||NCUA Corporate CU Stabilization Webinar - June 24, 2009
The following is a summary of NCUA's June 24, 2009 webinar on Corporate Credit Union Stabilization, compiled from notes taken by Brian Gately, Federation Director of Technical Assistance.
The primary Webinar presenters included Melinda Love from NCUA's Office of Examination and Insurance, Scott Hunt from the Office of Corporate Credit Unions, and Karen Kelbly, NCUA’s chief accountant. NCUA Chairman Michael Fryzel welcomed webinar attendees.
The presentations lasted about an hour, with a question-and-answer period for another hour.
If you are confused about what the take-aways are, you are not the only one; several of our members have expressed this. It was quite technical, but then again that is the nature of the subject, CPA-type accounting. In fact, it was so technical, NCUA said at the beginning to be sure to adjust your screen resolution to be able to see all the stuff on their slides.
Here are the main take-aways:
- For purposes of the presentation credit unions fall into three asset categories: under 10 million (they can use modified cash and don’t necessarily have to follow generally accepted accounting principles, GAAP); those between $10 and $50 million who do have to follow GAAP; and those $50 million and over that have to follow GAAP and will be invoiced more often by NCUSIF to cover the increase costs of insurance since the new insurance limit is $250,000, and no longer $100,000.
- The next item, which to me was controversial, but in a way understandable since it can be construed to be the law: credit unions that were forced into making net worth restoration plans and/or setting aside earnings because they were pushed into PCA territory (PCA = prompt corrective action, actions required when your net worth is less than 7% of assets) on account of the initial stabilization charges are STILL required to follow their net worth restoration plans or earnings set-asides even if the reversal of the charges that will put them above PCA thresholds. It’s counter-intuitive to most of us. You can negotiate.
- NCUA said that some trade associations got it wrong, that the amount that can be spread over the 7-year period that can be used now for accounting for the yearly costs is not a fixed amount, so you cannot just divide the reversed charges by 7 to get the yearly amount. No, you have to wait for them, NCUA, to figure out each year (or more often) how much the charge will be for that period, depending upon outside factors such as actual insurance losses. It could be zero for some years.
- All credit unions must reverse charges (the impairment/assessment of the NCUSIF asset of 0.69% and any NCUSIF insurance premium) that they booked in the last quarter of 2008 or sometime during this year. Specifically, to repeat, the charges to be reversed are the 69 basis points that were collected because of the impairment of the NCUSIF insurance fund and any insurance premium that had been accrued.
- As to the confusion between 7 years and 8 years, the 7 years alludes the time that NCUA has to get the corporate stabilization fund up to the required level and the 8 years refers to how much time the NCUSIF has to get itself up to required levels.
- NCUA expects—estimates for now—that the premium charge will be 0.15 percent not the 0.30 percent of insured shares as originally expected. This could change.
- Losses on both US Central and especially Wescorp are immense, not to mention some other corporates. These two especially are very insolvent and there is virtually no likelihood that credit unions will get back member capital shares or paid in capital from Wescorp. NCUA said it was the industry’s idea, not theirs, to create the corporates in the first place.
- Liquidity in the corporate system is not quite up to pre-crash standards, but pretty good; transactions business continue as usual. NCUA sees the corporates as vital in the transactions (payments, ACH, etc) arena.
- For now all deposits in corporates are guaranteed, not just to $250,000. This excludes, of course, MCA and PICs (member capital shares and paid-in-capital)
- Credit unions are not supposed to revise their quarterly call reports. What was known then is what was known then. Adjustments go on future call reports. (There are some exceptions, of course.)
- One good thing about the new stabilization fund for corporates is that it frees up the accounting and lessens responsibility for the NCUSIF; in other words credit unions can still book their deposit with NCUSIF as an asset since it is “fully refundable”. That’s their term; to me the only way you can get it refunded—and this was in response to a specific question—is if you leave the federal insurance system (as some states such as Ohio allow) and go with private insurance.
- The $250,000 NCUSIF coverage on members’ share accounts extends, for now, up through 2013.
- NCUA explained why they only borrowed $1 billion of their new $6 billion authority—that’s all they need for now. The rest would have to be parked somewhere and Treasury would take it back anyway.
- A lot of these changes came from the US Congress’ “Helping Families Save Their Homes Act of 2009” of May 20th which amended the Federal Credit Union Act in various ways favorable to credit unions.
- Good news: because of the above the September, 2009 insurance billing to credit unions will be significantly reduced. As mentioned, the stabilization cost being spread out over time, 7 years.
- The accounting treatment examples, in the PowerPoint, were not clear if you were looking for specific instruction on how to book entries. They were more “proving the theorem” in style.
- My question is, since the corporate stabilization fund has been created, why do natural person credit unions have to pay anything? NCUA didn’t have an answer to this. The net effect of all this shuffling, as I understand it, does not decrease the hit against us, as natural person credit unions (including CDCUs of course), but just allows us to spread it over time. The corporate stabilization fund is supposedly temporary, per the new law.
- All credit unions need to reverse the 69 basis point impairment charge to their NCUSIF asset. This will increase your net worth something like ½ percent (50 basis points), depending upon how many insured shares you have.
- If you had money in paid in capital at Wescorp, or at a few other corporates, that money is almost certainly gone forever, so it stays written off or will need to be written off.
- The accounting treatment for the reversal is to run the reversal via non operating income, if possible by the June 30th call report (more instructions will be forthcoming from NCUA on this).
- Do not amend previous call reports, just make the correction changes on the June 30th report.
- If you’re in PCA because of the stabilization, and would not be because of the reversal, you still have to comply with net worth restoration plans and income set-asides already in place; as far as the income set-aside, you can always ask your region for a waiver. Examiners have been told to take into account the special circumstances of the stabilization cost, so presumably will take this into account.
- The insurance premium for this year will be less than expected, wait for the invoice or else accrue assuming a 0.15% charge on all shares up to $250,000; the old estimate was double that.
To access NCUA's PowerPoint presentation for this webinar, please click here.
You can also visit NCUA’s website (www.ncua.gov) for a copy of the webinar and related explanatory letters and their appendices.
What credit unions will have to actually do is not all that complicated. It’s just very expensive, but the expense can be absorbed over time. Trust your examiner for advice... or if you don’t agree, be ready to negotiate.