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New corp stabilization plan implemented by NCUA
ALEXANDRIA, Va. (6/19/09)--The National Credit Union Administration (NCUA) will immediately borrow $1 billion of the total $6 billion offered by the U.S. Treasury to shore up the corporate credit union system after the board at its monthly meeting voted to implement the temporary corporate credit union stabilization fund. Commending the board for its work, Credit Union National Association (CUNA) President/CEO Dan Mica said that the board’s action is “precisely what was needed to inaugurate the use of the Temporary Corporate Credit Union Stabilization Fund.”
Click to view larger image NCUA Director of the Office of Examination and Insurance Melinda Love faces Chairman Michael Fryzel (center) as she presents a staff document detailing a proposal to implement the new Temporary Corporate Credit Union Stabilization Fund. Key NCUA staff members also concentrate on the presentation. They include Sarah Vega, chief of staff and senior policy advisor (far right), General Counsel Bob Fenner, and Executive Director David Marquis. (CUNA Photo)
During the meeting, NCUA officials said that the board should examine the impact that the extra $1 billion in corporate credit union funding has on the system before borrowing further money from the Treasury. Taking the full $6 billion in available funding would limit the availability of future Treasury funding, Office of Examination and Insurance Director Melinda Love said. The $1 billion in borrowed funds would be used to “secure the re-assignment” of the National Credit Union Share Insurance Fund’s (NCUSIF) capital note at U.S. Central Federal Credit Union. This so-called “re-assignment” would increase the NCUSIF’s equity by $1 billion, according to an NCUA memorandum. Under the plan, credit unions will also see their earnings recovered from the NCUSIF returned to them, for a total equal to 0.69 percent of their insured shares at the end of 2008. These earnings will then be used to recapitalize the NCUSIF. Related accounting issues were also discussed during the meeting, with the NCUA determining that any costs and liabilities related to corporate credit unions stabilization that were previously borne by the share insurance fund will be transferred to the stabilization fund. Credit unions’ one percent deposits in the NCUSIF will no longer be accounted for as impairments under the plan. CUNA believes that credit unions will not be required to provide restatements of their prior financial statements. Rather, many credit unions will record a gain in the second quarter equal to the impairment charge they recorded in the first quarter, allowing them to reflect no impairment charges on their year-to-date income statements. The stabilization fund will also allow the NCUA to reduce its share insurance premium, which was expected to be assessed in September of this year, to an estimated 15 basis point charge. The NCUA previously announced that there would be a 30 basis point charge assessed in September. However, the NCUA said that the exact amount of the premium would depend on a number of factors, including insured share growth and insurance losses at natural person credit unions. The NCUA will soon provide further details on how these actions will affect credit union financial reporting, with the goal of allowing credit unions to accurately account for the affects on their mid-year call reports, which are due in late July. The NCUA staff has been working with accounting practitioners on the specifics of how credit unions will account for these changes, and details will be forthcoming from the Agency and accounting professions in the next few weeks. The NCUA will also give credit unions direct access to NCUA board members during an interactive webinar set for June 24. Credit unions that would like to participate in this webinar may register at the NCUA's Web site starting today. (See related story: NCUA opens registration for June 24 webinar.) “Rather than taking a significant hit to earnings and capital this year based on estimates of future losses, credit unions will now be able to pay for those losses on a timetable much more closely aligned to when and if they actually occur,” Mica added.


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