NCUA Board Member Todd M. Harper delivers remarks to the Illinois Credit Union League's Virtual Town Hall Meeting from his home in Northern Virginia.
As Prepared for Delivery on June 11, 2020
Thank you for inviting me to speak, and thank you for being America’s financial first responders. Your work on the frontlines of the COVID-19 pandemic is protecting the financial health of tens of millions of Americans, including the more than 3.3 million credit union members in Illinois.
Consistent with safety and soundness and consumer financial protection, I encourage you to continue to develop products and services aimed at helping families pay for essential needs during these difficult times. By focusing on your members, making responsible and affordable loans, and accommodating their financial needs, your members will remember it in the long term, leading to increased loyalty and better earnings in the future.
In my remarks today, I would like to briefly discuss the economy and highlight some of the things the NCUA is working on in response to the coronavirus pandemic, as well as how the agency can address matters of economic equality and justice within the credit union system.
Economic Overview
Without question, the recent economic news has been startling. The measures necessary to combat the spread of coronavirus have caused economic activity to plummet and layoffs to surge. In just 12 weeks, a staggering 44 million Americans have filed for unemployment.
We are now experiencing the highest unemployment rates in 80 years. Correcting for the possible misclassification of workers temporarily absent from work, who were counted as employed but should have been counted as unemployed, pushes the May jobless rate close to 16 percent. And the U6 unemployment rate – which includes the unemployed, the underemployed and workers who have dropped out of the workforce but who still want a job – stood at 21.2 percent in May.
To better illustrate our dire economic straits, let’s look at the restaurant and travel industries. As of last week, seated diners fell approximately 75 percent nationwide – and 80 percent in Illinois – compared to the same timeframe a year ago according to Open Table. And, passenger traffic through TSA checkpoints was one-fifth of what it was a year ago. So, it comes as no surprise that as Americans have stayed home and traveled less, the demand for petroleum products has also plunged, creating burdens for those credit unions that serve the oil and gas industry.
The sharp and rapid deterioration in labor market conditions, lost wages, and heightened uncertainty that is sure to linger even after normal economic activity resumes means the economy may not return to its pre-coronavirus level of output for quite some time. In short, the economic news is sobering.
Because of the dramatic shift in economic circumstances, credit unions are facing a more difficult environment than they have in many years, and credit union performance is likely to deteriorate. Accordingly, the NCUA must adjust its operations and oversight to respond to these developments.
Summary of NCUA’s Priorities
As the COVID-19 pandemic has transpired, the NCUA has pursued three priorities.
Our first priority is to protect the health and safety of NCUA staff and contractors, so that we can maintain our ability to perform the agency’s mission and complete its essential functions.
Our second priority is assessing the impact of COVID-19 on credit union members and operations. The NCUA has a dedicated webpage at ncua.gov/coronavirus that provides guidance on dealing with pandemics, answers your frequently asked questions and offers information on working with members. In our initial and second assessments of the operational needs and performance of the credit unions, we generally found that federally insured credit unions are open, lending and serving their members’ needs, albeit with some adjustment in access to branches.
Our third priority is to assess how COVID-19 will affect the financial condition of credit unions going forward so that we can allocate staff resources and protect the Share Insurance Fund, which safeguards the deposits of 120 million Americans.
Central Liquidity Facility
Through my experiences in working on Capitol Hill during the last financial crisis, I knew disruption in the financial markets could quickly turn into liquidity shortfalls.
Because credit unions need to have access to liquidity when other parts of our economy freeze up, in mid-March I called on the NCUA to seek legislation to enhance the capacity and powers of the Central Liquidity Facility, or CLF. Congress acted quickly to adopt those temporary enhancements as part of the CARES Act at the end of March, and the NCUA Board approved a rule to implement these changes in April.
