December 29, 2008
By Chip Filson
Congress’ passage of the financial rescue passage is good news for all segments of the economy, including credit unions. In this troubled time, all efforts to restore some normalcy to markets should be welcomed.
The Not- So- Good News
Moreover in receiving authority to increase the NCUSIF share insurance to $250,000, the cooperative system will be able to provide coverage equal to the FDIC’s. The not-so-good news is that even though the bill prohibits consideration of this temporary increase for a premium, it will affect the Fund’s capital structure.
Currently, $76 billion in NCUSIF credit union share accounts is uninsured. For all savings in the new coverage range of $100,000 to $250,000, credit unions may be required to send 1% of this total to the NCUSIF. If this percentage is 50% that would be $380 million up to $760 million, if all now uninsured funds were covered.
But the potential expenditure does not end there. The insured savings ratio will be impacted but still be around 1.21, which under current NCUA policy would require a premium. So even though the Act would not permit a premium solely on the insured shares increase, the traditional 1/12 of 1% premium or around $550 million is highly likely.
So the tab in terms of funds credit unions may be asked to send to the NCUSIF will be a minimum of $380 million to as much as $1.3 billion.
The Really Good News
So why is this extra funding really good news ? Because it does not take a dime of tax-payer money! This additional coverage is entirely the responsibility of the credit union system, not the government or taxpayer. The financial integrity of the cooperative system is kept in tact. Credit unions are not using any taxpayer funds!
This structure of NCUSIF self sufficiency was stated by NCUA in its May 2008 Newsletter, page 6:
The cooperative structure of the NCUSIF assures the credit union system stands united against a taxpayer bailout of this segment of the financial marketplace.
The Right Message and Next Steps
While not asked for or needed, the bailout package again demonstrates that cooperatives are the right firms, in place right now, to serve the American consumer and the public in the right way in this time of extreme uncertainty.
As in previous troubled times, credit unions show that cooperation and their self-help model can continue to serve member needs even in the most extreme circumstances.
The 1934 Federal Credit Union Act as well as all subsequent foundational legislation (CLF, 1% NCUSIF capitalization, CUMMA) for the federal credit union system was passed in times of crisis and uncertainty. Now let’s prepare the legislative agenda that will extend the cooperative model for the rest of the 21st century.
7/26/2012 04:00 PM
There is no way that this increased share insurance is only going to be temporary. I'd bet on a premium increase.
Although the legislation said there would be no deposit insurance premium increases directly as a result of this higher limit, the current loss experiences at FDIC and NCUSIF may trigger increases anyway. On Tuesday, October 7, the FDIC more than doubled the premium for a low risk bank. Pundits are also already placing bets on whether the “temporary” $250,000 deposit insurance coverage level will remain temporary. It is difficult to believe that consumers’ and small business owners’ confidence will be so radically improved one year from now that the coverage can be rolled back without negative reaction. Credit unions would be smart to include an additional NCUSIF capitalization in their 2009 – 2010 budgets.
7/26/2012 03:57 PM
It was my understanding that because the coverage is temporary, NCUA can neither require the 1% "capitalization" nor can they charge us a premium based on the higher reserve.
What I do think this means is that we will have to do more reporting so NCUA knows where the $100k and $250k coverage points are at. If NCUA makes larger pay-outs of failed credit unions at the $250k level, that's where I see we may be at greater risk of being charged a premium.
I have confirmed this from a few sources - I would hope that to be the case, since the increased coverage is temporary.
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