46298 Federal Register / Vol. 82, No. 191 / Wednesday, October 4, 2017 / Notices 

1Closing the Temporary Corporate Credit Union 

Stabilization Fund and Setting the Share Insurance 

Fund Normal Operating Level, 82 FR 34982 (July 

27, 2017). 

2Requirements for Insurance; National Credit 

Union Share Insurance Fund Equity Distributions, 

82 FR 35705 (Aug. 1, 2017). 

3Prior to reassignment of these costs to the 

Stabilization Fund, the equity ratio of the Insurance 

Fund would have been only about 0.11 percent at 

year-end 2009—resulting in a deposit impairment 

of 89 percent. 

4Throughout this document, the terms 

‘‘premium’’ and ‘‘assessment’’ are used 

interchangeably. 

5Because the contributed capital deposit is 

reflected as an asset on the financial statements of 

insured credit unions, under applicable accounting 

rules any impairment results in an immediate 

expense to credit unions. 

6For more details on the Corporate System 

Resolution Program, please see the NCUA Corporate 

System Resolution Costs Web page (https://

www.ncua.gov/regulation-supervision/Pages/ 

corporate-system-resolution.aspx). 

7 12 U.S.C. 1790e(h). 

examinations, implementing an 

improved examination appeals process, 

and mitigating the largest risks to the 

Share Insurance Fund. 

By publishing the proposed NCUA 

2018–2022 Strategic Plan in the Federal 

Register, as well as posting it on our 

Web site at www.ncua.gov, NCUA 

continues its ongoing commitment to 

transparency about the agency’s future 

plans and actions. 

The NCUA 2018–2022 Draft Strategic 

Plan is available at the following Web 

address: https://www.ncua.gov/About/ 

Pages/budget-strategic-planning/ 

annual-plan.aspx. 

By the National Credit Union 

Administration Board on September 28, 

2017. 

Gerard Poliquin, 

Secretary of the Board. 

[FR Doc. 2017–21304 Filed 10–3–17; 8:45 am] 

BILLING CODE P 

NATIONAL CREDIT UNION 

ADMINISTRATION 

Closing the Temporary Corporate 

Credit Union Stabilization Fund and 

Setting the Share Insurance Fund 

Normal Operating Level 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Final notice. 

SUMMARY: In July 2017, the NCUA Board 

(Board) sought comments on its plan to 

close the Temporary Corporate Credit 

Union Stabilization Fund (Stabilization 

Fund) in 2017, prior to its scheduled 

closing date in June 2021, and raise the 

normal operating level of the National 

Credit Union Share Insurance Fund 

(Insurance Fund) to 1.39 percent. This 

final notice provides a discussion of 

comments received and explains the 

Board’s decision to close the 

Stabilization Fund in 2017. This notice 

also explains the Board’s decision to set 

the normal operating level of the 

Insurance Fund to 1.39 percent. 

FOR FURTHER INFORMATION CONTACT: 

Anthony Cappetta, Supervisory 

Financial Analyst, Amanda Parkhill, 

Loss/Risk Analysis Officer, or Kevin 

Tuininga, Senior Staff Attorney, at 1775 

Duke Street, Alexandria, VA 22314, or 

telephone: (703) 518–1592. 

SUPPLEMENTARY INFORMATION: 

I. Background 

II. Comments Received 

III. The Board’s Response to Comments 

IV. Final Action 

I. Background 

On July 20, 2017, the Board approved 

a Notice and Request for Comment (July 

2017 Notice) requesting comments on 

its plan to close the Stabilization Fund 

in 2017 and set the normal operating 

level at 1.39 percent. The notice 

appeared in the Federal Register on July 

27, 2017.1 Specific matters the Board 

sought comment on included whether 

the NCUA should: 

• Close the Stabilization Fund in 

2017, close it at some future date, or 

wait until it is currently scheduled to 

close in 2021. 

• Set the normal operating level 

based on the Insurance Fund’s ability to 

withstand a moderate recession without 

requiring assessments over a five-year 

period. 

• Set the normal operating level 

based on the Insurance Fund’s ability to 

withstand a severe recession without 

requiring assessments over a five-year 

period. 

• Base the approach to setting the 

normal operating level on preventing 

the equity ratio from declining below 

1.20 percent, or some other higher 

minimum level. 

The Board requested comments by 

September 5, 2017, which would allow 

the Board sufficient time to permit 

closing before the end of 2017 and 

establish a distribution method to 

insured credit unions to the extent the 

closure caused the Insurance Fund’s 

equity ratio to exceed its normal 

operating level, as of the end of 2017. 

In a separate but related proposal, also 

adopted on July 20, 2017, the Board 

requested comments on its regulation 

governing equity distributions from the 

Insurance Fund.2

A. Stabilization Fund Background 

Public Law 111–22, the Helping 

Families Save Their Homes Act of 2009 

(Helping Families Act), signed into law 

by the President on May 20, 2009, 

created the Stabilization Fund. Congress 

provided the NCUA with this temporary 

fund to accrue the losses of the 

corporate credit union system and 

assess insured credit unions for such 

losses over time. This prevented insured 

credit unions from bearing a significant 

burden for losses associated with the 

insolvency of five corporate credit 

unions within a short period. Without 

creation of the Stabilization Fund, 

corporate credit union losses would 

have been borne by the Insurance Fund. 

The magnitude of losses would have 

exhausted the Insurance Fund’s retained 

earnings and significantly impaired 

credit unions’ one percent contributed 

capital deposit.3 The deposit 

impairment, along with premiums 4 that 

would have been necessary to restore 

the Insurance Fund’s equity ratio, 

would have resulted in a significant, 

immediate cost to credit unions at a 

time when their earnings and capital 

were already under stress due to the 

Great Recession.5 In June 2009, the 

Board formally approved use of the 

Stabilization Fund for the costs of the 

Corporate System Resolution Program.6

Since then, all of these costs have been 

accounted for in the financial 

statements of the Stabilization Fund. 

The Act specifies that the 

Stabilization Fund will terminate 90 

days after the seven-year anniversary of 

its first borrowing from the U.S. 

Treasury.7 The first borrowing occurred 

on June 25, 2009, making the original 

closing date September 27, 2016. 

However, the Act provided the Board, 

with the concurrence of the Secretary of 

the U.S. Treasury, authority to extend 

the closing date of the Stabilization 

Fund. In June 2010, the Board voted to 

extend the life of the Stabilization Fund 

and, on September 24, 2010, the NCUA 

received concurrence from the Secretary 

of the U.S. Treasury to extend the 

closing date to June 30, 2021. 

Unlike in 2009, the Insurance Fund’s 

$13.2 billion now exceeds both the 

corporate credit union Legacy Asset 

balance and NGN balance (as of June 30, 

2017). Due primarily to the nearly $4 

billion in net legal recoveries, the 

Stabilization Fund has a positive net 

position of approximately $2.0 billion as 

of June 2017. Additionally, there are no 

outstanding U.S. Treasury borrowings. 

Closing the Stabilization Fund in 2017 

will, barring the unexpected, result in 

an equity distribution to insured credit 

unions in 2018, putting funds to work 

in the credit union system prior to its 

current scheduled closure in 2021. 


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8 In estimating the equity ratio under various 

economic stress scenarios, the NCUA must make 

estimates and assumptions that affect the model 

output. Actual results could differ from the NCUA’s 

estimates; however, the agency evaluates the 

reasonableness of such estimates when analyzing 

the model output. 

9A five-year horizon (beginning at year-end 2017) 

was used to cover the cycle of an economic 

downturn and the life of the NGN Program. 

10Supervisory Scenarios for Annual Stress Test 

Required under the Dodd-Frank Act Stress Testing 

Rules and the Capital Plan Rule, Feb. 10, 2017. 

(https://www.federalreserve.gov/newsevents/ 

pressreleases/files/bcreg20170203a5.pdf). 

11 12 U.S.C. 1782(c)(2). 

12The Board must consider retaining this equity 

now because, as the equity ratio declines, the Board 

would be unable to replenish the equity through 

premium assessments as long as the equity ratio 

remains above 1.30 percent, per the Act. 12 U.S.C. 

1782(c)(2)(B). 13 467 U.S. 837 (1984). 

B. Normal Operating Level Background 

When contemplating closing the 

Stabilization Fund, the Board also had 

to consider whether a normal operating 

level of 1.30 percent would be sufficient 

to cover all of the Insurance Fund’s 

resulting exposures. To determine this, 

the NCUA modeled the losses that 

would be expected under a moderate 

and a severe recession.8 For the two 

recession scenarios, the agency modeled 

the: 

• Impact on the equity ratio of the 

estimated decline in the value of the 

Insurance Fund’s claims on the 

liquidated corporate credit unions’ asset 

management estates—which would be 

driven by a reduction in the value of the 

Legacy Assets. 

• Performance of the Insurance Fund 

based on the three primary factors that 

currently affect the Insurance Fund’s 

equity ratio: Insured share growth, yield 

on investments, and insurance losses. 

The Insurance Fund was modeled 

over a five-year period and the Legacy 

Assets were modeled over their 

remaining life.9 The NCUA used the 

applicable variables describing 

economic developments for the Adverse 

and Severely Adverse economic 

scenarios from the Federal Reserve 

Board’s 2017 annual stress test 

supervisory scenarios.10

Based on this modeling, to withstand 

a moderate recession without the equity 

ratio falling below the statutory 

minimum of 1.20 percent,11 the 

Insurance Fund’s equity ratio needs to 

be high enough to withstand the 

following: 

• A 13-basis-point decline in the 

equity ratio due to the impact on the 

three primary drivers of the Insurance 

Fund’s performance. 

• A 4-basis-point decline in the value 

of the Insurance Fund’s claim on the 

corporate credit union asset 

management estates. 

• A 2-basis-point decline in the 

equity ratio expected to occur prior to 

when the remaining NGNs begin to 

mature in 2020 and remaining exposure 

to the Legacy Assets can begin to be 

reduced. This helps ensure the 4 basis 

points of additional equity to account 

for the potential decline in value of the 

claims on the asset management estates 

is maintained in the Insurance Fund 

until Legacy Assets can be sold.12

Therefore, the Board proposed setting 

the normal operating level at 1.39 

percent. 

II. Comments Received 

The Board received 663 comment 

letters on its notice proposing to close 

the Stabilization Fund in 2017 and 

increase the Insurance Fund’s normal 

operating level to 1.39 percent. 

