ratio falls below 1.20 percent and if the equity ratio falls below 1 percent, credit unions would be required to expense a portion of its NCUSIF capitalization deposit.
Chairman Metsger further noted that NCUA's operating expenses charged to the NCUSIF would have the smallest impact in altering the trend in the NCUSIF equity ratio. Chairman Metsger wrote that NCUA would have to cut its operating expenses charged to the NCUSIF by 50 percent ($100 million) to increase the NCUSIF equity ratio by 1 basis point. NCUA charges the NCUSIF almost $200 million to fund its current operating budget of $298.2 million.
In addition, the letter stated that credit unions cannot directly receive a rebate from the Temporary Corporate Credit Union Stabilization Fund (TCCUSF). Rather when the TCCUSF is closed, the residual assets will be transferred to the NCUSIF. If the residual assets push the NCUSIF equity ratio above its normal operating level at the end of the calendar year, then insured credit unions could be entitled to a rebate. Based upon information from September 2016, the closure and transfer of the TCCUSF would raise the NCUSIF equity ratio by as much as 15 basis points. However, the agency cautions that closing the TCCUSF early and transferring the corporate system resolution program assets and obligations to the NCUSIF could introduce significant volatility to the NCUSIF equity ratio.
NCUA estimated that the range of a potential TCCUSF assessment rebate would be between $1.9 billion and $2.4 billion. This assessment rebate would be paid out after recoveries are paid to depleted capital holders.
Based upon September Call Report data, the impact of a 6 basis point premium assessment would cause:
- the aggregate net worth ratio to fall 4 basis point to 10.81 percent;
- the average return on average assets would fall from 0.78 percent to 0.73 percent;
- the aggregate cash-to-asset ratio to decline from 8.56 percent to 8.52 percent;
- the number of credit unions reporting negative earnings would rise from 1,174 credit unions to 1,388 credit unions;
- eight credit unions to slip from adequately capitalized to undercapitalized and 12 credit unions would drop from well-capitalized to adequately capitalized; and
- credit union lending would be reduced by 0.04 percent.
However, the base case assumption does not assume an economic downturn or the unexpected failure of one or more large credit unions. NCUA's analysis shows that the NCUSIF equity ratio of 1.32 percent would allow the NCUSIF to withstand two consecutive years of stress and still maintain an equity ratio of at least 1.20 percent. Under the Federal Reserve's severe economic stress scenario, the equity ratio would have to be at 1.44 percent to avoid falling below 1.20 percent over a five-year period and an equity ratio of 1.27 percent to keep the NCUSIF equity ratio from falling below 1.00 percent. It should be noted that by statute NCUA must charge a premium if the equity ratio falls below 1.20 percent and if the equity ratio falls below 1 percent, credit unions would be required to expense a portion of its NCUSIF capitalization deposit.
Chairman Metsger further noted that NCUA's operating expenses charged to the NCUSIF would have the smallest impact in altering the trend in the NCUSIF equity ratio. Chairman Metsger wrote that NCUA would have to cut its operating expenses charged to the NCUSIF by 50 percent ($100 million) to increase the NCUSIF equity ratio by 1 basis point. NCUA charges the NCUSIF almost $200 million to fund its current operating budget of $298.2 million.
In addition, the letter stated that credit unions cannot directly receive a rebate from the Temporary Corporate Credit Union Stabilization Fund (TCCUSF). Rather when the TCCUSF is closed, the residual assets will be transferred to the NCUSIF. If the residual assets push the NCUSIF equity ratio above its normal operating level at the end of the calendar year, then insured credit unions could be entitled to a rebate. Based upon information from September 2016, the closure and transfer of the TCCUSF would raise the NCUSIF equity ratio by as much as 15 basis points. However, the agency cautions that closing the TCCUSF early and transferring the corporate system resolution program assets and obligations to the NCUSIF could introduce significant volatility to the NCUSIF equity ratio.
NCUA estimated that the range of a potential TCCUSF assessment rebate would be between $1.9 billion and $2.4 billion. This assessment rebate would be paid out after recoveries are paid to depleted capital holders.
