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NCUA Board Provides Credit Unions More Flexibility in Bank Note Investments

March 2016
NCUA Board Provides Credit Unions More Flexibility in Bank Note Investments

Board Action Bulletin

2015 Stabilization Fund Performance Positive as Treasury Borrowings Shrink

ALEXANDRIA, Va. (March 24, 2016) – The National Credit Union Administration Board held its third open meeting of 2016 at the agency’s headquarters here today and unanimously approved two items:

  • A final rule to provide greater flexibility and regulatory relief for federal credit unions that invest in bank notes.
  • Two temporary management positions to lead and coordinate NCUA’s Enterprise Solutions Modernization Program to upgrade technology, improve efficiency and reduce examination costs.

The Chief Financial Officer also briefed the Board on the performance of the Temporary Corporate Credit Union Stabilization Fund, which finished 2015 in a positive net position.

Final Bank Notes Rule Provides Flexibility, Regulatory Relief

Federal credit unions will have a greater ability to diversify their investment portfolios after the NCUA Board unanimously approved a final rule (Part 703) giving credit unions access to a larger pool of permissible bank note investments.

“A caller to NCUA’s Investment Hotline suggested removing just one word from our rule would eliminate an unnecessary limit on federal credit union investments,” NCUA Board Chairman Debbie Matz said. “We looked into this matter and found the limit was not only unnecessary, but unintended. So, we’re making this change today to expand bank note offerings available to federal credit unions and diversify investment portfolios.”

Once effective, the rule will permit federal credit unions to purchase bank notes with original maturities of greater than five years but remaining maturities of less than five years. This change will result in cheaper execution prices, more flexibility and greater efficiency in finding suitable bank note offerings. The weighted-average maturity of less than five years also will maintain safety and soundness by avoiding excessive interest rate risk.

The final rule, available online here, will become effective 30 days after publication in the Federal Register.  For questions about permissible investments, credit unions may call NCUA’s Investment Hotline toll-free at 800-755-5999.

Stabilization Fund Posts Positive Net Position for 2015

For the year ending Dec. 31, 2015, the Stabilization Fund’s net position increased by $301.9 million to a positive $540.4 million.

The change in net position primarily resulted from legal recoveries and improvements in projected cash flows relating to the legacy assets that secure the NCUA Guaranteed Notes. A $155.9 million reduction in insurance loss expense over the year and $46.9 million from guarantee fees contributed to the Stabilization Fund’s net income of $300.7 million in 2015.

“The year-end numbers are good news, and we can once again reassure stakeholders that we do not project any more Stabilization Fund assessments,” Matz said. “We also can assure everyone that we will continue to pursue legal recoveries from Wall Street firms that contributed to the corporate crisis. We have already recovered more than $2.4 billion, and we anticipate more recoveries in the future.”

Outstanding borrowings from the U.S. Treasury decreased to $1.7 billion at the end of 2015 from $2.6 billion at the end of 2014. Interest on agency borrowings from the U.S. Treasury was $5.1 million for the year, and administrative expenses were $4.4 million.

The Stabilization Fund recently received its seventh consecutive unmodified, or “clean,” audit opinion from KPMG LLP, the independent auditing firm contracted by NCUA.

“I want to thank all the staff who have contributed to upholding the highest standards of financial integrity and transparency,” Matz said. “Reconciling all the books and managing billions of dollars in legacy assets requires extraordinary efforts and coordination across the agency.”

While the Stabilization Fund continues to have a positive net position, no funds are available to provide federally insured credit unions with an immediate rebate. NCUA must first repay outstanding borrowings from the U.S. Treasury. Future changes in the economy or the performance of the legacy assets, which secure the NCUA Guaranteed Notes, are likely to change the value of the assets NCUA and the Stabilization Fund can eventually access at the end of the Guaranteed Notes Program.

Created by Congress in 2009 to ease the impact on the credit union system of the cost of resolving the corporate credit union crisis, the Stabilization Fund is scheduled to expire in 2021.

Temporary Positions Will Manage Information Technology Modernization

As part of NCUA’s efforts to modernize information technology and reduce costs to credit unions, the Board unanimously approved two temporary management positions for the agency’s Enterprise Solutions Modernization Program.

The positions will expire in four years. The total budget impact will be $75,000 annually for those four years. Two field staff positions will be eliminated through attrition, resulting in no net staffing increase.

The Enterprise Solutions Modernization Program is a series of information technology upgrades that will replace 8 to 10 outdated systems, some of which are nearly two decades old, and streamline many processes for credit unions.

“The agency’s new integrated technology system will be a win-win both for credit unions and examiners,” Matz said. “Through one desktop dashboard, credit unions will be able to request field-of-membership expansions, view member complaints, file Call Reports, update profiles, apply for grants, make timely payments and conveniently complete a variety of other actions. Examiners also will have better analytics to target their reviews, which should result in less time spent inside credit unions during exams and lower travel costs.”

NCUA tweets all open Board meetings live. Follow @TheNCUA on Twitter, and access Board Action Memorandums and NCUA rule changes at NCUA also live streams, archives and posts videos of open Board meetings online.

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