The CARES Act temporarily makes it easier for credit unions to join the Central Liquidity Facility, including allowing corporate credit unions to again act as agents for consumer credit unions as they once did before the 2008 financial crisis. The law also eased some restrictions around getting a liquidity loan and temporarily increased the capacity of the Central Liquidity Facility from 12 times the CLF’s capital to 16 times its capital through the end of 2020.
Ultimately, we have a vital opportunity to significantly bolster the entire credit union system’s access to external liquidity for the remainder of the year. But, we need to move quickly to capitalize on our newly expanded flexibilities and position ourselves ahead of emerging needs.
For these reasons, I strongly encourage all consumer credit unions that do not already belong to or have access to an agent for the Central Liquidity Facility to join as soon as possible. By joining the CLF, you will be demonstrating the best of the cooperative nature of the credit union movement. That is because every member who joins the Central Liquidity Facility will exponentially increase the capacity of the CLF to provide liquidity to others within the system.
Currently, the CLF has $26.5 billion in borrowing capacity, up from just $7.3 billion at the start of the year. A large part of that increase has resulted from corporate credit unions purchasing the stock needed to serve as agents for their member credit unions with less than $250 million in assets. We anticipate that this capacity will grow as we continue to evaluate and approve applications for the CLF.
Even if your credit union ultimately does not use the CLF in the coming months, your support for the CLF may help another credit union with significant liquidity needs to survive. To learn more about the CLF and how to join, go to ncua.gov/CLF.
Other NCUA Responses
As the COVID-19 pandemic has unfolded, the NCUA has actively worked to protect credit union members, provide regulatory relief, and inform credit unions about potential economic problems and financial sector developments. In all, the agency has issued more than a dozen Letters to Credit Unions and Risk Alerts in just over three months. I would like to summarize a few of them now.
One of these letters provided assurance that the NCUA’s examiners will not criticize your credit union’s efforts to provide prudent relief for members when such efforts are conducted in a reasonable manner with proper controls and management oversight. A credit union’s efforts to work with members in communities under stress may contribute to the strength and recovery of these communities.
Another letter outlined the NCUA’s offsite supervisory and examination approach for the duration of the COVID-19 pandemic. We have also made it easier for federal credit unions to hold annual meetings virtually and provided relief in other ways like temporarily allowing credit unions to defer appraisals and written estimates of market value for up to 120 days after the closing of a loan.
Through the Paycheck Protection Program, credit unions are working to save and create jobs. That is why I recently voted for the NCUA Board’s interim final rule to ease regulatory burdens and capital requirements for credit unions making these loans.
And, at May’s meeting the NCUA Board adopted a rule to amend the prompt corrective action requirements in two ways. The first of these amendments waives the earnings transfer requirement for credit unions that fall from well capitalized to adequately capitalized. This change will allow the credit union to use the capital to help their members.
The second change creates a streamlined net worth restoration plan for credit unions that become undercapitalized because of an inflow of shares. These share increases are temporary and will leave the system as the millions of Americans who are experiencing economic hardship withdraw the funds to cover living expenses.
Both the earnings transfer waiver and the net worth restoration plan provisions will expire at the end of 2020.
Economic Equality and Justice
Before I get to questions, I do want to comment about the Black Lives Matter protests that have gripped our nation for more than two weeks. These protests are a product of centuries of frustration and repression.
Civil rights and human rights are core American values, and I fully embrace them. I also believe deeply in equality. That’s why the brutal killing of George Floyd shocked and sickened me. To his grieving family and friends, those of the foremost importance, I have offered my heartfelt condolences for a life together, cut short.
For the African American community, the circumstances of Mr. Floyd’s death are unfortunately far too familiar. As a leader at the NCUA, I cannot respond by just saying, “we need to do better” or “we must do more.” Those lines rightfully ring hollow to communities of color. They are empty promises. To achieve real, sustainable change, I, like each of us, must take action within my sphere of influence.
