Monday, December 05, 2016

The NCUA Budget: Easy Money... Part 3

Up, up and away...!

You may be wondering why these blog posts - on the questionable management of the deposit insurance fund (the "NCUSIF") - are headlined with reference to the "NCUA Budget"?

That's easy! Because the lack of staff control over the soaring NCUA budget is causing the NCUA senior staff to use "creative accounting", deceptive projections, and highly dubious "revenue smoothing" techniques to avoid meeting their fiduciary responsibility to the integrity of the agency, to the credit union owners of the NCUSIF, and to the American taxpayer. [... other than that they're doing great!] 

You're not going to believe
what happened...!

(We hope!)
Let's look once again at Mr. Fazio's "explanation" to the NCUA Board of the drop in the NCUSIF ratio to 1.27%, below the current 1.30% NCUA Board target. (here's the CUToday link) Not sure which misstatement to start with; so please read the entire article.

But, let's simply stay on the trail of NCUA's staff investment imprudence which we have discussed in Parts 1&2 - investing "long" in a rising rate environment (to the tune of $1.4+ billion in 2016)! 

Despite what we have witnessed in the recent rise in T-bill rates over the last 90 days (with more on the way in December!),...

Here's how rates have changed in 3 months
      1-yr         3-yr       5-yr        7-yr       10-yr
Aug. 31           .61%       .92%      1.19%    1.45%    1.58%
Nov. 30           .80%      1.40%     1.83%    2.18%    2.87%

Mr. Fazio is projecting (here's your link to his "analysis" presented with a straight face to the NCUA Board on Nov. 17, 2016) that the yield on the 10-yr treasury bond over the next 5 years will be between .97%(low), 1.47% ("base"-mid), and 2.08% (high) - you can find these and other "interesting" projection inputs on page 13 of the Board presentation above.

[.. and heading upward!]

Actually may be a "4"...
Mr. Fazio further projects that the NCUSIF (about $13 billion invested) portfolio yield over the next two years will be 1.78% in year 1 and 1.75% in year 2 (see pg. 21 ). [The current portfolio yield BTW is 1.84% at October 31, 2016.] 

A share insurance premium assessment on credit unions should not be required next year under all reasonable forecasts.

Unless of course, the NCUA Board continues to
permit the NCUA staff to deplete the NCUSIF fund through an imprudent "laddered" investment strategy and through excessive OTR draw downs required by an exploding budget, then Mr. Fazio's "dreams will of course come true"! 

[They dug an entirely unnecessary, additional earnings hole in just the last 3 months by buying $800 million in long-term treasuries - now all underwater!]

Chair Metsger has acknowledged that the NCUA Board "owns" the fiduciary responsibility of the NCUSIF. 

[ "ACT!"... as our next President says: "What have you got to lose?"]

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