Commenters included representatives of 

three national credit union trade 

associations; 15 credit union leagues or 

regional trade associations; 244 federal 

credit unions; 268 federally insured, 

state-chartered credit unions; and 133 

individuals and organizations, 

including credit union service 

organizations. The majority of 

commenters expressly supported or did 

not oppose closing the Stabilization 

Fund in 2017 and expressly opposed 

increasing the Insurance Fund’s normal 

operating level or advocated a ‘‘full 

rebate’’ of Stabilization Fund equity. A 

more detailed discussion of the 

comments follows. 

A. Closing the Stabilization Fund 

Approximately 170 commenters 

expressly supported the Board’s 

proposal to close the Stabilization Fund 

in 2017. An additional two-thirds of all 

commenters omitted an express opinion 

on whether to close the Stabilization 

Fund in 2017 and instead voiced more 

definite opinions on the Insurance 

Fund’s normal operating level. Many 

commenters that did not make a 

statement supporting closure in 2017 

nevertheless urged a near-term 

distribution of funds, indicating or 

implying either that they (a) did not 

oppose closing the Stabilization Fund in 

2017 or (b) believed the Board could 

make a distribution to credit unions 

directly from the Stabilization Fund. 

Supportive commenters generally 

expressed that closing the Stabilization 

Fund before 2021 would provide an 

earlier opportunity to expand business 

and increase the financial security of 

credit unions, particularly smaller credit 

unions. Multiple commenters also noted 

that closure would reduce the NCUA’s 

costs for maintaining multiple funds. 

As noted above, some commenters 

supporting closure in 2017, along with 

a few others that opposed closure, also 

suggested that the NCUA could make 

distributions to the Insurance Fund or to 

credit unions directly from the 

Stabilization Fund without closing it. 

Under one commenter’s analysis, the 

NCUA would receive deference in 

making such distributions under the 

Supreme Court case Chevron U.S.A., 

Incorporated v. Natural Resources 

Defense Council, Incorporated 13

because the Act is silent on the subject. 

This commenter believed the Insurance 

Fund is owed a refund from the 

Stabilization Fund, which would 

provide a sufficient nexus with 

Stabilization Fund authorities to 

support a distribution to the Insurance 

Fund. At the same time, this commenter 

stated mingling funds from the 

Stabilization Fund with the Insurance 

Fund would be unfair to credit unions. 

A few commenters suggested the NCUA 

could make distributions directly from 

the Stabilization Fund to former capital 

holders of the corporate credit unions. 

A number of commenters supporting 

closing the Stabilization Fund in 2017 

hedged their support if (a) closure was 

combined with an increase to the 

Insurance Fund’s normal operating level 

or (b) Stabilization Fund money could 

not be accounted for separately after its 

closure. Many of these commenters 

believed Stabilization Fund equity 

should not be available to permanently 

increase the Insurance Fund’s equity 

ratio (whether or not the normal 

operating level was increased) or for 

insurance losses related to natural 

person credit unions. These commenters 

stated it would be inappropriate to 

‘‘repurpose’’ or ‘‘divert’’ Stabilization 

Fund equity for uses beyond losses 

related to the liquidated corporate credit 

unions. A common comment was that 

the Board should maintain separate 

operations for resolution of the 

corporate credit union estates after 

closing the Stabilization Fund and 

maintain income and equity attributable 

to the Stabilization Fund in a separate 

account payable to credit unions. 

A number of commenters were 

concerned the Stabilization Fund’s 

closure would affect the total 

distributions available to insured credit 

unions once the corporate credit union 

asset management estates were resolved. 

Many of these commenters were also 

concerned closure would affect the 

allocation of funds between credit 

unions that paid Stabilization Fund 

assessments and credit unions that hold 

certificates of claim against the asset 


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management estates related to corporate 

credit union capital investments. A few 

commenters appeared to urge the NCUA 

to prioritize payments to former capital 

holders of the liquidated corporate 

credit unions over distributions to 

insured credit unions, while some 

others expressed concern that capital 

holders not receive priority over credit 

unions that paid assessments. 

One commenter argued that the 

NCUA should treat the corporate asset 

management estates collectively for 

purposes of paying claims against the 

estates under 12 CFR 709.5(b), 

governing priority of claims. This 

commenter observed that a collective 

approach would maximize 

reimbursements to the Stabilization 

Fund before any payments to capital 

holders of the corporate credit unions 

could occur. This commenter believed 

the Board had treated the asset 

management estates collectively by 

pooling their assets in NGN trusts and 

then departed from collective treatment 

with respect to payment of claims under 

§ 709.5(b). This commenter 

recommended a new regulation 

providing that the corporate credit 

union asset management estates would 

be treated as one pool of assets for 

purposes of distributions under 

§ 709.5(b). 

Slightly under 30 commenters firmly 

opposed closing the Stabilization Fund 

in 2017. Many of these commenters 

were concerned that closing the 

Stabilization Fund, which would result 

in consolidation, would cause less than 

full transparency regarding Insurance 

Fund distributions to credit unions and 

payments to former capital holders of 

the liquidated corporate credit unions. 

One commenter voiced concern about 

volatility in the Insurance Fund’s equity 

ratio and complications related to 

multiple small distributions. 

B. Normal Operating Level 

Just under 60 commenters supported 

or indicated some level of acceptance of 

an increase to the Insurance Fund’s 

normal operating level, provided the 

increase was temporary. About one 

dozen of these commenters supported or 

appeared to accept an increase to 1.39 

percent. One commenter advocated a 

permanent increase to 1.50 percent. An 

additional three dozen commenters 

supported a temporary increase to 1.34 

percent to cover exposure to Legacy 

Assets. Three more commenters 

suggested an increase to 1.35 percent, 

while another seven commenters 

indicated some level of support for a 

temporary increase without specifying 

their preferred threshold. These 

commenters nearly universally 

advocated that any increase from 1.30 

percent be temporary. Many 

commenters urged the Board to set a 

defined schedule or express specific 

intent to move the normal operating 

level back to 1.30 percent as exposure 

to Legacy Assets decreases. One 

commenter who advocated the Board set 

the normal operating level at 1.50 

percent urged the NCUA to approach 

Congress for further authorities that 

would permit the Insurance Fund’s 

equity ratio to reach 2.0 percent, similar 

to the Deposit Insurance Fund for banks. 

One commenter supported a 

temporary increase of the Insurance 

Fund’s equity ratio to 1.30 percent but 

only for so long as exposure to Legacy 

Assets remained. This commenter stated 

that all equity related to the 

Stabilization Fund should be distributed 

once Legacy Asset exposure subsided, 

including funds needed to increase the 

Insurance Fund’s equity ratio to 1.30 

percent. Thus, this commenter implied 

the Board should decrease the normal 

operating level below 1.30 percent to 

meet the equity ratio at the time of the 

Stabilization Fund’s closure to permit 

distribution of all equity received from 

the Stabilization Fund. 

Around 55 percent of all commenters 

expressly opposed any increase to the 

normal operating level. However, 

around 90 additional commenters urged 

a ‘‘full rebate’’ of Stabilization Fund 

equity, implying they also opposed any 

increase to the normal operating level 

that would decrease a distribution in 

2018 or beyond. Many of these 

commenters contended no increase 

could be justified because a normal 

operating level of 1.30 percent had been 

sufficient to withstand the financial 

crisis. A large number of these 

commenters (as well as some that 

supported an increase) were concerned 

the Board would never again decrease 

the normal operating level if it increased 

it in 2017. Many commenters that 

opposed any increase to the normal 

operating level urged that, if the Board 

did increase it, the increase should 

sunset after one year and the Board 

should then substantiate any extension 

of a normal operating level above 1.30 

percent. Some of these commenters 

suggested increasing the normal 

operating level would erode the NCUA’s 

motivations to control its operating 

expenses and that the NCUA’s operating 

budget and the overhead transfer rate 

had consumed most Insurance Fund 

investment returns in recent years. A 

common thread in the comments was 

that failure to return all Stabilization 

Fund equity would be contrary to prior 

assurances and promises from the 

Board. 

Commenters opposing an increase 

often supported their position by noting 

that funds would be more productive 

and earn higher returns in the hands of 

credit unions than in the Insurance 

Fund. Many of these commenters 

acknowledged that near-term Insurance 

Fund assessments could be required and 

that this was an acceptable outcome. 

One commenter stated that 1.39 percent 

seemed arbitrary because the Insurance 

Fund would not have withstood the 

financial crisis even if its equity ratio 

had been at that level before the crisis 

began. 

Numerous commenters noted the 

Insurance Fund’s audit reports from 

December 2016 determined that an 

equity ratio of 1.24 percent was 

sufficient to cover all contingencies. 

With respect to the Stabilization Fund, 

these commenters cited the December 

2016 audit report that stated ‘‘there were 

no probable losses for the guarantee of 

NGN’s associated with the resecuritization transactions.’’ These 

commenters argued the NCUA could 

therefore not, only nine months later, 

justify an increase to the normal 

operating level based on exposure to the 

Legacy Assets or for potential losses 

related to natural person credit unions. 

Some commenters contended an 

increase to the normal operating level 

would be akin to credit unions overreserving for loan losses, a practice 

NCUA examiners generally advise 

against. They noted the strength of the 

credit union industry, the recent 

strengthening of the NCUA’s regulations 

related to capital, and more stringent 

supervisory tests as additional firewalls 

that reduced the need for an increase to 

the normal operating level. These 

commenters often pointed to loss 

estimates related to the Legacy Assets as 

a basis to doubt the NCUA’s projections 

of the Insurance Fund’s performance. 

One commenter that characterized the 

Board’s proposed closure of the 

Stabilization Fund as a ‘‘cash grab’’ 

alleged resulting distributions were an 

attempt to distract credit unions as the 

agency ‘‘hoards money for itself.’’ 

According to this commenter, the NCUA 

intended to ‘‘raid’’ Stabilization Fund 

assets as an end-run around FCU Act 

restrictions that preclude assessments 

increasing the Insurance Fund’s equity 

ratio above 1.30 percent. A few 

commenters contended using 

Stabilization Fund equity to increase the 

Insurance Fund’s normal operating level 

above 1.30 percent was illegal because 

it was the equivalent of an assessment 

that the Act would not otherwise 

permit. Some commenters also 

expressed the sentiment that it would be 

improper to improve the Insurance 


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Fund’s equity position using dollars 

from credit unions that paid 

Stabilization Fund assessments. 

