Regulator to distribute more than $735 million from insurance fund excess to insured credit unions this year

A $735.7 million “distribution” will be paid to federally insured credit unions, likely during the second half of the year, the result of a dividend from the federal insurance fund that insures savings in the cooperative financial institutions.

The National Credit Union Administration (NCUA) Board declared the dividend Thursday to those credit unions insured by the National Credit Union Share Insurance Fund (NCUSIF) for the year ending Dec. 31, 2017. The dividend, expected during the third quarter of 2018, will leave the NCUSIF at an equity ratio of 1.39%, which is the fund’s normal operating level (NOL).

The agency announced the decision during a regular meeting of the board in Alexandria, Va.

The credit union regulator board raised the NCUSIF normal operating level Sept. 28 from 1.3% to 1.39% as it approved the closure of the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) and distribution of its assets to the share insurance fund. At the time, the agency said a dividend this year could range from $600 million to $800 million.

The NCUA said the NCUSIF’s equity ratio was 1.46% as of Dec. 31, 2017. The $735.7 million dividend to be paid this year will reduce the fund’s equity ratio to the approved NOL of 1.39% and leave the available assets ratio at 1.33%.

The Federal Credit Union Act, as amended in 1998, authorizes the NCUA Board to set the NCUSIF normal operating level from 1.2 percent to 1.5 percent. The fund equity ratio is defined to include the NCUSIF’s capitalization, which includes insured credit unions’ 1 percent deposit (relative to their total insured shares) and the fund’s retained earnings balance. The board may assess a premium only when the fund’s NOL falls below 1.3 percent and only to the extent it restores the fund to that level. If the fund NOL were to fall below 1.2 percent, a restoration plan would be required.

Under federal law, a distribution is required for any year when the fund closes the year at an equity ratio higher than the normal operating level. That distribution must be sufficient to return the fund to the normal operating level but cannot reduce the available assets ratio below 1%.

Board action memorandum

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