The National Credit Union Administration (NCUA) Board this morning proposed a plan that would allow credit unions to prepay their annual assessments for the corporate credit union bailout, which they project will amount to $2.94 billion, or 38 basis points, for this year and next.
The prepayments would amount to an interest-free loan, eliminating the need for NCUA to borrow additional funds from the U.S. Treasury as billions of dollars in existing Treasury loans for the bailout come due and billions of dollars in NCUA Guaranteed Notes used to finance the bailout mature. For example, $2 billion of the bailout bonds mature this October. NCUA has issued almost $28 billion of the bonds so far to finance the corporate bailout.
The hope is the prepayments would provide an additional pool of cash NCUA could use to finance the ongoing costs of the corporate bailout, including borrowing costs.
The benefits to credit unions participating in the plan would be negligible. It could result in lower costs for the bailout, thus lower assessments, and also allow credit unions to smooth out earnings by paying the projected assessments in advance.
NCUA said the prepayments, which would be voluntary, are modeled after an Federal Deposit Insurance Corp. program that mandates banks and S&Ls prepay insurance fund assessments three years in advance.
Larry Fazio, deputy executive director for NCUA, said they have projected the corporate bailout costs to be about $8.4 billion through October of 2012.
The voluntary prepayment plan is contingent on several things, including the commitment of enough credit unions to participate.