NCUA Chairman Todd M. Harper at the NCUA's Headquarters in Alexandria, Virginia.
As Prepared for Delivery on April 22, 2021
Thank you, Kathryn and Tom, for your informative presentation today and for the work by you and the rest of the NCUA team in quickly bringing this measure before the Board. I would also like to thank Vice Chairman Hauptman and Board Member Hood for their support for renewing these relief measures. This targeted, tailored, and temporary rule provides much-needed relief at a critical time.
Just as we are seeing downward pressure on the net worth ratios of federally insured credit unions, the inflow of share deposits resulting from three fiscal stimulus packages and changes in consumer behavior resulting from the COVID-19 pandemic are affecting the equity ratio of the Share Insurance Fund.
Normally around this time of year pursuant to our statutory responsibility, the NCUA Board would consider the staff’s 6-month projection of the equity ratio. Because the equity ratio projection has real consequences, my fellow Board members and I believe it is important that the projection be as accurate as possible.
The pandemic’s impact on the economy and the government’s related fiscal response has increased uncertainty related to key drivers of the equity ratio, especially insured share growth. Therefore, we have determined that it is prudent to undertake additional analysis for the projection, including reviewing the first quarter Call Reports of federally insured credit unions, which will be submitted in the coming days.
The NCUA experts have been working diligently to answer all of my questions and those of my fellow Board members about this important calculation. I am thankful for all of their hard work. I also appreciate Vice Chairman Hauptman’s and Board Member Hood’s engagement with the NCUA team and my office on this issue. We are all striving to ensure that we continue to manage the Share Insurance Fund in a prudent way, which, by law, is one of the Board’s primary statutory responsibilities.
Now, returning to the matter of the interim final rule, last year, the credit union system as a whole experienced an increase of $242 billion, or 19.8 percent, in insured shares and deposits compared to year-end 2019. This growth resulted from two rounds of economic stimulus and changes in consumer behavior caused by the pandemic.
For many credit unions, this extraordinary share growth was even larger. I recently spoke to the CEO of a small credit union who said the assets of his institution grew 57 percent during the last five quarters because of the unprecedented share growth.
The interim rule the NCUA Board approved last week is substantially similar to the one previously adopted in May 2020 that expired at the end of December. This rule makes two short-term, but important changes to our prompt corrective action regulations.
The first change temporarily reduces the earnings retention requirement for federally insured credit unions classified as adequately capitalized. While the rule is in effect, those credit unions unable to meet the earnings retention requirement will not have to submit a written application requesting approval to decrease their earnings retention.
The second change temporarily permits an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized primarily because of share growth. If a credit union becomes less than adequately capitalized for reasons other than share growth, it must still submit a net worth restoration plan under the current requirements in our regulations.
Given the ongoing uncertainty associated with the pandemic and continued elevated levels of insured share growth resulting from the third stimulus package, many well-run credit unions with positive earnings could continue to experience falling net worth ratios this year despite being well managed and fundamentally safe and sound. As a result of this change, eligible credit unions will be able to focus their limited resources on serving their members’ needs — especially those of modest means and those disproportionately affected by the pandemic — instead of planning for earnings transfers and developing detailed net worth restoration plans.
Lastly, at some point, the rate of share growth will return to normal patterns. Until then, the NCUA will continue to have its experts focus on the fundamentals of risk management and governance when examining and supervising credit unions, rather than the financial and economic shocks of the last year.
That concludes my remarks. I now recognize Vice Chairman Hauptman.