Most commenters did not directly 

address whether they supported the 

NCUA lengthening the forecast horizon 

for Insurance Fund performance from 

two years to five years. Some that did 

address this opposed lengthening the 

forecast horizon because they believed a 

five-year horizon was significantly 

longer than the typical length of a 

recession. They also argued the NCUA 

had sufficient tools to manage the 

Insurance Fund, such as levying 

assessments, implementing a restoration 

plan, decreasing operating budgets, and 

altering investment strategies, without 

lengthening the forecast period. 

C. Additional Comments 

A number of commenters noted 

improved transparency in NCUA 

operations. But many commenters were 

also concerned closure of the 

Stabilization Fund and the distribution 

of its assets to the Insurance Fund 

would decrease transparency. A few 

commenters specifically requested more 

transparency on the Board’s 

administration of the corporate credit 

union asset management estates. 

A significant number of commenters 

attributed downward trends in the 

Insurance Fund’s equity ratio to the cost 

of the NCUA’s operations, recent 

increases in the NCUA’s operating 

budget, and excessive Insurance Fund 

loss reserves. Many commenters also 

expressed a preference that the Board 

consider an increase to the Insurance 

Fund’s normal operating level in a 

proposal completely separate from any 

related to closing the Stabilization 

Fund. Some of these commenters 

alleged an improper motive, or ‘‘sleight 

of hand,’’ in considering the proposals 

together. 

Multiple commenters stated no-near 

term Insurance Fund premiums would 

be required even if the Stabilization 

Fund was not closed in 2017. These 

commenters stated that models showed 

no circumstances where the Insurance 

Fund’s equity ratio would fall below 

1.20 percent within the next two to four 

years. On the other hand, one 

commenter was concerned about the 

loss of contingency funding after closure 

of the Stabilization Fund. This 

commenter recommended that the 

NCUA review its Central Liquidity 

Facility authorities and regulations with 

an eye toward improving contingency 

funding sources. 

A material number of commenters, 

generally through variations of a form 

letter, stated that the ‘‘proposed method 

for closing the [Stabilization Fund] does 

nothing to address the excessive $1B 

charged since its creation to the [asset 

management estates] by the NCUA.’’ 

Many commenters also submitted form 

letters stating that, if the NCUA did not 

distribute the maximum amount, it 

would be ‘‘dooming us to fail and 

claiming the hard won reserves our 

members have saved.’’ Multiple 

commenters also argued that an increase 

to the Insurance Fund’s equity ratio 

through an adjustment to the normal 

operating level was not warranted for 

Legacy Asset exposure because the 

distribution of Stabilization Fund equity 

to the Insurance Fund would cover such 

exposure. A few commenters requested 

or suggested more time to review and 

respond to the Board’s proposal or 

lamented that they did not have more 

time to review and respond. One 

commenter proposed putting off the 

proposal until 2018 to permit more time 

for review. 

Many commenters had an inaccurate 

understanding of one or more of the 

following: (a) The law governing credit 

union liquidations; (b) the difference 

between distributions from the 

Insurance Fund to insured credit unions 

and distributions to claimants from 

asset management estates; (c) whether 

the timing of the Stabilization Fund’s 

closure could affect overall distributions 

to either insured credit unions or former 

capital holders of the corporate credit 

unions; (d) the interaction of the 

Insurance Fund’s equity ratio and its 

normal operating level; and (e) how the 

1.30 percent equity ratio and normal 

operating level survived the financial 

crisis without immediate and heavy 

assessments. Almost fifty commenters 

advocated or mentioned a particular 

distribution method under the Board’s 

separate proposal to amend 12 CFR 

741.4. 

III. The Board’s Response to Comments 

The Board considered all of the 

comments and provides responses 

below to the salient arguments and 

concerns commenters raised. 

A. Closing the Stabilization Fund 

In response to commenters that 

suggested the NCUA could make 

distributions to the Insurance Fund or to 

credit unions directly from the 

Stabilization Fund without closing it, 

the Board continues to see no legal basis 

for discretionary, non-closure 

distributions. This is true for either 

direct distributions to credit unions or 

non-closure distributions to the 

Insurance Fund. Commenters that urged 

non-closure distributions argued the 

NCUA would receive deference on its 

interpretation because the Act’s silence 

on the subject creates ambiguity. 

However, these arguments are based on 

flawed legal, factual, and policy 

assumptions, which even substantial 

deference may not support. 

First, the Stabilization Fund is not 

silent on distribution authority. The 

legislation expressly references 

distributions, but only in relation to two 

circumstances. One, the legislation 

expressly prohibits an otherwise 

required end-of-year distribution from 

the Insurance Fund to insured credit 

unions if the Stabilization Fund has an 

outstanding advance from the Treasury. 

And, two, the legislation requires a 

distribution of all funds and property in 

the Stabilization Fund when the Board 

closes the Fund. Nowhere does the 

legislation discuss optional, non-closure 

distributions to the Insurance Fund (or 

to credit unions directly) prior to the 

Stabilization Fund’s closure. Instead, as 

the Board noted in the July 2017 Notice, 

the legislation makes direct and express 

reference to particular Insurance Fund 

authorities that also apply to the 

Stabilization Fund (insurance payments, 

special assistance payments, and 

administrative or other Title II 

expenses). These direct and express 

references exclude the authorities the 

Act provides with respect to equity 

distributions to insured credit unions 

from the Insurance Fund. 

Second, the Act requires that, before 

the Board authorizes any non-closure 

payment from the Stabilization Fund, it 

must ‘‘certify that, absent the existence 

of the Stabilization Fund, the Board 

would have made the identical payment 

out of the [Insurance Fund].’’ The Board 

must report these certifications to 

specified congressional committees. 

Especially with respect to a non-closure 

distribution to the Insurance Fund (as at 

least one commenter now urges), it is 

unclear how the Board would certify 

that the Insurance Fund could have 

made such a payment to itself. These 

provisions make it unwise to assume a 

court (or Congress) would approve of an 

interpretation that the NCUA can 

distribute funds between the 

Stabilization Funs and Insurance Fund 

outside of the circumstances described 

in the Act. 

Third, contrary to what one of the 

principal proponents of non-closure 

distributions from the Stabilization 

Fund contends, the Insurance Fund is 

not ‘‘owed a refund from the 

Stabilization Fund as a result of 

conserved and liquidated corporate 

credit unions.’’ Other than the $1 billion 

capital note issued to U.S. Central 

Federal Credit Union, no material 

expenses related to the conserved and 

liquidated corporate credit unions were 


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14See 12 CFR 709.5(b) (listing ‘‘unsecured claims 

against the liquidation estate’’). 

15 12 U.S.C. 1782(h)(2). 

16 12 U.S.C. 1782(c)(3). 

17 12 U.S.C. 1783(a). 

18Notice of Proposed Rulemaking ‘‘Requirements 

for Insurance; National Credit Union Share 

Insurance Fund Equity Distributions’’ 82 FR 35705 

(Aug. 1, 2017). 

19 ‘‘Requirements for Insurance; National Credit 

Union Share Insurance Fund Equity Distributions,’’ 

82 FR 35705 (Aug. 1, 2017). 

paid from the Insurance Fund. 

Immediately after Congress established 

the Stabilization Fund, the Board 

transferred the $1 billion capital note 

receivable to the Stabilization Fund, at 

which time the Insurance Fund received 

full payment on the capital note from 

the Stabilization Fund. These events are 

all reflected in public Board records and 

the audited 2009 financial statements 

for the Insurance Fund and Stabilization 

Fund, available on the NCUA’s Web 

site. Until the Board votes to close the 

Stabilization Fund or it reaches its 

statutory expiration date, thus triggering 

the distribution of all Stabilization Fund 

assets and liabilities to the Insurance 

Fund, the Insurance Fund has no 

receivable from the Stabilization Fund 

to support a payment characterized as a 

refund. 

Finally, the Board is skeptical 

Congress would approve of 

discretionary, non-closure distributions 

to credit unions or to the Insurance 

Fund because the Stabilization Fund 

has, at the Board’s request, unhindered 

access to $6 billion in general tax 

revenues from the U.S. Treasury. 

Nothing in the Stabilization Fund 

legislation informs when or how nonclosure general distributions would or 

could take place. Although the 

Insurance Fund shares the same U.S. 

Treasury borrowing authority, the Act 

imposes multiple timing, amount, and 

circumstance limitations with respect to 

its equity distributions. The Board 

believes a loose interpretation with 

respect to non-closure Stabilization 

Fund distributions poses a high risk that 

such distributions would be viewed 

unfavorably, with potential adverse 

consequences. 

A few commenters also argued the 

NCUA could make distributions directly 

from the Stabilization Fund to former 

capital holders of the corporate credit 

union asset management estates. This is 

not the case, however, because former 

capital holders have claims against the 

asset management estates, not against 

the Stabilization Fund or the Insurance 

Fund.14 With respect to each asset 

management estate, capital holders can 

only receive payment after the 

Stabilization Fund has been fully 

reimbursed for payments made from the 

Stabilization Fund on behalf of the 

estate. This is because claims of the 

Stabilization Fund are senior to those of 

capital holders under 12 CFR 709.5(b), 

governing priority of payments in 

liquidation. Funds in the Stabilization 

Fund belong to the Stabilization Fund. 

These funds are not available to capital 

holders or any other claimants against 

the asset management estates. 

A common comment was that the 

Board should maintain income and 

equity attributable to the Stabilization 

Fund in a separate account payable to 

credit unions and maintain separate 

operations for resolution of the 

corporate credit union estates after 

closing the Stabilization Fund. The 

Board assures commenters that 

corporate credit union asset 

management estates will continue to be 

administered as distinct entities, as the 

Act requires. However, the Board sees 

no basis on which it can maintain 

separate accounts for equity distributed 

from what was the Stabilization Fund to 

the Insurance Fund once the 

Stabilization Fund is closed. 

