NCUA Approves “Pre Pay” Corporate Assessment Program with $500 Million Program Target
June 29, 2011 - The National Credit Union Administration (NCUA) approved a program on June 29 that would allow credit unions to voluntarily pre pay for future corporate stabilization fund assessments.
At the request of credit unions, the NCUA developed a proposed program and recently solicited feedback from the credit union industry. The proposal was approved by the NCUA Board during an open meeting on June 29 with some changes.
The prepayment program would allow credit unions to pre pay up to 0.48 percent of insured shares with a minimum advance of $1,000 or 0.05 percent of insured shares (as of March 31, 2011). The funds prepaid to NCUA would count toward assessments starting in 2013.
In the approved program, NCUA increased the minimum from $300 million to $500 million, which equates to 6.4 basis points of system-wide insured shares. In comment letters, stakeholders requested that NCUA apply the funds dollar-for-dollar against the 2011 assessment. Reaching $500 million in program commitments will lower the 2011 corporate assessment from 24.9 basis points to 18.5 basis points. If the $500 million commitment is not met, the program will not go forward. If more than $500 million is committed by credit unions, then prepayments will be accepted on a pro rata basis to meet the $500 million target. The interest rate on the advance is zero, and would be considered low risk for calculating net worth.
NCUA staff stated during the June 29 open meeting that 169 credit unions commented on the program, and that out of the 169, 133 credit unions indicated they would participate in the program.
NCUA will issue a “Letter to Credit Unions” on June 30 explaining the program and providing instructions on participation. Credit unions wishing to participate must submit their agreement forms by July 29. By August 9, credit unions will be informed if the minimum program level commitment of $500 million was met to move the program forward.
NASCUS provided comments to the NCUA on the proposed program expressing its concern that no safety and soundness threshold was present for program participation. State regulators want to ensure that state-chartered credit union participation is prudent given the individual credit union’s condition. To read our comments click here. To view more information about the NCUA program, follow this link to NCUA’s website.