In letter, NCUA notes premium range could change

Nov. 28, 2016 -- Although NCUA is projecting a combined stabilization fund assessment and National Credit Union Share Insurance Fund premium range of between 3 to 6 basis points in 2017, the agency also indicates that – “in the event of an extraordinary change in economic condition” or failure of a large credit union – the premium range could be higher.

In letter to credit unions 16-CU-10 (released Wednesday), NCUA makes it clear that credit unions should not expense any premium or assessment until either is actually declared by the NCUA Board. The letter also emphasizes that credit unions should not use the projected premium range as the basis for any accruals of future expenses.

The letter notes that the range results from an insurance fund premium, and that the agency projects no assessment range for the Temporary Corporate Credit Union Stabilization Fund. However, additional information about the stabilization fund, and the NCUA Guaranteed Notes Program, will be provided at next month’s NCUA Board meeting, the letter states. “Notwithstanding a major, unexpected development, such as a severe economic downturn, the Stabilization Fund assessment is expected to be zero for 2017. However, if adverse conditions develop, the NCUA Board may have to reconsider an assessment,” the letter notes.

The NCUA Board heard a briefing from staff at this month’s board meeting, at which staff of the Office of Examination and Insurance recommended a share insurance premium next year because growth in insured shares in credit unions, combined with a continuing low interest-rate environment, is resulting in a slow decline in the insurance fund’s equity ratio. According to NCUA’s analysis, “the present low interest-rate environment makes it difficult to generate sufficient retained earnings to bring the equity ratio back to 1.30%,” which (since 2007) has been set as the “normal operating level” of the insurance fund. By law, the normal operating level for fund must fall between 1.20% and 1.50%.

NASCUS is preparing a summary of the insurance premium/stabilization fund letter.

LINK:
NCUA letter to credit unions 16-CU-10