Thursday, December 22, 2016
Metsger: Contingent Legal Fee Was the Best Available Option
In a December 20th letter to Rep. Mick Mulvaney (R - SC), National Credit Union Administration (NCUA) Chairman Metsger wrote that "the decision to pursue legal action using a contingency fee arrangement was the best available option" for the agency over the failure of five corporate credit unions that had bought faulty mortgage-backed securities.
The letter was in response to a November 21 letter from Rep. Mulvaney.
NCUA has paid more than $1 billion in legal fees on $4.3 billion in recoveries from legal settlements.
In pursuing its contingent fee arrangement, Chairman Metsger stated that NCUA did not have the in-house resources or expertise to independently pursue its legal strategy.
He also noted that the agency lacked resources to hire law firms on a hourly basis. Therefore, an hourly fee arrangement would have required increased assessments on credit unions, which credit unions would have had difficulty paying.
Metsger contended that a contingency fee arrangement insulated credit unions from most expenses, if the lawsuits failed, and provided significant upside benefit to credit unions, if the agency's legal strategy was successful.
Metsger claimed that the agency could not have brought these complex lawsuits without the contingency fee arrangement.
Metsger pointed out that the recoveries from NCUA's lawsuits "enabled the agency to stop assessing credit unions the cost of the repayment of the Stabilization Fund since 2012."
Metsger also stated that the agency created a website for credit unions to get information regarding the legal settlements.
The letter also addressed the agency's efforts to control expenses and to increase budget transparency.
The letter appears below (click on image to enlarge)
The letter was in response to a November 21 letter from Rep. Mulvaney.
NCUA has paid more than $1 billion in legal fees on $4.3 billion in recoveries from legal settlements.
In pursuing its contingent fee arrangement, Chairman Metsger stated that NCUA did not have the in-house resources or expertise to independently pursue its legal strategy.
He also noted that the agency lacked resources to hire law firms on a hourly basis. Therefore, an hourly fee arrangement would have required increased assessments on credit unions, which credit unions would have had difficulty paying.
Metsger contended that a contingency fee arrangement insulated credit unions from most expenses, if the lawsuits failed, and provided significant upside benefit to credit unions, if the agency's legal strategy was successful.
Metsger claimed that the agency could not have brought these complex lawsuits without the contingency fee arrangement.
Metsger pointed out that the recoveries from NCUA's lawsuits "enabled the agency to stop assessing credit unions the cost of the repayment of the Stabilization Fund since 2012."
Metsger also stated that the agency created a website for credit unions to get information regarding the legal settlements.
The letter also addressed the agency's efforts to control expenses and to increase budget transparency.
The letter appears below (click on image to enlarge)
Tuesday, October 18, 2016
NCUA to Fully Repay U.S. Treasury Borrowings by October 31
The National Credit Union Administration (NCUA) plans to fully repay by October 31 the $1 billion outstanding balance on the agency’s borrowing line with the U.S. Treasury.
When that payment is made, the Temporary Corporate Credit Union Stabilization Fund’s outstanding borrowings from the U.S. Treasury will be repaid in full.
However, the agency noted no funds will be available to provide federally insured credit unions with an immediate rebate of Stabilization Fund assessments. Additionally, no funds are available for any recoveries by investors with claims for depleted capital of the failed corporate credit unions. NCUA must first satisfy any outstanding senior obligations of the Stabilization Fund and corporate credit union asset management estates.
With the repayment of borrowings from the U.S. Treasury, credit unions could be eligible for a dividend payment from the National Credit Union Share Insurance Fund (NCUSIF), if the NCUSIF is above the normal operating level and the NCUA Board declares a dividend.
Read the press release.
When that payment is made, the Temporary Corporate Credit Union Stabilization Fund’s outstanding borrowings from the U.S. Treasury will be repaid in full.
However, the agency noted no funds will be available to provide federally insured credit unions with an immediate rebate of Stabilization Fund assessments. Additionally, no funds are available for any recoveries by investors with claims for depleted capital of the failed corporate credit unions. NCUA must first satisfy any outstanding senior obligations of the Stabilization Fund and corporate credit union asset management estates.
