Credit union federal share insurance fund target drops 5bp as of Jan. 1

The “normal operating level” (NOL) – or target equity ratio – for the federal fund that insures depositors’ money in credit unions will drop five basis points, from 1.38% to 1.33%, as of Jan. 1 under action taken Thursday by the National Credit Union Administration (NCUA) Board.

The NOL for the National Credit Union Share Insurance Fund (NCUSIF) is set by the NCUA Board. Agency policy provides that no dividend is returned on insured credit unions’ 1% capitalization deposit with the fund unless the fund exceeds the board-set NOL.

Credit unions heard in Thursday’s open meeting, viewable via webcast, that they should not expect a 2022 NCUSIF dividend given that the fund is expected to close 2021 at 1.28% of insured shares, below the board-set NOL.

Federal law requires that the NCUA Board set the NOL between 1.2% an 1.5%. If the fund’s equity ratio ever rose above 1.5%, the agency would be required by statute to return the excess as a dividend to insured credit unions; additionally, no premium may be assessed if the fund equity ratio is at least 1.3%. If the equity ratio were to drop below 1.2%, the agency would be required to establish a fund restoration plan, possibly providing for a premium assessment.

The NCUA’s most recent quarterly report on the share insurance fund, delivered in September and based on June 30 data, shows the fund at a 1.23% equity ratio at mid-year. The ratio, which was at 1.35% as of year-end 2019, plummeted to 1.22% in June 2020 as members increased deposits amid the worsening COVID-19 pandemic. The fund’s equity ratio rose to 1.26% by year-end 2020 and is projected to end 2021 at 1.28%, according to the agency. So far, the agency has refrained from requiring any premium assessment.

Board action memorandum

Notice on policy for setting the NOL