The rationale used by the National Credit Union Administration (NCUA) in recommending the NCUA Board raise the normal operating level (NOL) of the National Credit Union Share Insurance Fund (NCUSIF) from 1.3% to 1.39% last September was ‘reasonable,’ the NCUA Office of Inspector General (OIG) said in a recent report.
“We believe the NCUA’s process and basis for recommending the NCUA Board set the NOL at 1.39 percent was reasonable,” the OIG stated in its report, dated Feb. 15.
The NCUA OIG was responding to an outside firm’s request for a review of the legality of last year’s closure of the Temporary Corporate Credit Union Stabilization Fund (TCCUSF), transfer of its assets to the NCUSIF and increase in the share insurance fund NOL. The OIG declined to review the legality of these moves and instead reviewed the rationale and process.
In its review, the OIG looked at statutory requirements regarding the administration of both funds, key factors affecting the NCUSIF equity ratio, past actions in the management of the NCUSIF and projections using economic scenarios and stress-test models developed by the Federal Reserve.
The NCUA employed the Federal Reserve’s stress test scenarios simulated over a five-year time period assuming a moderate recession, accounting for the potential declines on the value of asset management estates, and accounting for the NCUA Guaranteed Notes maturing. (This guaranteed notes program was created to provide long-term funding for distressed investment securities from five failed corporate credit unions.)
It also took into account the rationale used by the Federal Deposit Insurance Corp. (FDIC) in setting the ‘designated reserve ratio’ for the federal Deposit Insurance Fund, which protects bank deposits.