With the repayment of borrowings from the U.S. Treasury, credit unions could be eligible for a dividend payment from the National Credit Union Share Insurance Fund (NCUSIF), if the NCUSIF is above the normal operating level and the NCUA Board declares a dividend.
Read the press release.
Monday, July 18, 2016
CUNA's Alternative Reality
Once again, the Credit Union National Association (CUNA) has removed all doubt that it lives in a different reality from the rest of us.
In CUNA's July 12 testimony before the House Financial Service Committee, Jim Nussle, president and CEO of CUNA, stated that during the financial crisis the National Credit Union Share Insurance Fund (NCUSIF) remained well funded -- as the NCUSIF fund ratio was above 1.20 percent of insured deposits over that time period.
However, CUNA is not allowed to rewrite history about what happened during the financial crisis.
CUNA's testimony neglected to mention that the NCUSIF was bailed out by Congress in 2009 with the creation of the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund). This shifted the cost of the corporate credit union debacle from the NCUSIF to the Stabilization Fund.
Without the creation of the Stabilization Fund, the NCUSIF ratio was going to drop to 0.31 percent for 2009 with the failures of two corporate credit unions, WesCorp and U.S. Central.
Moreover, the NCUSIF ratio would have fallen further, maybe going into the red, because three other corporate credit unions failed.
CUNA also conveniently forgot to mention that the Stabilization Fund borrowed billions of dollars from the U.S. Treasury to help resolve these five failed corporate credit unions. In fact, the Stabilization Fund still has $1 billion in borrowings outstanding.
So, the reality is that the NCUSIF was bailed out during the financial crisis and the industry tapped the Treasury to help resolve the corporate credit union debacle.
In CUNA's July 12 testimony before the House Financial Service Committee, Jim Nussle, president and CEO of CUNA, stated that during the financial crisis the National Credit Union Share Insurance Fund (NCUSIF) remained well funded -- as the NCUSIF fund ratio was above 1.20 percent of insured deposits over that time period.
However, CUNA is not allowed to rewrite history about what happened during the financial crisis.
CUNA's testimony neglected to mention that the NCUSIF was bailed out by Congress in 2009 with the creation of the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund). This shifted the cost of the corporate credit union debacle from the NCUSIF to the Stabilization Fund.
Without the creation of the Stabilization Fund, the NCUSIF ratio was going to drop to 0.31 percent for 2009 with the failures of two corporate credit unions, WesCorp and U.S. Central.
Moreover, the NCUSIF ratio would have fallen further, maybe going into the red, because three other corporate credit unions failed.
CUNA also conveniently forgot to mention that the Stabilization Fund borrowed billions of dollars from the U.S. Treasury to help resolve these five failed corporate credit unions. In fact, the Stabilization Fund still has $1 billion in borrowings outstanding.
So, the reality is that the NCUSIF was bailed out during the financial crisis and the industry tapped the Treasury to help resolve the corporate credit union debacle.
Tuesday, December 8, 2015
CUs Received More Than $120 Billion in Emergency Liquidity and Guarantees During Financial Crisis
Testifying before the House Financial Services Committee on December 8, National Credit Union Administration (NCUA) Chairman Debbie Matz provided information about the extraordinary measures that were taken by NCUA to support the credit union system during the financial crisis and Great Recession.
Chairman Matz noted consumer-oriented, member-owned credit union system suffered sizable losses, as a result of the financial crisis. Ninety retail credit unions failed because they were not holding sufficient capital to cover their risks.
Chairman Matz went on to state that the failure of five corporate credit unions had near-catastrophic consequences for all surviving credit unions, causing Congress to create the Temporary Corporate Credit Union Stabilization Fund.
Furthermore, she stated NCUA injected more than $120 billion of emergency liquidity and guarantees to stabilize the credit union system - more than $20 billion in liquidity assistance through the Central Liquidity Facility and over $100 billion in guarantees.
She also pointed out that NCUA borrowed $5 billion from the U.S. Treasury to support the credit union system.
Read the testimony.
Chairman Matz noted consumer-oriented, member-owned credit union system suffered sizable losses, as a result of the financial crisis. Ninety retail credit unions failed because they were not holding sufficient capital to cover their risks.
