Corporate Stabilization Prepayments: Yea or Nay?

Before deciding to participate in NCUA Voluntary Prepayment Plan for corporate stabilization assessments, credit unions first should consider whether:

• Doing so will benefit members;
• The credit union has sufficient liquidity to commit to the prepaid assessment;
• The loss of interest income will justify participation;
• The minimum to participate in the program is appropriate; and
• The credit union’s accountants have issues regarding the accounting treatment of prepayments.

That was the word from NCUA leadership during a webinar the agency held Monday.

NCUA Chairman Debbie Matz stressed that participation in the program is voluntary. “We’re not encouraging or discouraging credit union participation; we’re simply making it available as an option,” she says. “It’s not something NCUA wants or needs,” due to cost and effort the program entails.

Key program features:

• Participating credit unions may prepay a portion of their future corporate stabilization assessments. Amounts that are prepaid this year will be used to meet assessment obligations starting in 2013.
• The minimum amount to participate is a prepayment of $1,000 or 5 basis points (bp) of insured assets as of March 31, 2011 insured shares, whichever is greater.
• The maximum prepayment amount is 48 bp of insured shares as of March 31, 2011.
• The program will run only if total prepayment commitments amount to at least $500 million, and only $500 million of total prepayments will be collected from credit unions.

If total commitments are less than $500 million, the program will be cancelled. If total commitments are more than $500 million, prepayments will be collected on a pro-rata basis.

• Without exception, credit unions must complete and submit the program agreement to NCUA by July 29. On August 9, the agency will notify interested credit unions via e-mail whether the targeted amount was reached or exceeded.

Without the prepayment plan, CUNA reports, this year’s assessment would likely be about 25 bp of insured shares, and 13 bp of insured shares in 2012. After that, assessment rates would gradually fall from that level as insured shares grow.

With the prepayment, this year’s assessment would be reduced to about 18.5 bp. Next year’s assessment would still be around 13 bp. There would be slightly higher assessments in 2013 and the following few years, compared to the situation if there had been no prepayments, to make up for the fact that the 2011 assessment was reduced.

NCUA won’t pay interest on the prepayments because “we’re doing this at the request of the credit union community,” Matz says. “This isn’t a loan to NCUA, and we don’t have the authority to issue interest-bearing instruments.”

At CUNA’s urging, NCUA made several changes to its original voluntary stabilization fund prepayment plan. The agency:
• Committed to using all received prepayments to decrease 2011 assessments dollar-for-dollar;
• Increased the program’s size from $300 million to $500 million;
• Increased the maximum amount a credit union may voluntarily prepay to 48 bp of insured shares as of March 31; and
• Adopted a more inclusive minimum participation standard of $1,000 or at least 5 bp of insured shares as of March 31. This allows 98% of credit unions to participate in the program.

Visit the agency’s website for more information.