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Board Action Bulletin

Share Insurance Fund Maintains Provisions for Potential Losses

ALEXANDRIA, Va. (Feb. 15, 2018) – The National Credit Union Administration Board held its second open meeting of 2018 at the agency’s headquarters here today and unanimously approved two items:

• A Share Insurance distribution of $736 million to eligible, federally insured credit unions in the third quarter of 2018.
• A final rule amending the agency’s share insurance requirements rule to provide greater fairness, predictability, and transparency and add a temporary provision to govern share insurance equity distributions related to the Corporate System Resolution Program.

The Chief Financial Officer briefed the Board on the performance of the National Credit Union Share Insurance Fund, which ended 2017 with a net position of $15.7 billion.

Share Insurance Distribution Will Provide Resources for Community Investment

Federally insured credit unions will have additional resources to put to work in their communities after the NCUA Board approved a $736 million Share Insurance distribution, which should be paid in the third quarter of 2018.

The Board voted unanimously in September 2017 to close the Temporary Corporate Credit Union Stabilization Fund. By law, the Stabilization Fund’s assets were transferred to the National Credit Union Share Insurance Fund. Had the Board not closed the Stabilization Fund, credit unions would not have received a distribution and could have faced premium charges totaling more than $1.3 billion.

“The NCUA’s prudent management of the corporate resolution process has provided us the ability to close the Stabilization Fund four years early,” NCUA Board Chairman J. Mark McWatters said. “This bipartisan action advances the objectives of protecting member deposits and maintaining a safe and sound credit union system and allows the NCUA to avoid a premium assessment and safely distribute funds to credit unions that can be put to work building local communities, creating new businesses, and improving the lives of members across the country.”

“This distribution is historic,” Board Member Rick Metsger said, “larger than the cumulative amount of all previous cash distributions since the capitalization of the Share Insurance Fund. When you add the $736 million credit unions will receive to the more than $1.3 billion in premiums they will avoid, the total is more than $2 billion. This is a huge benefit to credit unions and a lot of money for provident and productive purposes.”

Prior to the Board’s action in September 2017, the Stabilization Fund was scheduled to expire in 2021. A distribution became possible after the agency won legal recoveries of more than $5.1 billion on behalf of the five failed corporate credit unions, materially decreasing the costs to the Stabilization Fund resulting from those failures.

A detailed summary of the planned distribution is available online here (opens new window). Documents describing the process of closing the Stabilization Fund, the transfer of assets to the Share Insurance Fund, and setting the Share Insurance Fund’s normal operating level at 1.39 percent are all available here.

The pro rata distribution will be made through an updated method approved by the Board today.

Final Rule Sets Distribution Framework

Credit unions will see greater fairness, predictability, and transparency under a final rule (Part 741) approved by the NCUA Board that amends the existing share insurance requirements rule and creates a temporary provision governing equity distributions related to the Corporate System Resolution Program.

The final rule amends the existing share insurance requirements rule and would give federally insured credit unions greater transparency on how an individual credit union’s share of an equity distribution from the Share Insurance Fund would be calculated. The rule also would prohibit a federally insured credit union that terminates share insurance coverage from receiving a distribution for the calendar year in which that termination occurred unless that credit union filed at least one quarterly Call Report with the NCUA for that year.

Under the final rule, the NCUA Board will effect a pro rata distribution to a credit union that filed a quarterly Call Report as a federally insured credit union for at least one reporting period in calendar year 2017. This includes:

• Active federally insured credit unions as of December 31, 2017;
• Newly chartered federally insured credit unions that filed at least one Call Report for a reporting period in 2017;
• Financial institutions that converted to federal share insurance during 2017, provided they filed at least one Call Report as a federally insured credit union for a reporting period in 2017;
• Credit unions that converted to private insurance, provided they filed at least one Call Report as a federally insured credit union for a reporting period in 2017; and
• Liquidation estates, provided the liquidated credit unions filed at least one Call Report as federally insured credit unions for a reporting period in 2017.

The final rule retains the Board’s current policy of issuing distributions to federally insured credit unions and some other non-credit union financial institutions that leave the National Credit Union Share Insurance Fund through conversion, merger, or liquidation, provided they have filed a quarterly Call Report as a federally insured credit union for at least one reporting period in calendar year 2017.

The final rule, available online here (opens new window), will become effective 30 days after publication in the Federal Register. A list of frequently asked questions about the distribution formula is available online here (opens new window).

Share Insurance Fund Maintains Consistent Operating Trends

The Share Insurance Fund posted a net loss of $229.1 million for 2017, primarily due to the increase in the provision for insurance losses.

The net position of the Share Insurance Fund was $15.7 billion at the end of 2017. The fund’s assets increased to $16.7 billion at year end, primarily due to the transfer of net assets from the Stabilization Fund of $2.6 billion, which included $1.9 billion in cash and $700 million in other net assets.

As of December 2017, the Share Insurance Fund’s calculated equity ratio was 1.46 percent. The equity ratio is calculated on an insured share base of $1.1 trillion, a 5.7 percent increase from the previous year’s insured base of $1.0 trillion.

For the fourth quarter of 2017, the Chief Financial Officer reported:

• The number of CAMEL codes 4 and 5 credit unions decreased 3.9 percent from the third quarter of 2017, to 196 from 204.
• Assets in CAMEL codes 4 and 5 credit unions decreased 5.9 percent from the third quarter of 2017, to $9.6 billion from $10.2 billion.
• The number of CAMEL code 3 credit unions declined 1.3 percent from the third quarter of 2017, to 1,072 from 1,086.
• Assets in CAMEL code 3 credit unions increased 1.4 percent from the third quarter of 2017, to $55.9 billion from $55.1 billion.

There were 10 involuntary liquidations and assisted mergers during 2017, compared to 14 credit union failures in 2016. The total amount of losses associated with failures in 2017 was $24.4 million, an increase from $8.6 million the previous year. Fraud was a contributing factor in three of these failures, at a cost of $23.2 million during 2017, compared to 10 of 14 failures in 2016 at a cost of $6.5 million.

The Chief Financial Officer also reported the Share Insurance Fund and the agency’s three other permanent funds—the Operating Fund, the Central Liquidity Facility and Community Development Revolving Loan funds—each received an unmodified, or “clean,” audit opinion with no reportable conditions for 2017 from the agency’s independent auditor, KPMG LLP.

The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.