Chairman Matz went on to state that the failure of five corporate credit unions had near-catastrophic consequences for all surviving credit unions, causing Congress to create the Temporary Corporate Credit Union Stabilization Fund.
Furthermore, she stated NCUA injected more than $120 billion of emergency liquidity and guarantees to stabilize the credit union system - more than $20 billion in liquidity assistance through the Central Liquidity Facility and over $100 billion in guarantees.
She also pointed out that NCUA borrowed $5 billion from the U.S. Treasury to support the credit union system.
Read the testimony.
Thursday, April 23, 2015
CUNA's Alternative Universe
In reading the risk-based capital comment letter from the Credit Union National Association (CUNA), I came to the conclusion that this trade association is operating in an alternative universe from the rest of us.
CUNA writes:
However, this comment by CUNA is disingenuous.
It fails to take into consideration that the cost of the corporate credit union debacle was transferred from the NCUSIF to the Temporary Corporate Credit Union Stabilization Fund (TCCUSF).
If the losses from the corporate credit union debacle stayed with the NCUSIF, the equity ratio would have fallen to 0.11 percent of insured deposits, according to NCUA analysis. This would have been well below the normal operating level set in law for the NCUSIF.
In addition, credit unions paid $4.8 billion in assessments to the TCCUSF.
Maybe in CUNA's alternative universe, the corporate credit union fiasco did not happen. But for the rest of us with our feet firmly planted in reality, we know that without the corporate credit union bailout, the NCUSIF equity ratio would have fallen sharply below the normal operating level.
CUNA writes:
"From 2008 to 2012 the NCUSIF fund balance never fell below its historical range of 1.2% to 1.3% of insured deposits, despite the failures of 124 credit unions. This stability in the fund ratio was accomplished with just two share insurance premiums, in 2009 and 2010, totaling 24 basis points of insured shares."
However, this comment by CUNA is disingenuous.
It fails to take into consideration that the cost of the corporate credit union debacle was transferred from the NCUSIF to the Temporary Corporate Credit Union Stabilization Fund (TCCUSF).
If the losses from the corporate credit union debacle stayed with the NCUSIF, the equity ratio would have fallen to 0.11 percent of insured deposits, according to NCUA analysis. This would have been well below the normal operating level set in law for the NCUSIF.
In addition, credit unions paid $4.8 billion in assessments to the TCCUSF.
Maybe in CUNA's alternative universe, the corporate credit union fiasco did not happen. But for the rest of us with our feet firmly planted in reality, we know that without the corporate credit union bailout, the NCUSIF equity ratio would have fallen sharply below the normal operating level.
Thursday, March 5, 2015
Former NCUA Chairman's Comments on Risk-Based Premiums Miss the Mark
Former National Credit Union Administration (NCUA) Chairman Dennis Dollar is quoted in a featured column in CU Today making the case that there is no need for risk-based National Credit Union Share Insurance Fund (NCUSIF) premium.
Dollar argues that "[t]he NCUSIF is already risk based in that the credit unions with the highest level of assets contribute the most to the fund, and those with the least assets contribute the least."
While it is true that larger credit unions hold larger one percent NCUSIF capitalization deposits than smaller credit unions and contribute the most to the NCUSIF, size has nothing to do with risk-based premiums.
Risk-based premiums are based upon the risk profile of the credit union. Credit unions that pose less risk to the NCUSIF will pay a lower premium rate, while riskier credit unions would pay higher premium rates. Unfortunately, former Chairman Dollar's comment misses this point.
For example, assume you have two credit unions with $200 million in insured deposits. One credit union is concentrated in commercial loans and has a high delinquency rates, while the other has a more traditional credit union lending profile of auto and home mortgage loans with few delinquencies. Under the present system, both institutions are contributing the same amount to the NCUSIF.
But does that make sense?
No. The credit union with a greater concentration in business loans and high delinquency rates should contribute more to the NCUSIF than the other credit union with a more conservative risk profile.
Moreover, Dennis Dollar states that "the present system has worked so well for decades and survived the financial crisis in great shape."
