News
NCUA Stabilization Fund Assessments May Be Over For Good — 2/18/14
Agency credits J.P. Morgan settlement and legacy asset improvement
Credit unions are much less likely to be charged another assessment by the Temporary Corporate Credit Union Stabilization Fund, (TCCUSF), as a result of significant recoveries from legal settlements and strong asset management, the National Credit Union Administration (NCUA) announced on February 12 in a news release.
The net remaining Stabilization Fund projected assessment range now runs from negative $1.9 billion to negative $400 million, compared to the negative $200 million to $1.6 billion projection from the second quarter of 2013. As long as both ends of the range remain negative, credit union swill unlikely be charged an assessment—a welcome change from previous years.
The net proceeds from the $1.4 billion JPMorgan Chase settlement in November 2013 and the continued improvement in the performance of the legacy assets underlying the NCUA Guaranteed Notes (NGN) program during the third quarter of 2013 caused the decline in the assessment range.
The assessment range is generated using legacy asset cash flows projected by the international asset management firm BlackRock. While NCUA expects to receive these legacy asset cash flows over time, they have not been realized, so future Stabilization Fund ranges could also vary significantly from current projections.
“This is another piece of very good news for credit unions,” stated League president Ken Watts. “With loans on the rise and delinquencies declining, this announcement from NCUA will help establish what should be a very good year for credit unions in West Virginia,” he added.
NCUA announced at the November 2013 Board meeting there would be no planned Stabilization Fund assessment in 2014. The Board also decided to post a special update on the Corporate System Resolution Costs webpages, apart from the normal semi-annual release schedule, in order to reflect the effects of the JPMorgan Chase settlement with the Department of Justice on existing Stabilization Fund projections. Following NCUA’s $1 billion repayment to Treasury in December 2013, the agency must still repay $2.9 billion in outstanding Treasury borrowings before any remaining Stabilization Fund distributions can be legally made to credit unions. As a result, any potential repayment to credit unions is not likely to occur prior to expiration of the Stabilization Fund in 2021.
NCUA has litigation pending against several other financial institutions, including Barclays Capital, Credit Suisse, Goldman Sachs, RBS Securities, UBS Securities, and Morgan Stanley, alleging the banks sold faulty mortgage-backed securities to five corporate credit unions—WesCorp, U.S. Central, Southwest, Constitution, and Members United—which subsequently failed. The agency also has sued 13 other banks, alleging violations of federal and state anti-trust laws by their manipulating interest rates in the London Interbank Offered Rate (LIBOR) system. By lowering the cumulative losses on the legacy assets, net recoveries reduce the assessments that credit unions pay through the Stabilization Fund. From 2009-2013, credit unions paid assessments totaling $4.8 billion.