To Pay Or Not To Pay: That Is Not The Question

Evaluating NCUA’s call for voluntary prepayment can be tricky, but here are some key factors to consider.


How should Boards and managers evaluate NCUA’s request for a voluntary prepayment of the Temporary Corporate Credit Union Stabilization Fund assessment?

Every credit union that wants to participate in NCUA’s prepayment of the TCCUSF assessment must submit a program agreement by July 29.

The key point is not whether NCUA will get the $3 billion cash shortfall from credit unions in the funding of investments from the conserved corporates, but whether this is done wholly by assessment or will include voluntary prepayments.

NCUA says voluntary prepayments will not change the loss estimates, will not accrue any interest, will not affect examiner ratings, and may or may not be an expense for this year (which the assessment will be.) You’ll have to check with your accountant about how to record any voluntary portion.

Another Milestone and More Questions
This NCUA request raises many substantive questions about the management of the corporate problem and especially the nationalization of the system that occurred less than a year ago. With a Central Liquidity Facility line of $41 billion and $2 billion in capital, a line of $30 billion authorized under the TCCUSF legislation, more than $10 billion in cash at the NCUSIF, and more than $28 billion raised in the NGN funding, the NCUA needs to explain requiring credit union liquidity funding at this point.

Read more about these management issues in A Fourth of July Opportunity for NCUA and NCUA’s “Voluntary” Prepayment. Now, the question is, "What does your credit union do: volunteer or not?"

Bear in mind the opposite of “voluntary” is “involuntary.” However credit unions will send NCUA $3 billion one way or another.

The Key Questions That Could Decide the Issue 
A case could be made for voluntary payment if, like any other request for funds, the facts support the request. Here are the questions borrowers, prepaid assessment providers, or any other term you wish to use for this transaction, should know when deciding whether to prepay:

  1. Who gets the $3.0 billion? Who receives these monies? Wall Street to cover NGN payments? Credit unions? Consultants and brokers? Another lender? Will it sit in Treasury for some unknown cash flow request?
  2. Where are the audited financial statements for the TCCUSF as of December 2010, including the loss estimate for the corporate takeovers? NCUA released the December 2009 audit on July 22, 2010, and showed an audited loss for all corporate exposure of $6.4 billion. NCUA says this loss estimate has not changed and the June 2011 TCCUSF balance sheet still shows this amount. That would be good news from the auditor, but now nothing is available to independently verify this NCUA statement.
  3. As of June 30, 2010 — one full year ago — the five corporates NCUA conserved had total OTTI reserves for potential investment losses of $11.6 billion. Actual cash losses against these reserves as of the same date were only $1.13 billion. (See Corporate Crisis & Regulatory Reform: A Callahan Report Special Edition, credit union monthly postings, and audited financial statements.) What is the status of the other $10.5 billion reserves? How much has been incurred in actual additional losses? What is the value of the OTTI reserves today? Credit unions recognized these expenses when they wrote off membership capital shares, but these losses had not yet happened and were future projections. What do the latest OTTI estimates show?
  4. What is the balance sheet and income statement for the liquidation estates that are being funded by the NGN program? Moreover, with $28.3 billion in NGN funding collateralized by $40 billion in investments, the cash flows from these programs could be substantial. What is the consolidated cash flow forecast for the years of 2012 and 2013 in which NCUA says it will recognize the prepaid assessment as an expense?
  5. How is the 30 basis points NCUA takes off the top as an expense of the NGN program being used? This was the structure announced last October. Who is getting the 30 basis points and for what service? If this is going to NCUA, shouldn’t that cash flow go toward reducing the assessments?

The Difference Between “Voluntary” and “Involuntary” is the Real Question
“Voluntary” describes actions of free will. “Involuntary” means coercive force is being used to accomplish something that a person would otherwise choose not to do.

One is compatible with credit union and democratic core values. The other is, to borrow a phrase from an earlier period, “taxation without representation.”

NCUA’s explanations and conduct throughout the corporate crisis have raised numerous questions. Many could have been answered with an open dialogue and straightforward presentation of the full facts being considered. Instead, solutions have been unilaterally imposed.

Involuntary actions can work temporarily. It is hard for an individual, or even a credit union, to single-handedly oppose regulatory coercion. But ultimately the trust and confidence on which all authority rests is broken. Scapegoating and rewriting past events no longer works as an explanation.

NCUA can regain its professional standing by providing data that should be readily available to support its $3 billion assessment, if it is available. Whatever the facts are, they would provide a clear foundation for a credit union's decision to volunteer or not.




July 25, 2011


  • Chip always has a very logical insight into very relative current matters.
    James Everhart
  • Ya, we have to pay when the regulator requires us to do so. But to say they will get it one way or the other is silly. This money we’re discussing belongs not to us but to our membership. If we’re forced to pay our membership’s money to the NCUA the onus is on the NCUA. We admit to our membership that we were forced by our regulating bureaucrats to pay them some of our membership’s money and may have taken a loss. But if we give our member’s money to the NCUA voluntarily the onus is on us. Leave the onus on the NCUA where it belongs.