Under the Act, all capital within the 

Insurance Fund contributes equally to 

its equity ratio if it is not a ‘‘direct 

liabilit[y] of the Fund or contingent 

liabilit[y] for which no provision for 

losses has been made.’’ 15 Thus, 

distributions cannot become direct 

liabilities of the Insurance Fund to 

support some type of account-payable 

treatment until the Insurance Fund’s 

equity ratio exceeds the normal 

operating level as of the end of a 

calendar year and the available assets 

ratio exceeds 1.0 percent.16

Additionally, until an equity 

distribution occurs, all equity in the 

Insurance Fund is available for the 

purposes designated in the Act, 

including payments of insurance, 

special assistance, or administrative or 

other expenses incurred in carrying out 

the purposes of Title II of the Act.17

There is no basis by which the Board 

can withhold equity transferred from 

the Stabilization Fund for a specific 

purpose. However, in its separate 

proposal on Insurance Fund distribution 

methods, the Board does attempt, to the 

extent possible, to treat distributions 

related to Stabilization Fund equity 

different from general equity 

distributions that might otherwise occur 

from the Insurance Fund.18

In response to commenters concerned 

that consolidation of the funds would 

cause less than full transparency 

regarding Insurance Fund distributions 

to credit unions and payments to former 

capital holders of the liquidated 

corporate credit unions, the Board 

reiterates that is not the case. 

As the Board noted in the July 2017 

Notice, closing the Stabilization Fund 

will not change the accounting or 

reporting of the corporate credit union 

asset management estates. Each asset 

management estate is, and will always 

be, a separate legal entity and no claims 

against those estates will be affected by 

the closing. Additionally, corporate 

credit union asset management estates 

will be reported separately from natural 

person credit union asset management 

estates. The post-closure financial 

statements and note disclosures for the 

Insurance Fund will continue to provide 

the same level of detail about the 

Insurance Fund’s receivables from the 

corporate assets management estates 

and related fiduciary activities. 

Regularly updated information on the 

NCUA’s Web site for the NGNs, Legacy 

Assets, and asset management estates 

will continue to be provided after 

closure of the Stabilization Fund. 

As for the transparency related to 

Insurance Fund distributions, the Board 

has taken recent actions to increase 

transparency of the distribution process. 

Any resulting Insurance Fund 

distributions would be conducted in 

accordance with the Act and Part 741 of 

the NCUA’s regulations. Interested 

stakeholders were provided an 

opportunity to comment on the 

proposed method for distributing equity 

from the Insurance Fund to insured 

credit unions in a Notice of Proposed 

Rulemaking approved by the Board in 

July 2017.19

Some commenters were concerned 

the Stabilization Fund’s closure would 

affect the total distributions available to 

insured credit unions once the corporate 

credit union asset management estates 

were resolved, or the allocation of funds 

between credit unions that paid 

Stabilization Fund assessments and 

credit unions that hold certificates of 

claim against the asset management 

estates related to corporate credit union 

capital investments. However, these 

concerns are similarly unfounded. 

Assuming all other potential equity 

ratio influences remain static, the 

Stabilization Fund’s early closure will 

have no impact on the total 

distributions insured credit unions will 

receive once all corporate credit union 

legacy assets are resolved. This is 

because the amount of total receivables 

the Stabilization Fund holds against the 

asset management estates, which affects 

the amount that will eventually be 

distributed to credit unions depending 

on future performance of the Legacy 


sradovich on DSK3GMQ082PROD with NOTICES
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20 12 U.S.C. 1787(b)(2)(F). 

21 12 U.S.C. 1787(b)(11). 22 12 CFR 709.5(b). 23See Golden Pac. Bancorp. v. F.D.I.C., 375 F.3d 

196, 201 (2d Cir. 2004) (‘‘It is undisputed that, as 

a receiver, the FDIC owes a fiduciary duty to the 

Bank’s creditors and to Bancorp.’’). 

24The Board must consider retaining this equity 

now because, as the equity ratio declines, the Board 

would be unable to replenish the equity through 

premium assessments as long as the equity ratio 

remains above 1.30 percent, per the Act. 12 U.S.C. 

1782(c)(2)(B). 

Assets, will not change as a result of the 

closure. All receivables the Stabilization 

Fund holds as of October 1, 2017 will 

be distributed to the Insurance Fund 

and equity will build from those 

receivables in the Insurance Fund rather 

than building and remaining in the 

Stabilization Fund until its scheduled 

closure date in 2021. Equity that builds 

in the Insurance Fund will become 

available for future distributions to the 

extent the equity ratio exceeds the 

normal operating level at the end of a 

calendar year. 

Instead of affecting total distribution 

amounts, early closure means credit 

unions will see a portion of total 

distributions sooner than they would if 

the Board continued to hold equity in 

the Stabilization Fund. If the Board 

continues to hold equity in the 

Stabilization Fund, credit unions are 

more likely to see fewer but 

individually larger distributions after 

the Stabilization Fund is closed at some 

future date, Aggregate distributions will 

not change, however, based on when the 

Stabilization Fund is closed. Also, if the 

Stabilization Fund is not closed in 2017, 

credit unions may be subject to an 

Insurance Fund premium in the near 

future to maintain the equity ratio at a 

prudent level. 

Although closure has no isolated 

impact on total distributions credit 

unions will eventually receive, future 

distribution amounts could change 

based on other factors, including but not 

limited to (a) greater than or less than 

expected losses to the Insurance Fund; 

(b) worse-than or better-than-expected 

Legacy Asset performance (which, along 

with legal recoveries, are the principal 

source for reimbursing Stabilization 

Fund claims against the asset 

management estates); (c) worse-than or 

better-than-expected investment returns; 

(d) insured share growth that is lower or 

higher than expected; or (e) changes to 

the Insurance Fund’s normal operating 

level. Each of these factors, however, is 

independent of the Stabilization Fund’s 

closure. 

Although one commenter argued the 

NCUA should treat the corporate asset 

management estates collectively for 

purposes of paying claims against the 

estates under 12 CFR 709.5(b), 

governing priority of claims, this 

approach would not be consistent with 

the applicable statutory and regulatory 

provisions. Under the Act, the Board as 

liquidating agent must ‘‘pay all valid 

obligations of [a liquidated credit union] 

in accordance with the prescriptions 

and limitations of [the Act].’’ 20 With 

respect to liquidation priorities, the Act 

requires the Board to ‘‘retain for the 

account of the Board such portion of the 

amounts realized from any liquidation 

as the Board may be entitled to receive 

in connection with the subrogation of 

the claims of accountholders’’ and to 

‘‘pay to accountholders and other 

creditors the net amounts available for 

distribution to them.’’ 21 NCUA 

regulations further specify, consistent 

with principles that apply in general 

bankruptcies, that the administrative 

expenses associated with a liquidation 

receive priority over all other claims.22

Finally, case law related to the 

unwinding of financial institutions 

imposes fiduciary like duties on the 

receiver for an insolvent financial 

institution (or in the NCUA’s case, the 

liquidating agent).23 Based on these 

applicable authorities and principles, 

the Board believes treating the asset 

management estates collectively for 

purposes of paying claims would cause 

material litigation risk. This litigation 

risk would arise because some estates 

would cover deficits in Stabilization 

Fund receivables related to other estates 

that suffered greater losses, potentially 

prejudicing subordinate creditors, 

including former capital holders. 

Further, the commenter that raised 

this prospect is incorrect in stating that 

the Board already treated the five asset 

management estates as one entity for 

purposes of the NGN re-securitizations. 

On the contrary, consistent with the 

authority cited above, the Board initially 

accounted for and continues to account 

for each asset management estate on an 

individual basis throughout the NGN 

transactions. This includes tracking the 

ongoing performance of each security 

that each asset management estate 

contributed. It also includes, for any 

guaranty obligations that accrue, 

allocating the liability for 

reimbursement to particular estates 

based on the performance of the assets 

they contributed. 

In line with this allocation practice, 

the legal documents related to each 

transaction, including owner trust 

certificates that represent a claim to 

residual assets, reflect the separate 

contributions of each asset management 

estate. Similarly, the Board, as 

liquidating agent, has allocated amounts 

from legal recoveries to individual asset 

management estates based on their 

ownership of securities to which the 

recovery relates. This process is 

described in more detail on the NCUA’s 

Web site and reflects the Board’s 

position that each asset management 

estate is, and should be, treated as a 

distinct legal entity. 

B. Normal Operating Level 

In response to the commenter that 

characterized the NCUA’s proposed 

closure of the Stabilization Fund as a 

‘‘cash grab,’’ the Board reaffirms its 

position that the agency should 

maintain a resilient Insurance Fund for 

the mutual benefit of the credit union 

community and taxpayers. It is also 

important for the NCUA to avoid or 

minimize Insurance Fund premiums, 

especially during times of economic 

stress, to keep money at work in the 

credit union community when it is 

needed most. 

To that end, as outlined in the July 

2017 Notice, the Board’s main objectives 

in setting the normal operating level are 

as follows: 

• Retain public confidence in federal 

share insurance; 

• Prevent impairment of the one 

percent contributed capital deposit; and 

• Ensure the Insurance Fund can 

withstand a moderate recession without 

the equity ratio declining below 1.20 

percent over a five-year period. 

Therefore, the Board has set the 

normal operating level at 1.39 percent to 

account for: 

• A 13-basis-point decline in the 

equity ratio due to the impact of the 

three primary drivers of the Insurance 

Fund’s performance; 

• A 4-basis-point decline in the value 

of the Insurance Fund’s claims on the 

corporate credit union asset 

management estates; and 

• A 2-basis-point decline in the 

equity ratio expected to occur prior to 

when the remaining NGNs begin to 

mature in 2020 and remaining exposure 

to the Legacy Assets can begin to be 

reduced. This helps ensure the 4 basis 

points of additional equity to account 

for the potential decline in value of the 

claims on the asset management estates 

is maintained in the Insurance Fund 

until Legacy Assets can be sold.24

Multiple commenters alleged it would 

be illegal for the NCUA to increase the 

Insurance Fund’s equity ratio above 1.30 

percent as a result of equity now held 

in the Stabilization Fund. This 

argument leads to potentially two 

flawed conclusions: (1) The Board must 

choose between closing the Stabilization 

Fund and increasing the normal 


sradovich on DSK3GMQ082PROD with NOTICES
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25See 12 U.S.C. 1782(c)(2) (‘‘Each insured credit 

union shall . . . pay’’) and 12 U.S.C. 1790e(d) 

(special premiums are assessed to ‘‘each insured 

credit union.’’). 

26See 12 U.S.C. 1782 (‘‘in an amount stated as a 

percentage of insured shares (which shall be the 

same for all insured credit unions))’’ and 12 U.S.C. 

