Assessments Less Onerous for CUs Than Banks

CUs likely will pay about one-third less than banks over the next 11 years.

November 30, 2010
KEYWORDS fdic , funds , ncua , stabilization
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Credit unions can expect to pay about one-third less than banks for assessments over the next 11 years, according to “Comparing Future NCUA and FDIC Assessments,” a new Credit Union National Association (CUNA) white paper.

Thus far, credit unions have paid roughly 20% less in National Credit Union Share Insurance Fund (NCUSIF) assessments than similar-sized banks have paid in Federal Deposit Insurance Corp. (FDIC) assessments.

The significant cost for National Credit Union Administration (NCUA) assessments, both as NCUSIF premiums and as corporate stabilization assessments, is a top concern for credit unions.

The administrators of the two federal deposit insurance funds recently took actions and announced plans that provide a clear picture of their intentions for fund management over the next several years.

NCUA announced a 2010 NCUSIF premium of 12.4 basis points (bp), which along with the earlier 13.4 bp Corporate Stabilization Fund assessment brought the total for the year to 25.8 bp. It and also brought the fund’s equity ratio to its normal operating level of 1.3% of insured shares.

NCUA also announced it plans to deal with the “legacy assets” of five conserved corporates over the coming 11 years, and disclosed estimates of assessment ranges for 2011.

At its October board meeting, FDIC updated the condition of the Bank Insurance Fund (BIF) from minus 30 bp to minus 28 bp of insured deposits, and announced a plan to impose sufficient assessments to eventually raise the fund’s reserve ratio to 2.5%.

Following more than a decade of negligible assessments, both funds have imposed significant levies in the past three years. From 2008 on, FDIC’s assessments have totaled 47 bp of total deposits, which is equivalent to 52 bp on insured deposits.

Over the same period, NCUA’s total assessments have totaled about one-fifth less, at 41 bp of insured shares.

Looking ahead to the next few years, both federal deposit insurance funds will have to impose significant assessments on their insured institutions to restore their funds. For FDIC, BIF must be replenished. For NCUA, the NCUSIF does not need replenishment, but the Corporate Stabilization Fund must be repaid.

From 2011 through 2021—the remaining term of the NCUA Corporate Stabilization Fund—combined NCUA assessments are expected to average about 8 bp of insured shares per year, or a total of 90 bp. Over the same period, FDIC assessments are expected to average about 13 bp of insured deposits for a total of 144 bp, or 50% greater than the NCUA costs.

Both projections of future FDIC and NCUA assessments are estimates based on the agencies’ current expectations about future losses from failed institutions and the performance of the Stabilization Fund’s legacy assets.

If the economic recovery turns out to be very weak, or even slows to a double-dip recession, future assessments at both funds will be greater than these estimates.

Conversely, if the economy surprises on the strong side, current expectations of future losses will turn out to have been excessive, and future assessments at both funds will be less than these estimates.

Next: Recent NCUA actions

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