Diversity, equity and inclusion are necessary for the success of the NCUA and the credit union system as a whole. They are increasingly vital to strategy, sustainable growth, innovation, talent acquisition and employee retention. Diversity, equity and inclusion also elevate not only the agency’s ability to better understand and supervise credit unions, but also a credit union’s ability to add members, hire effectively, and create the products its members need.
As a leader at the NCUA, I am committed to fostering diversity, equity and inclusion. I believe that our agency’s greatest resource is its workforce. As such, I value the diverse perspectives, skills and talents of our workforce because diversity is a strength. Intentionally nurturing an inclusive environment will lead to every employee contributing to his or her fullest potential. And, I believe that the agency must have zero tolerance for any racism and discrimination.
My commitment to change is rooted in my own knowledge and the American experience. I recognize our society’s historic, systemic and institutional racism toward African-Americans and black communities. Growing up outside of Chicago in the 1970s and 1980s, I saw people treated differently because of the color of their skin. I heard racially charged slogans like “Before It’s Too Late,” which Bernie Epton used in his campaign to try to prevent Harold Washington from becoming the city’s first African-American mayor. Additionally, I saw how segregation at housing projects like Robert Taylor Homes and Cabrini-Green resulted in a lack of economic opportunity.
In my life, I’ve pursued a path aimed at promoting economic integration and inclusion. When I went to graduate school in Boston, I made a deliberate choice to live in a formerly troubled public housing project turned into an economically integrated community with approximately one-third of the units reserved for subsidized, low-income households, one-third for senior citizens and one-third at market rates. My partner and I chose our church for its multicultural congregation, which celebrates diversity and worship with people of all races, and I have mentored first-generation college students of color to help ensure their success at school and in life.
Within the cooperative system, we have many examples of credit unions working to lift up their members. In all, approximately one in ten federally insured credit unions are minority depository institutions, and approximately half of all credit unions are low-income credit unions, meaning a majority of their members earn less than 80 percent of the area median income.
Even before the current protests began, the Credit Union National Association, to its credit, embraced adding diversity, equity and inclusion as the eighth principle of the cooperative movement. I salute them. What is more, in my efforts to get into the field and learn more about credit unions, I have learned about efforts of the credit unions around the country to meet their members where they are and to develop and support innovative initiatives aimed at creating economic equity and opportunity.
Within the NCUA, I believe that a concrete action plan to advance economic equality and justice at credit unions must at least have four prongs. We can do things like:
- Building diverse and inclusive workforces and supplier chains,
- Enhancing support for minority depository institutions,
- Enforcing fair lending laws, and
- Funding initiatives aimed at closing the wealth gap.
One very good place for a credit union to begin its own efforts is to conduct the diversity self-assessment available at cudiversity.ncua.gov. Credit unions that have used this tool have established a baseline for action. They have also changed behavior because of the survey.
I know, however, that the best ideas will often come from others. So, I am currently engaging with others at the NCUA, in the trades and at credit unions. That is why I want to hear your ideas based on your own life experiences for what more the NCUA can do to advance economic equality and justice. I am listening to you today, and because black lives matter, I won’t give up the fight to improve our country and create the “more perfect union” that our founders envisioned.
Closing Comments
In closing, the NCUA will continue to focus on protecting credit union members and ensuring the safety and soundness of the credit union system during the coronavirus crisis and the subsequent economic fallout.
In return, we need you to stay focused on serving your members. In the long term, they will remember who supported them during their times of need. In the months ahead, because of interest rate drops and compressed interest margins, you also need to watch expenses.
And, if you are experiencing problems, please contact your examiner or field office. Your timely call to the NCUA may help your credit union to survive in the long term.
Finally, to address long-standing societal problems of economic equality and justice, we need you to recommit to addressing these issues in your communities by finding ways to adapt your products and services. In serving everyone, your credit union, your members and our country will be better for it. You will also be fulfilling the “people helping people” philosophy at the heart of the credit union movement.
Thank you again for inviting me. I look forward to your questions.