Northwest Credit Unions Cheer News of No Stabilization Fund Assessment

Northwest credit unions cheered the news this week that there will be no Corporate Stabilization Fund assessment in 2014, saying the decision by the National Credit Union Administration “demonstrates the resiliency of the credit union system.”

Credit unions have paid $4.8 billion in Stabilization Fund assessments since the fund was established in 2009 as a response to corporate credit union failures during the financial crisis. But an improving economy and the announcement last week of a $13 billion settlement between the U.S. Department of Justice and JPMorgan Chase led to the NCUA’s decision at its November board meeting.

The agency will receive $1.417 billion from the settlement, board Chairman Debbie Matz said, and “will use the proceeds to pay down outstanding U.S. Treasury borrowings and greatly reduce Corporate Stabilization Fund assessments that all federally insured credit unions will pay going forward.”

Matz said the NCUA will also continue to pursue other companies that contributed to the corporate credit union crisis. The NCUA has now collected $1.75 billion in settlements and has 16 lawsuits pending against underwriters of toxic securities.

“We applaud the NCUA for its diligence to recover the losses from those responsible,” said Troy Stang, president and CEO of the Northwest Credit Union Association. “The credit union system clearly put a smart plan in place — never asking for any money from taxpayers, but instead holding Wall Street accountable — and the courts agreed.”

Executives at credit unions across the Northwest also applauded the NCUA, saying the Stabilization Fund assessments have been a drag on their efforts to recover from the financial crisis.

“We were anticipating assessments to continue for the foreseeable future, so this is welcome news. It demonstrates the resiliency of the credit union system.”Amy Nelson, co-CEO, Point West Credit Union

“The Corporate Stabilization Fund assessments hammered our capital for the past five years” said Amy Nelson, co-CEO at Point West Credit Union. “We were anticipating assessments to continue for the foreseeable future, so this is welcome news. It demonstrates the resiliency of the credit union system.”

The announcement was also welcome news for Chad Olney, CEO at Bi-Mart Federal Credit Union.

“Ultimately, our members will benefit from this,” Olney said, “because a stronger income statement gives us the ability to provide service enhancements and stronger monetary benefits to our members.”

At the end of 2012, the projected range for future Stabilization Fund assessments was $1.6 billion to $3.9 billion, but that was cut dramatically by a $1.6 billion decrease in expected costs and a $700 million assessment that was collected in October 2013. Add in the proceeds of the JPMorgan Chase settlement, CUNA chief economist Bill Hampel said this week, and the assessment range drops to “between minus $1 billion and plus $500 million.”

A negative assessment, Hampel said, implies a future rebate.

“That means credit unions are more likely to see rebates than more assessments in the future, although the rebates will likely only occur several years in the future,” Hampel said, and only if the economy remains healthy.

In any case, the news of no assessment for 2014 means “we will be able to invest more in our members and the services that enhance their financial future,” Bi-Mart’s Olney said. “Without the assessment, we will have the opportunity to provide a better return for them.”

In other action at its November meeting:

  • As expected, the NCUA finalized the Credit Union Service Organization (CUSO) rule it originally proposed in July 2011, expanding its requirements to cover not only federally chartered credit unions but also state-chartered credit unions that are federally insured.

    The NCUA said it recognized the significant value that CUSOs provide to the credit union industry, but board Chairman Debbie Matz said “they also represent a significant potential risk that is not transparent.” The agency argued that enhanced monitoring of CUSOs would protect consumers, credit unions and the National Credit Union Share Insurance Fund, and that a targeted regulatory approach would help to identify the relationships between CUSOs and credit unions, the financial condition of CUSOs, and the total number of CUSOs that exist.

    Since 2008, the NCUA said, nine CUSOs have caused more than $300 million in direct losses to the Share Insurance Fund and led to the failures of credit unions with combined assets of more than $2 billion.

    “Northwest credit unions were instrumental in achieving the improvements that the NCUA made to the final CUSO rule,” said John Trull, the NWCUA’s director of regulatory advocacy. Those improvements include differentiating between basic CUSOs and so-called “complex” or high-risk CUSOs.

    While all CUSOs will need to register basic information, only complex CUSOs that have the potential to cause significant risk to credit unions will need to file detailed financial reports. For example, CUSOs that provide credit and lending, information technology or investment management services will now need to provide the more-detailed information.

    The rule becomes effective on June 30, 2014, but the agency’s reporting system is not expected to be fully operational until January 2016. The agency is anticipating that it will cost $1.4 million to fully build out the CUSO Registry System, but did not make clear how it determined the cost. The agency allocated $750,000 to begin work on the project.

  • The NCUA increased the Overhead Transfer Rate from the current 59.1 percent to 69.2 percent for 2014.

    Under the Federal Credit Union Act, the NCUA can transfer money from the Share Insurance Fund to pay for administrative and other expenses related to federal share insurance. The agency uses the OTR to allocate those expenses.

    Trull said the increase has caused concern among a number of state-chartered credit unions, which believe the move puts a larger comparative cost of regulation on the state system. These rumblings, Trull said, may quickly turn into a collective call for action.


Questions? Contact Gary Stein: 503.350.2216,

Posted in NCUA.