1790e (‘‘percentage of insured shares, as 

represented on the previous call report for each 

insured credit union. The percentage shall be 

identical for each insured credit union.’’)). 

27 12 U.S.C. 1790e(b). 

operating level and it cannot do both; 

and (2) the Board can never close the 

Stabilization Fund if its closure would, 

for any period, result in an equity ratio 

that exceeds 1.30 percent. Once again, 

this argument rests on faulty legal and 

factual assumptions. 

With respect to closing the 

Stabilization Fund, the Act requires the 

Board to contemporaneously distribute 

Stabilization Fund assets to the 

Insurance Fund. This distribution 

requirement does not vary based on the 

effect it will have on the Insurance 

Fund’s equity ratio. The Board thinks it 

unlikely a court would find it illegal for 

the Board to do what the Act 

unambiguously requires. Further, the 

Stabilization Fund assessments were 

legal at the time they were assessed, and 

the Board sees no means by which they 

would become illegal in 2017 as a result 

of a mandatory distribution to the 

Insurance Fund at the Stabilization 

Fund’s closure. 

With respect to the normal operating 

level, under the Act, the Board can 

designate the ratio at a level it deems 

appropriate at any time, from a 

minimum of 1.20 percent to a maximum 

of 1.50 percent. The Board’s discretion 

to designate the normal operating level 

within that range is not limited (a) based 

on the source of funds that could 

increase the equity ratio above 1.30 

percent or (b) by the NCUA’s assessment 

authority. While the Board cannot 

impose an Insurance Fund assessment 

once the equity ratio is at or above 1.30 

percent, the Board sees no reasonable 

argument that the equity the 

Stabilization Fund would distribute to 

the Insurance Fund is from (or becomes) 

an Insurance Fund assessment at the 

Stabilization Fund’s closure. 

Finally, these commenters’ argument 

rests on an incorrect factual assumption: 

That equity presently in the 

Stabilization Fund is solely attributable 

to Stabilization Fund assessments as 

opposed to cash collected from 

receivables from the asset management 

estates. In fact, increases in the value of 

the receivables from the asset 

management estates (from legal 

recoveries and improvements in the 

value of the Legacy Assets) have 

contributed significantly to the 

Stabilization Fund’s net position. The 

NCUA was unable to fully repay 

Stabilization Fund borrowings from the 

assessments that had been paid by 

insured credit unions, which were last 

charged in 2013. Since that time, the 

Stabilization Fund has collected 

approximately $3 billion from the asset 

management estates, principally funded 

from legal recoveries and asset sales. 

These funds enabled the NCUA to fully 

repay the U.S. Treasury in October 

2016, and account for the Stabilization 

Fund’s current cash position. As such, 

there is a compelling argument that 

equity in the Stabilization Fund as of 

2017 consists of asset management 

estate receivables, not assessments. 

For the same reasons, no additional 

amounts the Insurance Fund will 

continue to collect before the end of 

2017 and that could contribute to 

increasing the Insurance Fund’s equity 

ratio above 1.30 percent after 2017 (and 

result in additional distributions) will 

be attributable to assessments. Although 

prior assessments make present-day 

receivables available as equity for 

distribution to the Insurance Fund when 

the Stabilization Fund closes, whether 

the Board should raise the normal 

operating level in connection with the 

Fund’s closure is a policy 

determination. There are no legal 

provisions that preclude the proposed 

increase in the Insurance Fund’s normal 

operating level. 

The Board understands commenters’ 

concern that it is improper to improve 

the Insurance Fund’s equity position 

using dollars from credit unions that 

paid Stabilization Fund assessments in 

the abstract, but believes it is factually 

unpersuasive. Under the Act, the group 

of credit unions required to pay a 

premium to the Insurance Fund or to 

the Stabilization Fund is identical.25

The basis for calculating the premiums 

is also the same for both the Insurance 

Fund and the Stabilization Fund.26

Further, for the Board to use the 

Stabilization Fund, the Act requires that 

it must have had the authority to make 

the same payment from the Insurance 

Fund.27 Thus, the Insurance Fund’s 

purposes and authorities completely 

envelope those related to the 

Stabilization Fund. 

Finally, as a practical matter, there 

were only 21 credit unions that were 

chartered or that converted to federal 

insurance since the Stabilization Fund 

was created in 2009. Of these 21 credit 

unions, 17 filed a call report in the 

second quarter of 2017. These credit 

unions represent only 0.13 percent of 

total insured shares in the second 

quarter of 2017. Further, since joining 

the Insurance Fund, these credit unions 

have been subject to potential 

premiums, despite not existing at the 

time of corporate credit union losses. 

As such, there is no strong legal or 

equitable basis to view Stabilization 

Fund equity, regardless of whether one 

considers it due to assessments or asset 

management estate receivables, as 

different from Insurance Fund equity. In 

addition, the Insurance Fund 

distributed funds to the Stabilization 

Fund in 2011, 2012, and 2013, in 

amounts of $278.6 million, $88.1 

million, and $95.3 million, respectively, 

because the Act precluded Insurance 

Fund distributions to credit unions 

given then-outstanding borrowings from 

the U.S. Treasury. Efforts to distinguish 

the equity of the two funds on this basis 

do not hold up. 

In response to commenters that urge 

a ‘‘full rebate’’ and those that believe 

failure to return all Stabilization Fund 

equity would be contrary to prior 

promises from the Board, the Board 

believes its plan to close the 

Stabilization Fund in 2017 and provide 

distributions to credit unions out of the 

Insurance Fund is consistent with 

information historically provided to 

stakeholders. Until 2013, when the 

projected assessment range became 

negative, the Board did not estimate that 

funds would be available to return to 

credit unions. Primarily due to the 

impact of legal recoveries, the agency 

started projecting negative assessments 

in 2013. 

Consistent with information routinely 

published on the NCUA’s Web site and 

presentations given at Board meetings, 

the projected negative assessment range 

was disclosed as subject to change. At 

no time has the projected negative 

assessment range included estimates 

sufficient to repay all assessments or a 

specified amount of former capital 

holders’ claims. As the NCUA has 

repeatedly stated, the Wescorp asset 

management estate is not projected to 

ever be able to repay the Stabilization 

Fund (or Insurance Fund after closure). 

Therefore, it is unlikely a ‘‘full rebate’’ 

of Stabilization Fund assessments will 

ever be possible, consistent with 

previous statements from the NCUA 

regarding the potential for some return 

of funds to credit unions. 

Therefore, the Board assumes that 

commenters are using the term ‘‘full 

rebate’’ to refer to a rebate of the entire 

amount of equity currently in the 

Stabilization Fund, rather than a rebate 

of all assessments ever paid into the 

Stabilization Fund. As noted in the July 

2017 Notice, the Board believes it is 

prudent to retain some of the current 

Stabilization Fund equity to account for 

the Insurance Fund’s existing and future 


sradovich on DSK3GMQ082PROD with NOTICES
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28See NCUA’s Q4 2016 Costs and Assessments 

Q&A (response to question 8), December 2016 

Board Briefing NGN Legacy Asset Disposition 

Strategy (slides 24–29), NCUA’s Assessment Range 

Update Video (approximately 8–9 minute mark), 

and the September 2014 open meeting of the Board. 

29See Letter to Credit Unions 09–CU–06 

Corporate Stabilization Program—Conservatorship 

of U.S. Central FCU and Western Corporate FCU 

and NCUA Accounting Bulletin No. 09–2. 

30See Letter to Credit Unions 09–CU–14 

Corporate Stabilization Fund Implementation. 

risk exposures, which will ultimately 

benefit credit unions by eliminating or 

materially reducing the need for 

premiums during a moderate recession. 

Additionally, the information on the 

NCUA’s Web site and presented at open 

meetings of the Board is consistent with 

the statutory requirement that any 

distribution of Stabilization Fund equity 

to credit unions would occur after the 

Stabilization Fund is closed and to the 

extent the Insurance Fund’s equity ratio 

exceeded the normal operating level.28

Many of the commenters that opposed 

any increase in the normal operating 

level contended no increase could be 

justified because a normal operating 

level of 1.30 percent had been sufficient 

to withstand the financial crisis. As 

outlined in the July 2017 Notice, the 

Stabilization Fund was created to accrue 

losses from corporate credit union 

failures and assess credit unions for 

such losses over time. This prevented 

insured credit unions from bearing a 

significant burden associated with the 

failure of five corporate credit unions 

within a short period. It did not shelter 

credit unions from being assessed for 

the losses, nor did it eliminate the need 

for Insurance Fund premiums to cover 

declines in the equity ratio from natural 

person credit union failures and insured 

share growth. 

At year-end 2008, the normal 

operating level was 1.30 percent. In 

January 2009, prior to creation of the 

Stabilization Fund, credit unions were 

instructed to impair the one percent 

capital deposit by 69 basis points and 

record a premium expense of 30 basis 

points to restore the Insurance Fund’s 

equity ratio to above the 1.20 percent 

statutory minimum.29 However, because 

Congress took extraordinary and 

unprecedented action that allowed the 

NCUA to account for the corporate 

credit union losses in the Stabilization 

Fund, the NCUA passed back credit 

unions’ 69 basis point deposit 

impairment.30

During the Great Recession, the 

Insurance Fund’s equity ratio fell below 

1.20 percent even without the corporate 

credit union losses—that is, only for 

natural person credit union losses— 

resulting in two Share Insurance Fund 

premiums totaling 22.7 basis points. 

Actual premium charges were 10.3 basis 

points in 2009 and 12.4 basis points in 

2010 and totaled nearly $1.7 billion. As 

some commenters noted, these 

premiums had to be charged during the 

trough of the business cycle, when 

many credit unions were already facing 

financial difficulties. Therefore, while 

the NCUA was able to maintain the 

Insurance Fund’s equity ratio above 1.20 

percent during the Great Recession, it 

was only because of an act of Congress 

(creation of the Stabilization Fund) and 

premiums paid by credit unions at a 

time when they could least afford the 

expense. In another significant 

recession, stakeholders should not 

assume the NCUA could or should 

prevail upon Congress to establish a 

fund similar to the Stabilization Fund to 

again accrue significant near-term losses 

over time and avoid immediate 

assessments on insured credit unions. 

For those commenters that cite the 

Insurance Fund and Stabilization Fund 

annual audits as support that there is no 

justification for raising the normal 

operating level, the Board would like to 

correct some misconceptions. 

