NCUA Seeks Input on Plan for Voluntary Prepaid Assessments

According to the NCUA’s analysis, the Federal Credit Union Act does not allow the agency to charge a mandatory prepaid assessment to all credit unions. However, the agency has developed a plan to allow credit unions to voluntarily prepay some of their stabilization fund assessments.

The National Credit Union Administration (NCUA) is seeking comments on a voluntary Corporate Stabilization prepayment program.

More specifically, the agency is urging credit unions to let them know: whether credit unions are willing to participate in the program; suggestions for improvements; accounting considerations; and any public policy concerns.

In last week’s Board meeting, NCUA proposed a plan for credit unions to prepay Stabilization Fund assessments. The Stabilization Fund will need approximately $2.94 billion in additional funding to retire corporate debt through October 2012. This equates to assessments of about 25 basis points of insured shares for 2011 and 13 basis points in 2012. The Board did not vote on the proposed plan, but invited public feedback to measure interest and ensure the effective operation of a voluntary prepaid assessments program.

This plan is not because of any increase in expected losses on the assets held in the Corporate Stabilization fund; rather, it is because the total of around $8.5 billion of obligations of the Fund exceeds the $6 billion line of credit from Treasury that is being used to spread the stabilization fund costs over 11 years. In addition, the agency has decided to keep $0.5 billion of the Treasury line unused, in reserve.

According to the NCUA’s analysis, the Federal Credit Union Act does not allow the agency to charge a mandatory prepaid assessment to all credit unions. However, the agency has developed a plan to allow credit unions to prepay some of their corporate stabilization assessments on a voluntary basis.

Key elements of the voluntary prepaid assessment proposal include:

  • Participation would be purely voluntary and open to all federally insured credit unions able to meet the minimum participation amount of $10,000;
  • Liquidity would be provided to the Stabilization Fund by augmenting the 2011 and 2012 assessments from participating credit unions;
  • NCUA would implement the voluntary prepaid assessment program only if a minimum aggregate amount (at least $300 million) could be raised, which would reduce mandatory assessments for all federally insured credit unions in 2011 and 2012;
  • Beginning in 2013, NCUA would offset each participating credit union’s future Stabilization Fund assessments with any contributions they made to the voluntary program;
  • CUNA has estimated that if all eligible credit unions participate to the maximum extent permitted, the 2011 assessment to all credit unions would be around 10 basis points instead of 25 bp. Next year’s assessment would likely be around 10 bp instead of 13 bp. Subsequent assessments would likely be around 9 bp and would gradually decline as total insured shares in credit unions grow; and
  • Participation by any credit union would essentially involve granting the Corporate Stabilization fund an interest-free loan for a few years. At current interest rates, there would not be substantial opportunity costs, but rates could be higher next year and the year after.  

A program outline regarding this proposal is available here. NCUA will be providing a free webinar to discuss the proposal on May 26, at 1:00 p.m. PST. Attendees must register on the NCUA website.

CUNA Q&A Overview on NCUA Prepay Plan

You may submit comments to the NCUA by emailing [email protected].

 

Questions or concerns? Contact Director of Regulatory Affairs Jaycee Winn: 503.350.2209, [email protected].