ALEXANDRIA, Va. – NCUA officials acknowledged yesterday the $5.9 billion bailout of corporate credit unions will not be the last hit for credit unions this year.
Additional costs to rescue and resolve several large natural person credit unions and the new law more than doubling deposit insurance for all credit union accounts will likely require more funds from credit unions to replenish the reserves for the National CU Share Insurance Fund, Mary Ann Woodson, chief financial officer for the agency, told the NCUA Board yesterday.
The costs could amount to anywhere between $750 million and $900 million for the industry, representing 15 basis points, or 0.15% of assets, according to Woodson’s projection. Credit unions would have to pay that from premium assessed by the NCUSIF later this year. That’s on top of the $1 billion of the $5.9 billion corporate credit union bailout credit unions will be paying for this year.
Yesterday the NCUA Board agreed to transfer the $5.9 billion cost from the NCUSIF to a new Corporate CU Stabilization Fund. But the additional costs would be charged to federally insured credit unions from the NCUSIF to bring the fund’s reserves up their mandated 1.3% level (dollars reserved per $1,000 of insured deposits). Under the new corporate credit union bailout law NCUA could choose to stretch out the premium to replenish the reserves for as long as eight years. But that decision will be based on the possibility of accruing additional losses to the fund over the next few years.
The causes of the diminished reserves are the expected charges for large natural person credit unions; and the dilution of the reserves because of the increase in deposit insurance coverage to $250,000 per account from $100,000. This means that NCUSIF reserves are now spread among an additional $50 billion of deposits, Woodson told the Board.
In addition, deposit (share) growth among credit unions is running much higher than expected as consumers shift their savings to federally insured deposits, further diluting the reserves of the NCUSIF.
The number of troubled credit unions, those rated CAMEL 4 or 5, has grown 24% over the last year to 301, according to NCUA. Though more than half of the troubled institutions are under $10 million, at least 10 of them are billion-dollar credit unions.