Similar to how credit union officials 

must make risk management decisions 

about the appropriate amount of capital 

to hold, the Board must make 

management decisions regarding the 

level of equity the Insurance Fund 

should maintain. A stronger capital 

position better enables the Insurance 

Fund to manage future uncertainties 

such as increased losses, high insuredshare growth, and adverse economic 

cycles. While the amount of equity 

recorded and the calculation of the 

equity ratio are audited by an 

independent third party, the purpose of 

the audit is to ensure the Insurance 

Fund’s financial statements are 

presented fairly, in all material respects, 

in accordance with the standards 

promulgated by the Federal Accounting 

Standards Advisory Board (FASAB). 

FASAB is designated by the American 

Institute of Certified Public Accountants 

as the source of generally accepted 

accounting principles for federal 

reporting entities. 

The independent auditor’s report of 

the Insurance Fund as of and for the 

years ended December 31, 2016 and 

2015 discusses the equity ratio as a 

‘‘significant financial performance 

measure in assessing the ongoing 

operations of the NCUSIF.’’ The audit 

does not opine on whether the amount 

of equity retained meets the Board’s 

objectives for managing risk to the 

Insurance Fund. 

With respect to the Stabilization 

Fund, the Board notes that the latest 

audit report states, ‘‘there were no 

probable losses for the guarantee of 

NGNs associated with re-securitization 

transactions.’’ However, the Board 

believes commenters failed to consider 

two factors. 

First, the Legacy Assets underlying 

the NGNs are expected to experience 

losses, resulting in approximately $3.2 

billion of estimated guarantee payments 

made by the NCUA. As stated in the 

audit report and excerpted below, the 

NCUA expects those payments related 

to Legacy Asset losses to be offset by 

reimbursements and residuals after the 

fact. 

As of December 31, 2016 and 2015, there 

were no probable losses for the guarantee of 

NGNs associated with the re-securitization 

transactions. Although the gross estimated 

guarantee payments were approximately $3.2 

billion and $3.3 billion, respectively, these 

payments are estimated to be offset by: 

(i) Related reimbursements and interest 

from the Legacy Assets of the NGN Trusts 

received directly from contractual 

reimbursement rights pursuant to the 

governing documents of approximately $3.1 

billion and $3.1 billion as of December 31, 

2016 and 2015, respectively; and 

(ii) indirectly by collections pursuant to 

NCUA’s right as liquidating agent from 

portions of the AMEs’ economic residual 

interests in NGN Trusts of up to 

approximately $2.4 billion and $3.4 billion as 

of December 31, 2016 and 2015, respectively, 

that are estimated to remain after all 

obligations of the NGN Trusts are satisfied. 

However, as noted, the guarantee 

payments are estimated to be offset by 

the reimbursements. The actual amount 

of future reimbursements is not certain, 

but based on projections that may vary 

(and have varied) over time, especially 

in the case of an economic downturn. 

Second, the guarantee payment 

discussion does not include potential 

fluctuations in values related to Legacy 

Assets that are no longer securitizing the 

NGNs. The un-securitized Legacy Asset 

values are also based on projections that 

may vary over time, especially in the 

case of an economic downturn. 

The audited financial statements 

reflect the accounting and valuation of 

assets and liabilities as of a certain date. 

The statements do not account for 

potential future economic downturns 

that would negatively impact the values. 

Therefore, the financial statements in no 

way undermine the Board’s view that, 

as the insurer, it is prudent to ensure the 

Insurance Fund’s equity is sufficient to 

withstand a moderate recession with 

minimal or no premium assessments. 

The Board also believes some 

commenters are confusing the equity 

ratio and normal operating level with 

the Insurance Fund’s Insurance and 

Guarantee Program Liability by stating 

that raising the normal operating level is 


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46306 Federal Register / Vol. 82, No. 191 / Wednesday, October 4, 2017 / Notices 

akin to a credit union over-reserving for 

loan losses. The Insurance Fund’s 

equity ratio is a measure of equity 

(retained earnings and contributed 

capital) the Fund holds in relation to the 

amount of insured shares in federally 

insured credit unions. It is a similar 

concept to a credit union’s net worth 

ratio, or a bank’s capital ratio. 

The Insurance Fund’s Insurance and 

Guarantee Program Liability is a 

separate account. The Insurance and 

Guarantee Program Liability account is 

reported in accordance with Statement 

of Federal Financial Accounting 

Standard No. 5. The Insurance Fund 

records a contingent liability for 

probable losses relating to insured credit 

unions based on current economic and 

credit union-level data. The amount of 

this liability is adjusted based on 

changes in economic and credit unionlevel data. When economic conditions 

and credit union financial trends 

deteriorate, this liability will increase to 

reflect the increase in potential failures. 

However, if the NCUA is able to resolve 

problem credit unions without 

assistance from the Insurance Fund, the 

liability is no longer needed. Because 

the NCUA is unable to predict or 

quantify which credit unions may be 

resolved without assistance, the 

Insurance Fund must establish a 

contingent liability for all potential 

failures based on current data. 

This account is similar to a credit 

union’s reserve for loan losses and is 

audited annually by an independent 

third party. Thus, maintenance of the 

contingency liability must comply with 

accounting standards. This is different 

from maintenance of capital levels, 

which is a management decision. In 

addition, the Board’s role as insurer is 

fundamentally different from that of a 

financial institution. 

Further, to those commenters that cite 

the strength of the credit union system 

and recent regulatory changes as reason 

to retain 1.30 percent as the normal 

operating level, the Board agrees that 

the financial position of the credit union 

industry is strong. Additionally, the 

Board recognizes that supervisory 

requirements for large credit unions and 

restrictions for corporate credit unions 

help to reduce risk within the industry. 

However, the Board believes the risk 

profile of the credit union system 

continues to evolve with existing or 

known risks being replaced by new and 

emerging risks. From a risk management 

perspective, the Board believes it is 

prudent to consider both current and 

future risks and hold equity sufficient to 

mitigate the negative impact on credit 

unions—such as having to pay 

premiums when their financial position 

is not as strong. 

In response to commenters that 

question the accuracy of loss estimates 

related to the Legacy Assets, the Board 

notes that the range of estimated 

aggregate resolution costs is lower than 

original estimates due to a number of 

factors, including the following: 

• Better than expected recovery in the 

housing market; 

• A sustained low interest rate 

environment; and 

• Legal recoveries. 

Resolution costs have declined 

significantly due to legal recoveries, 

which were not and could not be 

included in projections because they are 

inherently inestimable. The potential for 

legal recoveries increased materially 

when the NCUA initiated the Corporate 

System Resolution Program, which gave 

the asset management estates the benefit 

of the Act’s extender statute. The 

extender statute preserved and 

strengthened a substantial portion of 

legal claims that otherwise may have 

expired. In addition, the NCUA’s 

coordinated recovery efforts across the 

five failed corporates and its ability to 

coordinate with other governmentrelated plaintiffs substantially increased 

recovery potential. 

The impact legal recoveries had on 

the estimated resolution costs is 

significant. If legal recoveries are 

excluded, over the seven years since the 

NGNs were issued, the top of the 

projected range of costs has improved 

about 14 percent. The bottom of the 

projected range of costs has worsened 

by close to 3.8 percent. In light of their 

complexity and after adjustment for 

exogenous factors like legal recoveries, 

the cost projections have proven 

relatively accurate over a seven-year 

period. The legal recoveries allowed for 

full repayment of the U.S. Treasury 

borrowing. Without the legal recoveries, 

the NCUA would not have been able to 

fully repay the U.S. Treasury until 2021. 

Also, based on current estimates, 

without the legal recoveries there would 

be no surplus to fund a distribution. 

The Board agrees with the commenter 

that pointed out that even a normal 

operating level of 1.39 percent would 

not have been sufficient to weather the 

Great Recession and absorb the losses 

from the failed corporate credit unions 

without assessing premiums. This fact 

only supports an increase. Determining 

the appropriate amount of capital to 

hold in the Insurance Fund is a risk 

management decision where the Board 

balances the need to maintain sufficient 

equity with the desire to keep money at 

work in the credit union community. 

While a normal operating level of 1.39 

percent may not be sufficient for the 

Insurance Fund to withstand a severe 

recession without assessing premiums 

to credit unions or developing a 

restoration plan, it does align with the 

Board’s objective of not having to assess 

premiums or develop a restoration plan 

during a moderate recession. 

Additionally, if the Insurance Fund’s 

equity ratio going into the Great 

Recession had been 1.39 percent instead 

of 1.30 percent, it may not have 

eliminated the need for premiums, but 

could have resulted in credit unions 

paying nearly $1 billion less in 

premiums during the middle of the 

financial crisis. The Board believes 

managing the Insurance Fund to be 

counter-cyclical by building up equity 

during prosperous times and allowing 

the equity to draw down during adverse 

economic conditions will enable credit 

unions to use funds at that time to serve 

members when they are needed the 

most. 

The Board also agrees with those 

commenters that stated the assets 

transferred from the Stabilization Fund 

currently offset the liabilities 

transferred. For all intents and 

purposes, the net position of the 

Stabilization Fund is the difference 

between the book value of the assets and 

the book value of the liabilities—which 

is currently near $2.0 billion. Even if the 

Stabilization Fund is not closed, the 

value of the assets would decline in a 

moderate recession, while the value of 

the liabilities would remain the same or 

increase, resulting in a decrease to the 

net position under even a moderate 

recession. 

Thus, once the Stabilization Fund is 

closed, the Insurance Fund’s net 

position would decrease if the value of 

the transferred assets decreased. 

Therefore, the Board believes it is 

prudent to reserve $400 million (or 

approximately 4 basis points) of the 

existing $2.0 billion of the Stabilization 

Fund’s equity to cover a potential 

decrease in the Insurance Fund’s net 

position under a moderate recession. 

A significant number of commenters 

attributed downward trends in the 

Insurance Fund’s equity ratio to the cost 

of the NCUA’s operations, recent 

increases in the NCUA’s operating 

budget, and excessive Insurance Fund 

loss reserves. Operating expenses are 

not one of the three primary factors 

affecting the Insurance Fund’s equity 

ratio—insured share growth, interest 

income on the fund’s investment 

portfolio, and insurance losses. 

