NCUA Board Action

Closing the TCCUSF & Setting the Normal Operating Level

Prepared by NASCUS Legislative & Regulatory Affairs Department
October 2017

The NCUA Board has voted to close the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) in 2017, ahead of its scheduled closing date of June 2021. In conjunction with the closure of the TCCUSF, and the merging of the assets and liabilities of the TCCUSF with the National Credit Union Share Insurance Fund (NCUSIF), the NCUA Board has also voted to raise the normal operating level (NOL) of the NCUSIF to 1.39%. NCUA also established a new process for establishing the NOL in the future, including a notice and comment for changes of 1 basis point or greater.

This action begins the process by which credit unions can begin receiving distribution of the excess monies currently accumulated by the TCCUSF.

NOTE: NCUA did not resolve the methodology by which it would distribute the excess funds to credit unions. Until this issue is resolved, it is unknown how much money each individual credit union will receive.

The notice of the NCUA Board action may be read here.

NCUA received 663 comments on the request for comments.

Summary

When creating the TCCUSF, Congress specified that it would terminate 90 days after the seven-year anniversary of its first borrowing from the U.S. Treasury.  The first borrowing occurred on June 25, 2009, therefore the original closing date of the TCCUSF was September 27, 2016. However, in 2010 NCUA and the Treasury agreed to extend the closing date to June 2021.

NCUA notes that currently, the NCUSIF has a balance of $13.2 billion, which exceeds both the corporate credit union Legacy Asset balance and NGN balance. As of June, 2017, the TCCUSF has a positive net position of $2 billion. That combination of financials increased NCUA’s comfort level with merging the two funds.

The current NOL for the NCUSIF was 1.3% prior to this NCUA Board action. However, in conjunction with merging the TCCUSF and NCUSIF, NCUA determined that it would raise the NOL of the NCUSIF to 1.39%.  NCUA justifies this increase by noting it modelled various economic downturns to estimate the range of potential NCUSIF exposures and concluded that to withstand a moderate recession without the equity ratio falling below the statutory minimum of 1.2% the NCUSIF’s equity ratio needs to be high enough to withstand the following:

  • A 13-basis-point decline in the equity ratio due to the impact on the three primary drivers of the Insurance Fund’s performance.
  • A 4-basis-point decline in the value of the Insurance Fund’s claim on the corporate credit union asset management estates.
  • A 2-basis-point decline in the equity ratio expected to occur prior to when the remaining NGNs begin to mature in 2020 and remaining exposure to the Legacy Assets can begin to be reduced.

Future Review of the NOL (NCUSIF Equity Ratio)

NCUA is adopting the following policy to set the Normal Operating Level of the NCUSIF in the future. Periodically, NCUA will review the equity needs of the NCUSIF and provide an analysis to stakeholders. If NCUA determines a need to change the NOL by more than 1 basis point, it shall publish a request for comments.

NCUA’s goals in setting the NCUSIF Operating Level shall be:

  • Retain public confidence in federal share insurance
  • Prevent impairment of the 1% contributed capital deposit
  • Ensure the NCUSIF can withstand a moderate recession without the equity ratio declining below 1.2% over a five-year period.

Miscellaneous Facts

NCUA’s notice of the Board’s decision to close the TCCUSF in 2017 contained some interesting miscellaneous facts contained in the discussion of the comments received.

  • Since 2009, there have been 21 new federally insured credit unions (either new charters or privately insured credit unions that converted to NCUSIF)
  • 17 of those 21 credit union filed call reports in the 2nd quarter of 2017
  • In 2011, 2012, and 2013 the NCUSIF made distributions to the TCCUSF of $278.6 million, $88.1million, and $95.3million, respectively.
  • The TCCUSF has collected $3 billion from legal recoveries and asset sales
  • The Wescorp estate is unlikely to ever be able to repay the TCCUSF or the NCUSIF
  • During the recession, the NCUSIF charged 2 premiums, 10.3 basis points in 2009 and 12.4 basis points in 2010, together totaling $1.7 billion