Management

A Tale of Two Insurance Funds: NCUSIF vs. FDIC

Costs will be 60% greater to replenish bank fund than for NCUSIF.

October 14, 2010
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Both federal deposit insurance funds—Federal Deposit Insurance Corp. (FDIC) and the National Credit Union Share Insurance Fund (NCUSIF) have had a very rough time of it over the past few years.

Coverage ratios (total equity in each fund divided by insured shares or deposits) have fallen for both funds from 2007 to 2010, but more so for the bank fund.

From their standard operating coverage ranges in the neighborhood of 1.25% (where both had hovered since 1995), the FDIC has plummeted well into negative territory. The NCUSIF has taken on the corporate stabilization fund, which leaves it sharply reduced, although still positive.

The cause in both cases was the financial crisis followed by a very deep recession. Some of the challenges have been shared by both funds. For example, very low interest rates have depressed yields on the investments held by each fund.

Subscribe to Credit Union MagazineIn normal times—prior to 2007—interest on the assets owned by the funds was sufficient to cover all operating expenses and the minimal deposit insurance expenses. Recently, that has not been the case, and premiums have been necessary at both funds.

Although there have been increased insurance losses at both funds, these losses have been much greater for FDIC than for NCUSIF. Despite significant FDIC premium assessments over the past few years, its fund ratio has dropped from 1.22% at the end of 2007 to a negative 0.28% as of June of this year.

Although there has also been an increase in natural person credit union insurance losses at NCUSIF, the premium assessments of the past two years have been sufficient to keep the fund ratio at the top of its normal range, at 1.3% of insured shares.

The big hit to credit unions hasn’t been NCUSIF losses at natural person credit unions. Instead, it has been losses at some of the corporate credit unions that are being paid through the corporate stabilization fund.

Under the just announced legacy assets plan, the remaining cost of the corporate stabilization will be $8.1 billion, to be paid over the coming 11 years.

This is based on a $15 billion estimate of the future credit losses on the troubled assets from the five corporate credit unions that have been conserved.

Subtracting $5.6 billion of depleted corporate capital and $1.3 billion of assessments already paid leaves the $8.1 remaining cost.

Next: Fund ratios

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