ALEXANDRIA, Va. (3/5/09)--The National Credit Union Administration (NCUA) has released a supervisory letter to its examiners designed to addresses the implementation of agency’s Corporate CU Stabilization Program. The letter discusses how the program may impact individual credit unions' earnings and net worth ratios. The same letter was sent to federal credit unions. “We are fully aware of the potential concerns and outcomes from such actions,” said the letter signed by John Kutchey, NCUA’s acting director of the Office of Examination and Insurance. Examiners are directed to consider the impact of the Corporate Stabilization Program when evaluating a credit union’s earnings. “Although the return on average assets will decline over the short-term, most natural person credit unions have the net worth to absorb the charge and retain sufficient levels of capital,” the NCUA supervisory guidance stated. “Examiners are encouraged to fully evaluate the earnings level and not take exception to the amount of earnings resulting from these NCUA Board actions,” it said. The supervisory letter noted the NCUA’s Jan. 28 action to stabilize the corporate credit union system. The NCUA:
* Guaranteed uninsured shares at all corporate credit unions through February 2009, and established a voluntary guarantee program for uninsured shares of all corporate credit unions through Dec. 31, 2010; * Issued a $1 billion capital note to U.S. Central Corporate FCU; and * Declared a premium assessment to be collected in 2009 to restore the NCUSIF equity ratio to 1.30%.
The agency said the impact of these actions on individual credit union financial statements will be twofold. It will cause an impairment of the NCUSIF deposit, requiring a write-down of a portion, presently estimated at 51% percent, of the credit union’s NCUSIF Deposit. It also will necessitate an assessment of a premium equal to 30 basis points of insured shares. The NCUA’s current estimate for the write-down of the NCUSIF deposit and the premium assessment is that it will produce a 62 basis-point reduction in the return on assets for 2009 and reduce the net worth by 56 basis points. Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn said Wednesday that CUNA “continues to advocate aggressively, and on a daily basis with NCUA senior staff, for alternatives to mitigate the costs of the program to credit unions.” She noted that NCUA is working on such alternatives, according to its officials. “If the accounting and legal issues can be worked out and an alternative funding approach is adopted by NCUA as CUNA urges, the costs to credit unions could be spread out over time,” Dunn said.