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STRATEGIC PLANNING: The 2016 Strategic Stink Bomb: Repricing the Risks of Credit Union Deposit Insurance

BY MARVIN UMHOLTZ

Following seven years of a sluggish economic recovery, it’s no surprise that when a credit union’s management team and the board of directors convene for an in-depth discussion about their 2016 strategic and operational plans, the news of their institution’s meager net interest margin induces everyone to hold their respective nose.  The same can be said of these leaders’reactions tothehigh costs forregulatory compliance that are such an impediment to profitability, and that are such a distraction from the organization’s preferred focus on its member-centric services.  These are what I often call “strategic stinkers,” since the absence of easy solutions for these dilemmas usually result in uncomfortable planning conversations.

However, when considering each federally insured credit union’s strategic and operational planning for 2016 and beyond, there looms a hard-to-ignore fiscal “stink bomb” that will undermine even the most successful organization’s best-laid plans.Each credit union’s costs for insuring its shares (deposits) with the National Credit Union Share Insurance Fund (NCUSIF), and its costs for“licensing” the tag-lines that the credit union members’ deposits are…“insured by the National Credit Union Administration (NCUA),” and are…“backed by the full faith and credit of the United States government,”will soon increase substantially.

NCUA’s 2013 White Paper: National Credit Union Share Insurance Fund Improvements

A little-known 2013 NCUA White Paper surfaced publicly during the second quarter of 2015, but it has received less attention than it should.  The White Paper made the case that the NCUSIF should transition towards a bank-like deposit insurance fund structure.

The NCUA document said, “Two enduring lessons of the recent financial crisis are the critical importance of well-funded deposit insurance systems to maintain financial stability during times of stress and the establishment of appropriate incentives for financial institutions to mitigate risk.  Under current law, the National Credit Union Administration (NCUA) does not have the appropriate flexibility necessary to manage the National Credit Union Share Insurance Fund (NCUSIF) in a manner consistent with the growing size and complexity of the credit union industry, as well as financial stability goals.  This paper outlines the need for legislative reform that will more closely align the operations of the NCUSIF with the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (FDIC).”

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