Operating expenses charged to the 

Insurance Fund have a significantly 

lower potential for altering the trend in 

the equity ratio. Without sacrificing the 


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Federal Register / Vol. 82, No. 191 / Wednesday, October 4, 2017 / Notices 46307 

31 During a recession, the value of the Legacy 

Assets is expected to decline, while the liabilities 

associated with these assets would remain the same 

or potentially increase. This would reduce the net 

position of the Insurance Fund and the equity ratio. 

32 If the Stabilization Fund is not closed, and the 

Board adopted this methodology for setting the 

normal operating level, staff would recommend the 

Board set the normal operating level at 1.33 percent. 

agency’s mission, the NCUA has limited 

ability to make operating expense 

reductions that would have a material 

impact on the equity ratio. 

Given the Insurance Fund’s current 

size, a $100 million change in the 

numerator of the ratio (made up of 

retained earnings and contributed 

capital) will change the equity ratio by 

approximately one basis point. This 

means that if the NCUA’s operating 

expenses charged to the fund decreased 

by $100 million, the equity ratio would 

increase by one basis point. For context, 

the NCUA’s entire 2017 budget is $298.2 

million, of which approximately $200 

million is projected to be charged to the 

Insurance Fund. The Board would need 

to cut operating expenses charged to the 

Insurance Fund by 50 percent to offset 

a one basis point annual reduction in 

the equity ratio, all other things being 

equal. While the Board strives to 

minimize all costs related to agency 

operations, indiscriminately reducing 

the operating budget for the purpose of 

preserving Insurance Fund equity 

would be ill-advised and 

counterproductive. The bulk of NCUA’s 

budget, in fact, goes to supporting one 

of the most important aspects of the 

agency’s mission: Reducing the 

likelihood of catastrophic Insurance 

Fund losses. 

Increasing the normal operating level 

is an action separate and distinct from 

approving the agency’s operating budget 

and overhead transfer rate. The Board 

carefully balances the need to manage 

the agency’s expenses with the need to 

ensure a safe-and-sound credit union 

system. During the last NCUA budget 

briefing on October 27, 2016, staff 

outlined various initiatives to increase 

efficiency and operational 

improvements. The most significant is 

the adoption of the recommendations of 

the NCUA’s Examination Flexibility 

Initiative working group as part of the 

agency’s 2017 and 2018 budgets. Among 

other things, this initiative will extend 

the examination cycle for eligible credit 

unions—those that have less than $1 

billion in assets and are considered 

well-run and well-capitalized—resulting 

in a reduction of 47 full-time equivalent 

positions by the end of 2018. 

Additionally, at the Board’s July 20, 

2017 closed meeting, it approved a longrange agency restructuring plan to 

enhance efficiency, responsiveness, and 

cost-effectiveness. Under the plan, the 

NCUA will consolidate the agency’s five 

regional offices into three, eliminate 

four of the agency’s five leased spaces, 

eliminate offices, and reduce the 

workforce through attrition. The Board 

has recently announced the process for 

another public budget briefing to be 

held in October 2017 and looks forward 

to receiving stakeholder input. 

The Board disagrees with commenters 

that state the Insurance Fund’s 

performance horizon should be two 

years instead of five. As outlined in the 

July 2017 Notice and discussed at the 

July 2017 Board meeting, a five-year 

horizon for modeling the Insurance 

Fund was selected for a number of 

reasons. One compelling reason is that 

the National Bureau of Economic 

Research—the not-for-profit research 

organization that establishes the 

beginning and end of U.S. business 

cycles—has calculated that the United 

States has averaged 69 months from the 

peak of one business cycle to the next. 

The Board elected to use a five-year 

horizon because it covers most of the 

business cycle, aligns with the 

remaining life of the NGN Program, and 

is consistent with the agency’s strategic 

plan time horizon. 

Though a recession may end, the 

economy may remain very weak during 

the recovery period. A struggling 

economy also poses risks to credit 

unions, and a thorough analysis of the 

Insurance Fund’s equity position needs 

to account for the period of continued 

economic weakness, which more 

realistically reflects a recession’s effects 

on the credit union industry. 

The Board agrees with commenters 

that noted the agency has various 

options available to manage the 

Insurance Fund. The Board continues to 

believe the most desirable option is to 

maintain a counter-cyclical posture for 

the Insurance Fund, which reduces the 

likelihood of burdening insured credit 

unions with premium expenses during 

an economic downturn. Requiring credit 

unions to pay premiums in the midst of 

a financial crisis is generally 

undesirable because many credit unions 

are facing earnings and other 

operational issues, and extraordinary 

premium expenses could increase 

failure rates. It is during the bottom of 

an economic cycle that it is most 

important to keep funds at work in the 

credit union system so they can 

continue to serve their members. 

As outlined in the July 2017 Notice, 

the Board believes its authority to 

establish a Fund restoration plan in lieu 

of mandatory premiums should only be 

used for severe, unexpected 

circumstances. While the Board can 

develop a restoration plan to restore the 

Insurance Fund’s equity ratio to 1.20 

percent within eight years (or longer in 

extraordinary circumstances), this could 

necessitate one or more relatively large 

premiums. It could also extend over 

multiple business cycles, resulting in a 

further extended effort to rebuild 

Insurance Fund equity. These 

circumstances could significantly erode 

public confidence in federal share 

insurance. 

Some commenters supported a 

temporary increase to 1.34 percent to 

cover exposure to Legacy Assets, while 

others suggested an increase to 1.35 

percent. The Board notes that both of 

these suggestions ignore that exposures 

to the Insurance Fund must be 

considered in total. 

Because a moderate recession would 

affect both the traditional primary 

drivers of the Insurance Fund (yield on 

investments, insurance losses, and 

insured share growth) and the value of 

the Legacy Assets, the Board must 

account for both of these exposures. 

Therefore, it would be inconsistent to 

only account for the potential decline in 

value of the Legacy Assets under a 

moderate recession, and not the 

traditional exposures to the Insurance 

Fund, by setting the normal operating 

level at 1.34 percent. Conversely, setting 

the normal operating level at 1.35 

percent would only account for the 

traditional exposures of the Insurance 

Fund. However, if the Stabilization 

Fund were closed, the Insurance Fund 

would be exposed to additional risk 

from the potential decline in the value 

of the Legacy Assets.31

Many commenters urged the Board to 

set a defined schedule or express 

specific intent to move the normal 

operating level back to 1.30 percent as 

exposure to Legacy Assets decreases. As 

outlined in the July 2017 Notice, the 

Board acknowledges that additional risk 

exposure from the Legacy Assets will 

only be present until the end of the 

NGN Program, assuming expedient 

Legacy Asset sales thereafter. Therefore, 

once the Insurance Fund’s exposure to 

this risk expires, additional equity for 

the Legacy Assets will no longer be 

necessary.32 As outlined in the July 

2017 Notice, the Board believes the 

NCUA should periodically review the 

equity needs of the Insurance Fund and 

provide this analysis to stakeholders. 

Thus, the Board intends for the normal 

operating level to be re-assessed 

periodically. 

However, the Board believes it would 

be imprudent to arbitrarily set a future 

normal operating level based on current 

data. Instead, it is reasonable for a future 


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33Additionally, projections show the equity ratio 

will decline based on current trends. If the Board 

set the normal operating level at 1.20 percent and 

the equity ratio fell to 1.20 percent because of a 

distribution, the equity ratio would immediately be 

projected to fall below 1.20 percent, triggering a 

premium or restoration plan in accordance with the 

Act. 12 U.S.C. 1782(c)(2). 

34 In accordance with the Act, the Insurance Fund 

shall effect a pro rata distribution to insured credit 

unions after each calendar year if, as of the end of 

that calendar year, the equity ratio exceeds the 

normal operating level. 12 U.S.C. 1782(c)(3). 

35See https://www.ncua.gov/regulationsupervision/Pages/stabilization-fund-closure.aspx. 

Board to set the normal operating level 

to meet the objectives outlined in the 

Board’s policy for setting the normal 

operating level based on contemporary 

data. Further, while the normal 

operating level has historically been 

1.30 percent, it would be arbitrary to 

retain that number as the current or 

future normal operating level just 

because that is the number it has always 

been. Instead, the Board has elected to 

set the normal operating level by 

considering recent history and using a 

documented, consistent methodology to 

enhance transparency of the process. 

One commenter supported a 

temporary increase of the Insurance 

Fund’s equity ratio to 1.30 percent but 

only for so long as Legacy Asset 

exposure remained. This commenter 

stated that all equity related to the 

Stabilization Fund should be distributed 

once Legacy Asset exposure subsided, 

including funds needed to increase the 

Insurance Fund’s equity ratio to 1.30 

percent. Thus, this commenter implied 

the Board should decrease the normal 

operating level below 1.30 percent to 

meet the equity ratio at the time of the 

Stabilization Fund’s closure to permit 

distribution of all equity received from 

the Stabilization Fund. 

In the Board’s understanding, 

following the position of this 

commenter would require the Board to 

commit to reducing the normal 

operating level in 2021 to equal the 

Insurance Fund’s sub-1.30 percent 

equity ratio as of October 1, 2017, the 

date of the Stabilization Fund’s closing. 

This would, at the end of 2021, trigger 

a distribution of whatever amounts, if 

any, remained in the Insurance Fund 

above the newly lowered normal 

operating level. While the Board has the 

legal authority to make such a 

commitment, it could not bind future 

Boards to follow it. Further, this 

approach would only result in a 

distribution of equity to the extent 

insurance losses or other impacts on the 

Insurance Fund had not lowered the 

equity ratio below what it was at the 

Stabilization Fund’s closure. 

While the Board could reduce the 

normal operating level to as low as 1.20 

percent to orchestrate a distribution, it 

could not, due to statutory constraints, 

lower the normal operating level below 

1.20 percent to accommodate a certain 

distribution amount that might relate 

back to Stabilization Fund equity.33

Thus, this commenter’s suggestion 

provides no guarantee that a certain 

amount of equity can be returned in 

2021. Finally, even if circumstances in 

2021 are such that a distribution could 

be triggered, the Board thinks a 

reduction in the normal operating level 

at that time for the sole purpose of 

triggering a defined distribution amount 

would be an unwise policy choice. The 

Board believes the prudent approach at 

that time would be to consider where 

the normal operating level should be 

designated based on all relevant and 

contemporary data. 

