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Board Action Bulletin

Estimated Distribution $600 Million to $800 Million; Share Insurance Fund Normal Operating Level Set at 1.39 Percent

ALEXANDRIA, Va. (Sept. 28, 2017) – The National Credit Union Administration Board held its seventh open meeting of 2017 at the agency’s headquarters here today and unanimously approved three items:

• A plan to close the Temporary Corporate Credit Union Stabilization Fund on Oct. 1, 2017, nearly four years ahead of schedule, and set the Share Insurance Fund’s normal operating level at 1.39 percent.
• The agency’s proposed 2018–2022 Strategic Plan, issued with a 60-day public comment period.
• A notice of proposed rulemaking to revise the agency’s advertising rule to give credit unions greater flexibility and a measure of regulatory relief.

Additionally, the Chief Financial Officer briefed the Board on the performance of the Temporary Corporate Credit Union Stabilization Fund as of June 30. The fund remains in a positive net position.

Stabilization Fund to Close in 2017; Planned Distribution in 2018

Credit unions will avoid a possible Share Insurance Fund premium in 2017 and possibly receive a distribution in 2018 under a Board-approved plan to close the Temporary Corporate Credit Union Stabilization Fund on Oct. 1.

The closure plan includes setting the Share Insurance Fund’s normal operating level at 1.39 percent.

“The NCUA Board must meet its obligation to protect insured member deposits and uphold the responsibility that comes with being backed by the full faith and credit of the United States,” NCUA Board Chairman J. Mark McWatters said. “Prudent administration of the Insurance Fund and protecting member deposits are paramount to maintaining a safe and sound credit union system and public confidence in federal share insurance. This bipartisan action advances these objectives and allows the NCUA to 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.”

“The agency and the credit union system should be justly proud of the work we have all done together,” Board Member Rick Metsger said, “to rebuild and strengthen the system in the wake of the biggest challenge we ever faced. It is important to note that, at every step of the way, the NCUA Board has been steadfast and united; every action has been unanimous and bipartisan.

“There are two reasons why it is possible to pay dividends to credit unions starting in 2018,” Metsger said. “The first is because, by issuing the NCUA Guaranteed Notes, we avoided a fire sale of toxic assets. By far the most important reason is the success of our lawsuits. Without those recoveries, instead of getting money back, credit unions would be paying more in.”

Absent any significant changes in the economy or the Share Insurance Fund’s performance, the NCUA estimates the 2018 distribution will be in the range of $600 million to $800 million. There may anywhere from $600 million to $1.1 billion of potential future distributions. The method used to determine that distribution will be subject to the Board’s decision on a proposed rule (opens new window) currently under agency review.

Board members said that, prior to 2013, the NCUA did not project a distribution to credit unions after the Stabilization Fund expired in 2021. A distribution only became a possibility 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.

The Federal Credit Union Act (opens new window) gives the NCUA Board authority to close the Stabilization Fund at its discretion prior to its expiration date in 2021. The NCUA is required by law to distribute funds, property and other assets of the Stabilization Fund at its closing to the Share Insurance Fund.

The risks to the Share Insurance Fund have evolved and these risks will increase, at least temporarily, with the closure of the Stabilization Fund. To ensure sufficient equity, the Board approved raising the Share Insurance Fund’s normal operating level from the current 1.30 percent to 1.39 percent. The Board’s objectives in setting the normal operating level are:

• Retaining public confidence in federal share insurance;
• Preventing impairment of credit unions’ one percent contributed capital deposit; and
• Ensuring the Share Insurance Fund can withstand a moderate recession without the equity ratio falling below 1.20 percent for a five-year period.

The agency will continue to analyze the Share Insurance Fund’s risk exposure, and each subsequent year the NCUA Board will evaluate what the normal operating level needs to be based on the relevant data and trends as they evolve over time.

Even though the Stabilization Fund will close, there will be remaining obligations of the Corporate System Resolution Program. The Board expressed confidence those obligations can be prudently borne by the Share Insurance Fund without inordinate risk, provided the necessary equity is maintained. Changes in the economy or the performance of the legacy assets securing the NCUA Guaranteed Notes program would increase the volatility of the Share Insurance Fund’s equity ratio.

A description of the plan is available online here.

Stabilization Fund Holds Positive Position

For the quarter ending June 30, 2017, the Temporary Corporate Credit Union Stabilization Fund’s net income was $413.2 million, increasing the Fund’s net position to $2.0 billion.

The increase in net income was primarily due to a $405.8 million reduction in the provision for insurance losses and $6.3 million in guarantee fee income for the second quarter.

The reported figures are based on the best available preliminary and unaudited information.

Strategic Plan Analyzes Factors Affecting NCUA, Credit Union System

The NCUA Board approved the agency’s draft 2018–2022 Strategic Plan for public comment.

The plan, available online here (opens new window), summarizes internal and external factors affecting the agency and the credit union system, evaluates NCUA programs and risks, and provides goals and objectives for the agency.

The NCUA’s three strategic goals described in the five-year plan are:

• Ensuring a safe and sound credit union system;
• Providing a regulatory framework that is transparent, efficient, and improves consumer access; and
• Maximizing organizational performance to enable mission success.

The 2018–2022 Strategic Plan outlines how the NCUA will adjust to changes in the credit union sector. The agency is adopting new technology and analytical tools to improve its offsite monitoring; recalibrating its examination approach; and revising operations, priorities, and structure to use its resources most effectively. The plan also incorporates important elements of the NCUA’s Enterprise Risk Management Program. The agency’s risk management framework helps the NCUA identify, evaluate, and mitigate risks on a continuous basis.

Comments on the 2018–2022 Strategic Plan must be received within 60 days of publication in the Federal Register.

Copies of previous strategic plans and annual performance plans also are available online here.

Advertising Rule Change Would Give Credit Unions More Flexibility

Credit unions would have more flexibility and a measure of regulatory relief under notice of proposed rulemaking (Part 740) approved by the Board.

Currently, the advertising rule requires federally insured credit unions to use one of three versions of the NCUA’s official advertising statement in all advertising. The proposed rule would add a fourth version–“Insured by NCUA”—and revise certain parts of the rule by expanding the current exemption from the advertising statement requirement for radio and television and eliminating the requirement that credit unions must include the official advertising statement on statements of condition required to be published by law.

Comments on the proposed rule, available online here (opens new window), must be received within 60 days of publication in the Federal Register.

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. NCUA also live streams, archives and posts videos of open Board meetings online.