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NCUA Board Chairman Todd M. Harper Statement on the Request for Information on the Normal Operating Level

May 2021
NCUA Board Chairman Todd M. Harper Statement on the Request for Information on the Normal Operating Level
Chairman Todd M. Harper

NCUA Chairman Todd M. Harper at the NCUA’s headquarters in Alexandria, Virginia.

As Prepared for Delivery on May 20, 2021

Thank you, Viki and Russell, for your presentation and your efforts in developing this request for comment on the methodology the NCUA Board uses to set the normal operating level for the Share Insurance Fund. Vice Chairman Hauptman and Board Member Hood both offered thoughtful changes to this request for comment and improved the product before us today.

The NCUA Board approved the current normal operating level methodology in September 2017, as part of the plan to close the Temporary Corporate Credit Union Stabilization Fund at an earlier date than required by law. At that time, the methodology focused on ensuring the Share Insurance Fund could withstand a moderate recession and accounted for the changing values in the NCUA Guaranteed Notes program and associated legacy assets of the failed corporates. The policy also factored in the natural decline in the equity ratio because of continued growth in share deposits within the industry.

However, much has changed since 2017. The economic impact of the COVID-19 pandemic and its associated fiscal responses has resulted in an unprecedented level of insured share growth over the last year. That share growth caused the Share Insurance Fund’s equity ratio to decline to 1.26 percent at the end of 2020. And, as we heard earlier this morning, the continued growth in share deposits resulted in a projected equity ratio of 1.22 percent for June 2021.

Credit unions also face a prolonged period of very low-interest rates for the foreseeable future, creating another drag on the equity ratio. In addition, the Federal Reserve Board has decided to discontinue publishing its adverse forecasts, which NCUA’s economists and analysts had previously used to determine the normal operating level.

Finally, with the last NCUA Guaranteed Notes scheduled to mature in June and the corporate asset management estates beginning to wind down, the Fund will no longer need to account for the effect on the normal operating level of the corporate credit unions’ legacy assets.

Given these considerations, this timely request for public comment about setting the normal operating level is a critical step in setting the Board’s policy objectives for the Share Insurance Fund going forward. As I stated at the December Board meeting, the agency must be transparent and engage with stakeholders about how the normal operating level will be determined in the future. The Board must also clearly communicate the policy objectives it is trying to achieve as part of its oversight of the Fund.

The request for comment addresses four areas. First, it outlines the policy decisions for setting the normal operating level. Second, it asks about the lessons that have been learned from the pandemic’s economic fallout. Third, it outlines potential economic scenarios NCUA staff may consider when determining a new operating level. And fourth, it asks about the possible effects on the Share Insurance Fund’s performance of ending of the Guaranteed Notes program will have. I look forward to reviewing the comments from credit unions and other stakeholders on these important matters.

Insuring the share deposits of credit union members who have put their trust in the system and safeguarding the Share Insurance Fund from losses are two of the NCUA Board’s most essential duties. Credit union members, federally insured credit unions, and the taxpayers who back the Share Insurance Fund are counting on us to get this right.

That concludes my remarks. I now recognize Vice Chairman Hauptman.

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