January 30, 2009
Dear ASI Primary Insured Credit Union CEO:
On January 28, 2009, the NCUA Board took unprecedented action and unanimously moved to reassess all federally insured credit unions approximately 62 basis points of insured shares to assist in its bailout of US Central Federal Credit Union. The funding will allow NCUA to infuse $1.0 billion into US Central for capital that was depleted as a result of $1.1 billion in security losses realized at year-end 2008. In addition, the assessment will help NCUA cover other potential losses in asset-backed securities within the corporate system.
This action increases the cost of federal share insurance for all federally insured credit unions by 20 to 30-fold in 2009 and is intended to recapitalize the NCUSIF to a 1.30% equity ratio. Currently we estimate the opportunity cost of earnings lost on share insurance deposits -- or the normal cost of share insurance from either NCUA or ASI –- to be about 2 to 4 basis points annually.
I am very pleased to report that ASI has never had to charge a premium nor does it need to seek reassessments to recapitalize the ASI share insurance fund. In fact, the ASI fund is finishing the year 2008 with an equity ratio of 1.48%, while reporting no claims payments in 2007 or 2008 and holding no MBSs, CDOs or other mortgage-backed securities. Our primary insured credit unions are healthy, safe and sound, reporting an aggregate net capital ratio of 11.55% at September 30, 2008, and showing no signs of overall weakness.
The NCUA Board also introduced a voluntary plan for providing unlimited share insurance on accounts held at corporate credit unions beginning after February 28, 2009. Each corporate credit union will have the right to elect such protection, but the cost of this voluntary coverage has not yet been disclosed or reported. To assure stability and liquidity in the corporate credit union system, all deposits -- excluding paid-in-capital shares (PIC) and membership capital shares -- within the corporate credit union system will be automatically covered without limit from the date of the Board’s action until February 28, 2009.
The Board also announced its plans to issue an Advance Notice of Proposed Rulemaking to assist the agency in developing a plan for restructuring the corporate credit union system. Credit union input is being encouraged and solicited by the agency.
Certainly it is imperative that actions be taken to keep the entire credit union system safe and strong, but at whose expense? Obviously the corporate credit union system bailout has dramatic cost implications for all federally insured credit unions. Fortunately, ASI does not insure any corporate credit unions, nor will ASI primary insured credit unions be required to recapitalize the NCUSIF.
Furthermore, the ASI Board of Directors recently approved a change in our primary insurance pricing model for 2009 that resulted in a reduction in the deposit insurance requirements for CAMEL 2 or CAE 2-rated member credit unions from 1.1% of total shares to 1.0% of total shares. The ability to effectuate this price restructuring during difficult economic times is a testament to the ASI Board of Directors’ commitment to our members’ needs and to the financial stability of ASI and its insurance fund.
The ASI insurance fund provides your credit union and your members with greater per account coverage and a strong, high-quality program structured and operated for 35 years to assure longevity and financial stability – a program that its members can be proud to call their share insurer. Should you have any questions, please feel free to email me directly.
Sincerely,
DENNIS R. ADAMS
President/CEO