I think many observers would disagree with Dollar's assessment that the present system worked well.
The current system for funding the NCUSIF is pro-cyclical. During a severe economic downturn, credit unions face the threat of writing down all or part of their NCUSIF capitalization deposit at the very moment that credit union earnings and capital come under pressure.
In fact as you will recall, NCUA went to Congress seeking a bailout of the NCUSIF. Credit unions were looking at a 91 basis point hit to the NCUSIF in 2009. The legislation shifted the cost of the corporate credit union debacle from the NCUSIF to the Temporary Corporate Credit Union Stabilization Fund, which has borrowed funds from the U.S. Treasury to cover the expenses of resolving five failed corporate credit unions.
Dollar argues that "[t]he NCUSIF is already risk based in that the credit unions with the highest level of assets contribute the most to the fund, and those with the least assets contribute the least."
While it is true that larger credit unions hold larger one percent NCUSIF capitalization deposits than smaller credit unions and contribute the most to the NCUSIF, size has nothing to do with risk-based premiums.
Risk-based premiums are based upon the risk profile of the credit union. Credit unions that pose less risk to the NCUSIF will pay a lower premium rate, while riskier credit unions would pay higher premium rates. Unfortunately, former Chairman Dollar's comment misses this point.
For example, assume you have two credit unions with $200 million in insured deposits. One credit union is concentrated in commercial loans and has a high delinquency rates, while the other has a more traditional credit union lending profile of auto and home mortgage loans with few delinquencies. Under the present system, both institutions are contributing the same amount to the NCUSIF.
But does that make sense?
No. The credit union with a greater concentration in business loans and high delinquency rates should contribute more to the NCUSIF than the other credit union with a more conservative risk profile.
Moreover, Dennis Dollar states that "the present system has worked so well for decades and survived the financial crisis in great shape."
I think many observers would disagree with Dollar's assessment that the present system worked well.
The current system for funding the NCUSIF is pro-cyclical. During a severe economic downturn, credit unions face the threat of writing down all or part of their NCUSIF capitalization deposit at the very moment that credit union earnings and capital come under pressure.
In fact as you will recall, NCUA went to Congress seeking a bailout of the NCUSIF. Credit unions were looking at a 91 basis point hit to the NCUSIF in 2009. The legislation shifted the cost of the corporate credit union debacle from the NCUSIF to the Temporary Corporate Credit Union Stabilization Fund, which has borrowed funds from the U.S. Treasury to cover the expenses of resolving five failed corporate credit unions.
Thursday, November 20, 2014
Projected NCUSIF Premiums for 2015 Will Range Between 0 and 5 Basis Points
Credit union premiums to the NCUSIF will range between 0 and 5 basis points for 2015, according to a presentation to the NCUA Board.
However, credit unions will not be subject to any Temporary Corporate Credit Union Stabilization Fund assessments in 2015.
Review the slideshow.
However, credit unions will not be subject to any Temporary Corporate Credit Union Stabilization Fund assessments in 2015.
Review the slideshow.
Tuesday, March 18, 2014
Projected TCCUSF Assessments Range From Minus $2 Billion to Minus $600 Million
Total projected assessments associated with the Temporary Corporate Credit Union Stabilization Fund declined $2.2 billion at the upper end between July and December 2013, the National Credit Union Administration announced today, the sharp drop due largely to the JPMorgan Chase settlement in November 2013.
The current projected range for total future remaining assessments is now between negative $2 billion and negative $600 million. At the end of the second quarter of 2013, the total range was negative $200 million to $1.6 billion. The overall rate of change in the assessment range is consistent with recent trends, and the continued improvement in the performance of the legacy assets underlying the NCUA Guaranteed Note program.
Read the press release.
The current projected range for total future remaining assessments is now between negative $2 billion and negative $600 million. At the end of the second quarter of 2013, the total range was negative $200 million to $1.6 billion. The overall rate of change in the assessment range is consistent with recent trends, and the continued improvement in the performance of the legacy assets underlying the NCUA Guaranteed Note program.
Read the press release.
Subscribe to:
Posts (Atom)
