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
/ PRINT / ShareShare / Text Size +

A tale of two funds

Both of the federal deposit insurance systems have been significantly damaged during the recent financial crisis. As a result, both will have to impose significant assessments on their insured institutions over the next several years to restore their funds.

BIF’s current reserve ratio stands at a negative 0.15% of insured deposits. By law, the ratio must be restored to at least 1.35% by 2020, a total difference of 1.5% of insured deposits. It’s the restoration of the reserve ratio that will require the significant assessments in the coming several years.

Following a recently announced premium of 12.42 bp, NCUSIF’s current reserve ratio is at 1.29% of insured shares. Since 1.3% is the normal operating level for the fund, premiums over the next few years will only be necessary to maintain rather than to replenish the fund.

However, NCUA will have to collect substantial assessments to pay for the estimated $8.1 billion remaining cost of the Corporate Stabilization Fund.

The primary cost for credit unions insured by NCUA will be to pay for the Corporate Stabilization Fund. Assuming the $8.1 billion expected cost is straight-lined over the 11-year life of the fund, the annual assessment would be $736 million.

The assessment rates for Corporate Stabilization assume an annual assessment of $736 million and that insured shares grow by 5% a year. Future premiums for the NCUSIF are assumed to be quite small as the fund is already at its normal operating level of 1.3%.

As is the case for FDIC, NCUA has already accumulated a substantial reserve for future insurance losses based on information about the current condition of credit unions. However, because credit unions are still under stress, there are likely to be some additional, not-yet-reserved losses at natural-person credit unions in the coming year or two.

Also, low interest rates on Treasury securities will depress the earnings on the Fund’s investments. We estimate the resulting premiums will be around 5 bp in 2011 and 2012.

Projections of future FDIC and NCUA assessments are just that: estimates. They’re based primarily on FDIC’s and NCUA’s current expectations about future losses from failed institutions and the performance of the Stabilization Fund’s legacy assets.

They are probably based on fairly conservative estimates of economic growth—a long, slow economic recovery over the next several years.

If the economic recovery is weak, or even slows to a double-dip recession, future assessments at both funds will be greater.

But 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 anticipated.

Read the white paper here.

BILL HAMPEL is CUNA’s chief economist/senior vice president of research and policy analysis. Contact him at 202-508-6760.

Post a comment to this story


What's Popular

Popular Stories

Recent Discussion

Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory ( will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

Your Say: Who should be Credit Union Magazine's 2014 CU Hero of the Year?

View Results Poll Archive