It sometimes seems easier – or maybe faster – to take the path of least resistance. To do what's expedient. But what if expediency means surrendering the better part of $1.8 billion of credit union industry monies?
Most would say expediency isn't worth the cost. Indeed, most in the credit union industry – notably, NAFCU member credit unions – have already said as much in their own comments on the National Credit Union Administration’s proposal pairing the closure of the Temporary Corporate Credit Union Stabilization Fund with a sharp increase in the normal operating level of the National Credit Union Share Insurance Fund.
The NCUA has proposed to close the stabilization fund as of Oct. 1, merge it into the share insurance fund and raise the NCUSIF normal operating level from 1.3 percent to an all-time high of 1.39 percent. It says some $600 million to $800 million of credit unions' stabilization monies could be returned to credit unions next year.
The National Association of Federally-Insured Credit Unions has historically worked to ensure a strong share insurance fund, and we have yet to be able to find a good reason for supporting a nine basis-point increase in the NCUSIF's normal operating level when, over the years, 1.3 percent has proved to be more than sufficient – even during the financial downturn and despite the pressures of corporate stabilization. The regulator has offered a variety of potential risks to the fund as reasons to push the NOL to 1.39 percent, but they are not compelling given that the fund is well-reserved for known risks, as well as some which have yet to show themselves.
For these reasons and more, NAFCU's top priority is to get credit unions all of their money back — not just a portion. For example:
- Under the NCUA's current proposal, credit unions would only receive about 15 percent of the $4.8 billion they have paid in stabilization assessments since 2010. The NCUA would retain almost $1 billion of the money expected to be available through the funds’ merger so it can defeat a statutory ban on assessing share insurance premiums to take the fund beyond 1.3 percent. This money belongs to America's credit unions and their members.
- There is no compelling need to increase the NCUSIF's normal operating level. The current proposal fails to provide any assurance that the increase to 1.39 percent would be unwound in future years. On the contrary, it sets a precedent for retaining excessive funds in the NCUSIF that future NCUA Boards are likely to follow. The credit union industry survived the Great Recession with a 1.3 percent NOL, reinforcing the fact that keeping the NOL at 1.3 percent does not place the NCUSIF at risk.
- The NCUA does not have to charge a premium this year. A premium charge is only required under the Federal Credit Union Act if the equity ratio falls below 1.2 percent. NAFCU's models – and even the NCUA's own base-case models – do not project such a decline to occur for years to come. The NCUA asserts that because of the merger of these funds, it won't need to charge a premium in 2017. In reality, it wouldn’t need a premium even if there were no merger.
With that in mind, let's be clear: NAFCU is the only national credit union trade association advocating for full refunds for credit unions from the NCUA's proposed closure of the TCCUSF. We are arguing for a better solution – one that won't force credit unions to accept a partial rebate or subject them to the highest NCUSIF normal operating level in the history of federal share insurance.
Years ago, some Washington policymakers wanted the industry to write down the 1 percent NCUSIF deposit. NAFCU, acting in its members' best interests, initially stood as the only national credit union group to oppose the plan (and that plan was defeated). Taking the position we took wasn't difficult to do, as our leadership structure – our board and committees – is made up solely of member credit union leaders. We take our cues from the people on the front lines who are making the decisions on how to best run their institutions and serve their members.
The individuals who serve on our board and the two committees that unanimously rejected the NCUA's current proposal represent credit unions ranging in asset size from $22 million to $82 billion. Because of our direct connection to these members and the industry, we are capable of taking positions based on real-world facts. And as our popular SIF rebate calculator has demonstrated, executing the NCUA's current proposal would produce a drastically smaller rebate than what many credit unions might otherwise receive.
When looking at the impacts to institutions, we must look at the long-term implications, not just what's in front of us right now.
NAFCU strongly supports credit unions receiving refunds from the TCCUSF as soon as practical, as long as it is done in a fair manner. The industry has paid $4.8 billion into stabilization, and those funds provided support for the NCUA's prudent administration and disposition of the toxic assets that pushed many of the industry's largest corporate credit unions to their end. The NCUA made the corporate credit union system safer by changing its rules on corporate capital and investments so the problems of the past cannot be repeated. Now, it's time for the NCUA to say thanks for the loan, and give credit unions all their money back.