As Prepared for Delivery on February 18, 2021
Thank you, Eugene, for your sobering update on the Share Insurance Fund and the equity ratio. The NCUA’s top priority in 2021 is to ensure that the credit union system and the Share Insurance Fund are fully prepared to weather any economic fallout related to the COVID-19 pandemic.
During 2020, the credit union system experienced a dramatic rise in assets, falling loan demand, compressed interest rates, decreased earnings, and subdued consumer confidence. The system also saw an unprecedented increase in insured share growth, which caused the Share Insurance Fund’s equity ratio to fall to 1.22 percent last June.
Those same factors, which contributed to the equity ratio’s decline in the first half of 2020, continued into the second half. Even after receiving the semi-annual capital deposit adjustments in October, the equity ratio at the end of 2020 was 1.26 percent, less than that 6 basis points away from the statutory floor of 1.20 percent. And, the year-end equity ratio was about 4 basis points lower than previously anticipated.
As with so many things, the COVID-19 pandemic is only accelerating existing economic trends. Since the end of the Great Recession, the Share Insurance Fund’s equity ratio has steadily declined overall, primarily from strong growth in insured shares and reduced investment income resulting from a persistent low interest-rate environment. The closure of the Temporary Corporate Credit Union Stabilization Fund and the transfer of its assets to the Share Insurance Fund in 2017 boosted the equity ratio and prevented a premium assessment at that time. However, as we have seen, the increase was only temporary.
The primary factors contributing most significantly to the continuing decline in the equity ratio — strong growth in insured shares and reduced investment returns — remain and will likely continue in the future. Like the persistent current of a mighty river, we can only swim upstream for so long against these economic realities.
The NCUA Board is duty bound to manage the Share Insurance Fund responsibly. I recognize that charging a premium during a pandemic and economic downturn is not ideal. However, we may no longer be able to avoid it. With the growth in shares likely to remain elevated in 2021, it is increasingly clear the question is no longer “if” we have to assess a share insurance premium, but “when” and “how much.”
Any future decision by the Board to assess premiums must be data-driven. We must analyze and evaluate several potential scenarios and rely on the staff’s recommendations and best judgment. History has also shown the importance of building up the resiliency of the Share Insurance Fund, so it can handle the potential issues related to the pandemic’s economic fallout that we know are coming. Credit union members — and the taxpayers who ultimately guarantee the Share Insurance Fund — are counting on us to get it right.