NCUA Not Creating Contingency Plan for Increased Exits from the NCUSIF

CU Times - September 12, 2011- By Claude R. Marx

Because conversions to private insurance and mutual savings banks are “relatively rare,’’ the NCUA isn’t developing a contingency plan for helping credit unions that stay in the system deal with any additional costs from more departures, according to a letter from NCUA General Counsel Michael McKenna to NASCUS President/CEO Mary Martha Fortney.

He wrote that all five credit unions with conversion applications (three to mutual savings banks and two to private insurance] will pay this year’s assessment to the Temporary Corporate Credit Union Stabilization Fund and some will have to pay next year’s assessment. The fund was set up by Congress in 2009 to pay for the rescue of several troubled corporate credit unions.

He added that while the agency doesn’t need a contingency plan, it is “closely monitoring the situation and can take quick action, if necessary.’’

McKenna, who was responding to a letter that Fortney wrote NCUA Chairman Debbie Matz last month, wrote that the agency’s monthly management report will from now on list the amount of insured shares held by each credit union with a charter or insurance conversion application and the percentage of total insured shares that represented by each converting credit union.

According to the NCUA, three credit unions with a total of $3 billion in insured shares are in some stage of the process of converting to mutual savings banks. Two credit unions, with total insured shares of $124.7 million, have applied to convert to deposit insurance.

McKenna noted that insured shares decreased by $695.9 million from conversions since the TCCUSF was signed into law in May 2009, but the total insured shared increased more than $69 billion during that period.

In response to questions asked by Fortney, McKenna said if the agency made a single assessment for the remainder of the TCCUSF’s expenses, it would reduce overall net worth by 56 basis points and cause 4,500 insured credit unions to have negative earnings.

He also said the agency predicts that 250 credit unions would see their net worth drop below 7% net worth and five more credit unions would fail and cost the NCUSIF up to $300.

In August, the agency announced a 25-basis point assessment for this year’s portion of the repayment of the Treasury Department loan to pay for the corporate credit union rescue. Currently, the agency has set up a system to spread out the payments over the next seven years.