CUNA Regulatory Comment Call


May 21, 1999

NCUA's Share Insurance Proposal

NCUA is requesting comments on a proposed rule regarding the capitalization of the National Credit Union Share Insurance Fund (NCUSIF), payment of the premium, and redistribution to credit unions of fund equity. The proposed rule contains revisions as mandated by the Credit Union Membership Access Act (CUMAA), and the revisions will take effect on January 1, 2000. Comments are due within 60 days after the rule is published in the Federal Register, which should be in the next few days. Please submit your comments to CUNA by July 9. Please feel free to fax your responses to CUNA at 202-371-8240; e-mail them to CUNA's Assistant General Counsel Jeffrey Bloch at jbloch@cuna.com; or mail them to Jeffrey in c/o CUNA's Regulatory Advocacy Department, 805 15th Street, NW, Suite 300, Washington, DC 20005. You may also contact us if you would like a copy of the proposed rule or you may access it on the Internet.

BRIEF BACKGROUND

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%, and the Board must assess an insurance premium if the ratio is less than 1.2%.

NCUA will calculate the "available assets ratio" and "equity ratio" (these terms are defined below) to determine if a dividend will be paid to insured credit unions and the amount of the dividend. As indicated above, the revisions mandated by the CUMAA will not take effect until January 1, 2000. Any dividends calculated under the new rule for year 2000 will not be paid until the first quarter of 2001.

DETAILS OF THE PROPOSED RULE AND REQUEST FOR COMMENT

Definitions

  1. Available asset ratio - assets available to the NCUSIF divided by insured shares.
  2. Equity ratio - the amount of the NCUSIF's capitalization divided by insured shares.
  3. Reporting period - annually for insured credit unions with less than $50 million in assets and semiannually for insured credit unions with assets of $50 million or more.
  4. Normal operating level - an equity ratio between 1.2 - 1.5%, as established by the NCUA Board.

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.

Premiums

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%.

Dividends

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.

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.

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.


Comparison of Proposed and Current Rules on The Operation of the Share Insurance Fund

Issue Current Rule Proposal

Normal Operating Level for the Fund

1.3% of insured shares at end of the preceding year or lower as set by NCUA

1.2-1.5% as set by NCUA

1% Deposit

All FISCUs

Annual adjustment

Same

Annual adjustment for CUs under $50 million; Semiannual adjustment for larger CUs

Insurance Premiums

Annual unless waived

 

1/12th of 1%

Not more than 2X a year

May assess if Fund is below 1.3%

Must assess if below 1.2%

amount sufficient to bring Fund to 1.2%

if premium assessed when Fund is between 1.2 and 1.3%, amount sufficient to bring Fund to 1.3%

Equity distribution

when Fund exceeds normal operating level

when Fund exceeds normal operating level and available assets ratio of 1%

Available Assets Ratio

N/A

Amount available to the Fund compared to insured shares


QUESTIONS TO CONSIDER REGARDING NCUA'S SHARE INSURANCE PROPOSAL

NCUA is required to follow statutory requirements regarding the amendments to the share insurance rules. The questions posed below focus on areas that are not required by the statute.

What do you think should be the appropriate percentage for the normal operating level for the year 2000? (The proposed rule is specifically requesting comment on this issue.)




If you believe the normal operating level should be above 1.3%, do you think it should be raised immediately to the higher level or should it be increased gradually over time?




The equity ratio is based on the amount of insured shares, which is calculated on a yearly basis. Because large credit unions will be required to adjust their one-percent deposit on a semiannual basis, do you think the equity ratio should also be adjusted on a semiannual basis? Do you think the available asset ratio should also be adjusted on a semiannual basis to be consistent with the equity ratio?




NCUA has reserved itself the right to determine the form of equity distributions from the share insurance fund (waiver of insurance premiums, premium rebates, or dividend payments). Do you think NCUA should be required to consider a credit union's preference as to the form of these distributions? If so, do you think this preference should automatically be effective for future distributions or should a credit union state its preference each year?




How much time do you think credit unions should have to pay the amount indicated on invoices sent by NCUA regarding amounts due for premiums and adjustments to the one-percent deposit? Should this time period be stated in the proposed rule?




Leagues and credit unions should feel free to fax their responses to CUNA at 202-371-8240; e-mail them to Jeffrey Bloch at jbloch@cuna.com or mail them to CUNA's Regulatory Advocacy Department, Suite 300, 805 15th Street, NW, Washington, DC 20005. Thank you!!

Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com