September 23, 2020

NAFCU advises NCUA against NCUSIF premium, calls for more investment opportunities

Curt Long
Curt Long, NAFCU's chief economist and vice president of research

Following last week's NCUA meeting during which the agency discussed the impact of the coronavirus pandemic on credit unions' share growth and the National Credit Union Share Insurance Fund's (NCUSIF) equity ratio, NAFCU's Curt Long advised the NCUA Board to consider measures to allow credit unions additional investments – even on a temporary basis – rather than assess a premium to lower the ratio.

During the board meeting, the NCUSIF quarterly report revealed that credit unions have seen share growth of almost 13 percent through the first six months of 2020, causing the NCUSIF's equity ratio to fall to 1.22 percent. If the equity ratio falls below 1.2 percent, which Board Members Todd Harper and J. Mark McWatters indicated might happen as the coronavirus pandemic continues to impact the economy, the NCUA is statutorily obligated to establish a restoration plan and could potentially assess a premium charge to restore the NCUSIF.

"NAFCU would oppose any SIF premium that is largely intended to remedy the temporary effects of increased share growth during the COVID-19 pandemic," wrote Long, NAFCU's chief economist and vice president of research. "In lieu of imposing a premium, NAFCU supports the NCUA adopting or support relief measures to provide credit unions with more options to manage the large influx of deposits, including additional temporary investment authorities."

Long noted that natural person credit unions are not allowed to invest in asset-backed securities, while credit union service organizations (CUSOs) are. In addition, while federal credit unions are not explicitly permitted to invest in corporate bonds, some states permit state-chartered credit unions to do so.

"NAFCU encourages the NCUA to evaluate its authority under the [Federal Credit Union (FCU) Act] to permit such investments on a temporary basis to ensure the safety and soundness of the industry while helping to restore the equity ratio without more drastic measures such as assessing a premium."

Providing feedback on the NCUA Board's discussion of the FDIC's recently-enacted restoration plan for the Deposit Insurance Fund (DIF) after its reserve ratio fell below the statutory minimum, Long outlined reasons against the NCUA pursuing an NCUSIF premium assessment and expanded authorities to manage the fund.

"NAFCU supports a strong SIF and a strong credit union industry that is both robust to unforeseeable crises such as COVID-19 and positioned to thrive during the recovery, and we believe our positions are supportive of these goals," Long concluded.

Read Long's full letter detailing NAFCU's position here.