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CUNA delves into corporate fund prepayment issues
WASHINGTON (6/14/11)--The National Credit Union Administration (NCUA) continues to evaluate credit union interest in its proposal to allow credit unions to prepay some of their corporate credit union stabilization fund assessments, and NCUA Deputy Director Larry Fazio on Monday said that whether or not a given credit union participates in the plan would not affect its NCUA examination or treatment by examiners Fazio made his remarks during a Monday Credit Union National Association (CUNA) audio conference on the agency’s voluntary corporate prepayment plan. CUNA President/CEO Bill Cheney, Chief Economist Bill Hampel, and Deputy General Counsel Mary Dunn led the discussion during the call. Fazio said that the prepayment plan, which would allow most credit unions to voluntarily prepay up to 36 basis points (bp) of their corporate stabilization assessments, was specifically created due to heavy credit union interest. CUNA had also encouraged the NCUA to create such a plan. The majority of credit unions are divided into two camps, according to the NCUA deputy director: Some that want to pay of the corporate stabilization costs as soon as possible, and some that wish to spread out repayment over a longer time period. Even so, he added, there are surely others who are in the middle. The panelists noted that it is up to individual credit unions to analyze their own financial plans and decide if they wish to participate, and Fazio said that those that wish to comment on the plan must do so by June 20. Comments should be directed to regcomments@ncua.gov. To participate, a credit union would need to advance the minimum amount of $10,000 , and the NCUA said it would not move forward with the plan if credit unions do not commit at least a total of $300 million in funds to the proposal. The prepayment plan would generate $2.8 billion in funds if all eligible credit unions contributed the maximum amount, which is 36 basis points of insured shares as of the March 31, 2011 Call Report. The NCUA has recently said that about 6,023 credit unions would be able to take part in the plan. If the NCUA does not move forward with the prepaid assessment plan, the regular assessment, which will be about 25 bp, would likely be assessed in July, Fazio said. With sufficient participation in the voluntary plan, the 2011 and 2012 assessments would be in the low teens, followed by assessments of 10 bp in 2013 and less in the following years until the Corporate CU Stabilization Fund is retired. The NCUA would process a direct debit to a credit union’s account in August for the prepayment, if the agency’s plan is approved. Then, all credit unions’ regular assessment for this year would be due in August if the prepaid assessment proposal is adopted. The prepayment plan would not have a material impact on the total amount of assessments to be paid over the life of the stabilization fund. Instead, its purpose is to avoid the front loading of much of the assessment expenses and to even out assessments for subsequent years of the life of the Corporate Credit Union Stabilization Fund. The reduction of assessments in the first two years of the stabilization fund’s life would be particularly beneficial to credit unions currently close to PCA capital ratio thresholds. The prepayment funds would be passed on to the acquiring credit union in the event of a merger, would be used to pay out creditors in the event of a liquidation, and would be repaid when the stabilization fund is fully paid off in the event of a credit union to bank charter conversion. An archived version of the audio conference should be available by Wednesday.


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