CUNA Comment Letter
NCUA's Proposed Changes to the NCUSIF Required by the CUMAA
July 26, 1999
Ms. Becky Baker
Secretary to the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22324-3428
Dear Ms. Baker:
The Credit Union National Association is pleased to comment on the National Credit Union Administration Board's proposed changes to the National Credit Union Share Insurance Fund (NCUSIF) that appeared in the Federal Register May 26, 1999. The proposal addresses the equity level of the Fund, payment of premiums to the Fund, redistribution to credit unions of Fund equity and other provisions the Board was directed to change under the Credit Union Membership Access Act (CUMAA). The changes will take effect January 1, 2000. CUNA represents 90% of the nation's approximately 11,000 state and federal credit unions.
Summary of CUNA's Position
In general, CUNA supports the proposed regulation on the operation of the NCUSIF. However we raise several issues and concerns, which we believe the Board should address. CUNA's key points are:
- The NCUA Board should not change the current normal operating level of the NCUSIF, which is now at 1.3%.
- The NCUA Board has presented no empirical evidence to support the need for changing the equity level from its current 1.3% ratio.
- The NCUSIF has an outstanding record and continues to perform extremely well, making loses to the Fund unlikely in the foreseeable future. However, if losses were to occur which reduce the Fund's equity level, NCUA has the ability to assess premiums to restore the equity.
- If the NCUA Board is contemplating changes to the NCUSIF's normal operating level, the agency should conduct a thorough study of the Fund's performance, including its investment income, loss record, whether the amount allocated for Provision for CU losses is on target and other issues relating to the Fund, before altering the normal operating level.
- While CUNA opposes changes to the normal operating level, if the NCUA Board decides to raise the level, it should do gradually over several years and deduct the increase that credit unions would owe each year from their NCUSIF dividends.
The CUMAA amended section 202 of the Federal Credit Union Act regarding the requirements for federally insured credit unions to obtain and maintain share insurance coverage from the NCUSIF. The amendments retain the requirement that all federally insured credit unions must maintain a deposit in the NCUSIF equal to the amount of one percent of their insured shares at the close of the preceding reporting period. The NCUA Board may assess an insurance premium if the NCUSIF equity ratio is less than 1.3%, but the premium may not exceed the amount necessary to restore the equity ratio to 1.3%. If the Fund's equity ratio falls below 1.2%, the Board must assess a premium but only to restore the Fund's equity to 1.2%.
DETAILS OF THE PROPOSED RULE AND REQUEST FOR COMMENT
Normal Operating Level of the Fund
As indicated above, the proposed rule was mandated by the CUMAA. However, the NCUA Board was given flexibility in determining the "normal operating level." The proposed rule is requesting comment on the appropriate percentage for the "normal operating level" for the year 2000.
One Percent Deposit
After January 1, 2000, credit unions with $50 million or more in assets must begin adjusting their one-percent deposit semiannually, as necessary; smaller credit unions will continue to make annual adjustments. If the amount of insured shares increases, the credit union must increase its deposit. The credit union will receive a refund from NCUA if the amount of insured shares has decreased.
If the NCUA Board assesses a premium when the NCUSIF equity ratio is less than 1.3%, the assessment cannot exceed the amount necessary to bring the equity ratio up to 1.3%. If the equity ratio is less than 1.2%, the NCUA Board is required to make an assessment in an amount necessary to bring the ratio up to 1.2%.
The NCUA Board must declare a dividend to insured credit unions when the available asset ratio exceeds one percent and the NCUSIF exceeds its "normal operating level." The term "normal operating level" means an equity ratio between 1.2 -1.5%, as determined by the NCUA Board at the end of the calendar year. The current NCUSIF rules define "normal operating level" as 1.3% of the aggregate of insured shares at the end of the insurance year.
The dividend distribution will be in an amount that reduces the fund to its "normal operating level" and an available asset ratio of at least one percent. As an alternative to a dividend, the distribution may take the form of a waiver of insurance premiums or a premium rebate.
Newly Insured Credit Unions
An existing credit union that converts to insurance coverage with the NCUSIF must immediately pay the one-percent deposit based on total shares as of the end of the month prior to conversion. The credit union will pay a prorated insurance premium if such premiums have been assessed during that calendar year. The credit union will also be entitled to a prorated amount of any distribution from the NCUSIF that is declared subsequent to the conversion.
If you have any questions concerning our comments, you may contact me at 202-218-7769.
Mary Mitchell Dunn
Assistant General Counsel