C. Additional Comments 

In response to those commenters that 

requested additional time to review and 

respond to the July 2017 Notice, the 

Board acknowledges the comment 

period was less than the customary 60 

days (the actual comment period was 48 

days). The comment period was 

accelerated to provide the Board enough 

time to consider comments and make a 

final determination of closing the 

Stabilization Fund by year-end 2017, to 

make it possible for a distribution to 

insured credit unions in 2018.34 The 

Board made substantial efforts to ensure 

stakeholders were provided with 

sufficient support and data regarding 

the NCUA’s proposal to close the 

Stabilization Fund and set the normal 

operating level at 1.39 percent. Further, 

some credit unions and trade 

organizations have been requesting the 

NCUA consider closing the Stabilization 

Fund for at least a year. The Board 

noted on multiple occasions since the 

beginning of 2017 that NCUA staff were 

researching the process and timing for 

prudently closing the Stabilization 

Fund. Thus, the proposal was not 

unexpected. 

If the Board puts off the proposal 

further, equity will continue to build in 

the Stabilization Fund. Thus, the Board 

agrees with most commenters that see 

no reason to delay the proposal until a 

future date. As long as the NCUA 

maintains sufficient equity in the 

Insurance Fund to cover the remaining 

obligations from the Corporate System 

Resolution Program on top of its 

ongoing obligations, closing the 

Stabilization Fund now makes sense. 

The Board acknowledges the 

commenters’ emphasis on transparency 

and agrees that the agency has a 

responsibility to provide stakeholders 

with as much information as possible 

without disclosing confidential 

supervisory information. This applies 

not only to the Stabilization Fund’s 

operations, but also to how the 

corporate credit union asset 

management estates are administered. 

Because of the complexity and extent of 

information regarding the Legacy 

Assets, NGNs, and asset management 

estates, the NCUA has developed Web 

pages on its public Web site dedicated 

to the corporate resolution and NGNs. 

The agency transparently described the 

equity ratio calculations, normal 

operating level, and Corporate System 

Resolution Program status in staff’s 

presentations to the NCUA Board at its 

November 2016, December 2016, and 

July 2017 open meetings, in the request 

for comment published in the Federal 

Register in July 2017, during a webinar 

the NCUA hosted on this subject in 

August 2017, and in all the related 

materials that are posted on the NCUA’s 

Web site.35

Subsequent to the July 2017 Notice, 

the NCUA enhanced its reporting to 

show the transactions and projections 

related to each corporate credit union 

asset management estate. The 

information on legal recoveries also 

receives regular updates, including 

information on how legal recoveries are 

allocated to each asset management 

estate. 

The Board continually seeks ways to 

ensure the information presented is 

clear, comprehensive, and useful. If 

stakeholders have questions or 

suggestions regarding the information 

available, the Board invites them to 

contact the NCUA at ngnquestions@

ncua.gov. 

Some commenters expressed a 

preference that the Board consider an 

increase to the Insurance Fund’s normal 

operating level in a proposal completely 

separate from any related to closing the 

Stabilization Fund. Because closing the 

Stabilization Fund increases the risk to 

the Insurance Fund, evaluating the 

normal operating level is a necessary 

component of the decision to close the 

Stabilization Fund. Proposing both 

actions together in a fully transparent 

manner gave credit unions the 

opportunity to review and comment on 

the entire scope of the NCUA’s plan 

related to closing the Stabilization 

Fund. 

Contrary to what some comments 

seem to imply, the Board is not aware 

of any credit unions that would fail 

based simply on not receiving an 

Insurance Fund distribution next year. 


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36The agency is under no legal obligation to 

distribute any funds to insured credit unions other 

than amounts above where the NCUA Board sets 

the normal operating level. In accordance with the 

Act, the Board can only set the normal operating 

level as high as 1.50 percent. 12 U.S.C. 1782(h)(4). 37Credit unions must be able to operate under a 

business model that provides for positive earnings 

and the accumulation of net worth irrespective of 

potential one-time increases in income. By their 

nature, one-time payouts such as a distribution 

from the Insurance Fund, are unpredictable and 

non-recurring. Therefore, credit unions must be 

able to operate in a safe and sound manner through 

normal, routine operations. 

38NCUA has provided details of the liquidation 

expenses and costs associated with each asset 

management estate on its Web site. See NCUA’s Q4 

2016 Costs and Assessments Q&A (response to 

question 15) and the Stabilization Fund’s financial 

statements for additional information. 

39As noted in the July 2017 Notice, the 

Stabilization Fund will be audited as of September 

30, 2017. The financial statements of the Insurance 

Fund will continue to be presented under standards 

promulgated by the Federal Accounting Standards 

Advisory Board and audited each calendar year. 

The post-closure financial statements and note 

disclosures for the Insurance Fund will continue to 

provide the same level of detail about the 

receivables from the corporate asset management 

estates and related fiduciary activities. 

40As explained in the July 2017 Notice, an equity 

ratio of 1.39 percent will allow the Insurance Fund 

to withstand a moderate recession without the 

equity ratio falling below 1.20 percent over a fiveyear period. 

When Stabilization Fund assessments 

were collected, they were accounted for 

as expenses to credit unions and income 

to the Stabilization Fund. As the 

performance of the Legacy Assets 

improved and the NCUA collected legal 

recoveries, the projected assessment 

range became negative for the first time 

in 2013, indicating projected assessment 

rebates and recoveries of depleted 

corporate capital. At no time did the 

NCUA guarantee that assessment rebates 

would be made.36

Rather, the Board noted that the 

assessment rebates were projections and 

subject to change. Therefore, credit 

unions should not have been relying on 

a possible refund for managing their 

financial condition.37

A few commenters stated the 

‘‘proposed method for closing the 

[Stabilization Fund] does nothing to 

address the excessive $1B charged since 

its creation to the [Asset Management 

Estates] by the NCUA.’’ It is unclear 

what expenses these commenters are 

referring to. The losses related to the 

corporate credit unions are described on 

the NCUA’s Web site. They include, 

among others, losses on investment 

securities (Legacy Assets), as well as 

costs of funding other pre-liquidation 

obligations the corporate credit unions 

had incurred. Every effort was made to 

keep the costs of resolving the failed 

corporate credit unions as low as 

possible.38 However, the resolution of 

the corporate credit unions was 

necessary and allowed the NCUA and 

credit union community to contain the 

financial and operational impact of the 

crisis. In addition, without being 

conserved and liquidated, the corporate 

credit unions (1) would have been 

unable to extend operations for the time 

required to realize uncertain legal 

recoveries; and (2) would have been 

unable to recover the material amounts 

the Board was able to recover without 

the benefit of the Act’s extender statute. 

Funds now available for distribution to 

credit unions are due principally to 

legal recoveries that enabled the asset 

management estates to repay some of 

the losses the Stabilization Fund 

incurred. 

The Board appreciates commenters 

that considered how closing the 

Stabilization Fund might affect the 

NCUA’s contingency funding. The 

Board reminds stakeholders that Public 

Law 111–22, Helping Families Save 

Their Homes Act of 2009, increased the 

NCUA’s borrowing authority with the 

U.S. Treasury to $6 billion. This 

borrowing authority is shared by both 

the Stabilization Fund and the 

Insurance Fund. With closure of the 

Stabilization Fund, the Insurance Fund 

will retain the $6 billion borrowing 

authority. The Central Liquidity 

Facility’s contingency funding ability is 

not altered by closure of the 

Stabilization Fund. 

The Board will address comments on 

its separate proposal to amend the 

Insurance Fund distribution method in 

12 CFR 741.4 in a separate action. 

IV. Final Action 

After considering the comments 

received, the Board approves the 

following: 

1. Closing the Stabilization Fund in 

2017 and distributing its funds, 

property, and other assets and liabilities 

to the Insurance Fund on October 1, 

2017.39

2. Setting the normal operating level 

of the Insurance Fund to 1.39 percent, 

effective September 28, 2017.40

3. Adopting the policy for setting the 

normal operating level, as outlined 

below. 

Policy for Setting the Normal Operating 

Level 

Periodically, the NCUA will review 

the equity needs of the Insurance Fund 

and provide this analysis to 

stakeholders. Board action is only 

necessary when this review suggests 

that a change in the normal operating 

level is warranted. Any change to the 

normal operating level of more than 1 

basis point shall be made only after a 

public announcement of the proposed 

adjustment and opportunity for 

comment. In soliciting comment, the 

NCUA will issue a public report, 

including data supporting the proposal. 

When setting the normal operating 

level, the Board will seek to satisfy the 

following objectives: 

• Retain public confidence in federal 

share insurance; 

• Prevent impairment of the one 

percent contributed capital deposit; and 

• Ensure the Insurance Fund can 

withstand a moderate recession without 

the equity ratio declining below 1.20 

percent over a five-year period. 

By the National Credit Union 

Administration Board on September 28, 

2017. 

Gerard S. Poliquin, 

Secretary of the Board. 

[FR Doc. 2017–21305 Filed 10–3–17; 8:45 am] 

BILLING CODE 7535–01–P 

EXECUTIVE OFFICE OF THE 

PRESIDENT 

Office of National Drug Control Policy 

Notification of a Public Meeting of the 

President’s Commission on Combating 

Drug Addiction and the Opioid Crisis 

(Commission) 

AGENCY: Office of National Drug Control 

Policy (ONDCP). 

ACTION: Notice of meeting. 

SUMMARY: ONDCP announces the fourth 

meeting of the President’s Commission 

on Combating Drug Addiction and the 

Opioid Crisis to advance the 

Commission’s work on drug issues and 

the opioid crisis per Executive Order 

13784. The meeting will consist of 

discussion regarding insurance issues 

related to the opioid epidemic. 

DATES: The Commission meeting will be 

held on Friday October 20, 2017 from 

11:00 a.m. until approximately 1:00 

p.m. (Eastern time). 

ADDRESSES: The meeting will be held at 

the Eisenhower Executive Office 

Building, Room 350, in the Executive 

Office of the President in Washington, 

DC. It will be open to the public through 

livestreaming on https://

www.whitehouse.gov/live. 

FOR FURTHER INFORMATION CONTACT: 

General information concerning the 

Commission and its meetings can be 

found on ONDCP’s Web site at https:// 

www.whitehouse.gov/ondcp/presidentscommission. Any member of the public 

who wishes to obtain information about 

the Commission or its meetings that is 

not already on ONDCP’s Web site or 


sradovich on DSK3GMQ082PROD with NOTICES