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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Fund ratios

It’s important to note that once the recently announced premium of 12.4 basis points (bp) is collected, the NCUSIF coverage ratio will be 1.3%. The corporate stabilization fund is a separate fund.

However, because credit unions will have to pay for the stabilization fund with assessments based on insured shares, it’s useful to consider the NCUSIF fund ratio net of the corporate stabilization obligation. This allows an apples-to-apples comparison of the relative future burdens on credit unions and banks to replenish their funds.

The $8.1 billion estimated remaining corporate stabilization cost is equal to 1.06% of insured shares in credit unions. Subtracting that from the 1.3% NCUSIF fund ratio leaves a combined or “adjusted” fund ratio of 0.24% of insured shares.

Over the next 11 years, credit unions will have to pay sufficient assessments to get the “adjusted” fund ratio back to around 1.25%. That amounts to about 1% of current insured shares.

By contrast the FDIC fund ratio is currently at negative 0.28%, and Congress recently mandated a new target for it of 1.35%. Over the next seven years, banks will have to pay an amount that’s 1.63% of current insured deposits.

Recently it has been difficult to compare FDIC and National Credit Union Administration (NCUA) assessments because the FDIC risk-based formula is much more complicated than NCUA's, and it has been changing lately.

Comparison is also complicated by there being two types of NCUA assessments: share insurance premiums and corporate stabilization assessments.

However, the total amount (relative to current insured deposits) that each type of institution will have to pay over the next 10 or 11 years is quite clear: 1.63% for banks and 1.07% for credit unions.

If the $8.1 billion corporate stabilization cost were evenly spread over 11 years, next year’s assessment would be approximately 9.2 bp of insured shares. Unless conditions at natural person credit unions deteriorate substantially over the coming year—and they appear to have stabilized—the NCUSIF premium is likely to be around 5 bp.

A 5 to 10 bp range would be conservative. Rounding up that means a combined cost next year of 15 bp to 20 bp.

After that, assuming no significant recession, the NCUSIF premiums should be largely behind us, and paying off the remaining estimated stabilization cost would average around 7 bp of insured shares a year for the following 10 years, assuming aggregate share growth of 5% over the period.

Next: Front-loading assessments

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