As Prepared for Delivery on May 26, 2022
Thank you for today’s presentation, Eugene. While today’s briefing is upbeat for the state of the National Credit Union Share Insurance Fund, and while I am impressed with the solid footing that the credit union system finds itself in today, let’s face it, we find ourselves in an extraordinarily difficult time. Just go down the list:
- We’re in year three of a global pandemic that continues to be a concern, even though the emergency, thankfully, appears to have past.
- We have the conflict in Ukraine that has had both direct and indirect effects on almost every aspect of the larger global economy, including energy flows, agriculture, the food supply, and trade.
- We have serious supply chain disruptions that are affecting producers and consumers around the world, with new lockdowns in China only adding to the pain.
- We have a serious inflation challenges here in the United States, as well as in other countries, with rising prices for food, fuel, and other staples, which are affecting both credit unions’ operations and their members.
- We face a significant risk of an economic slowdown. I’ll note that the International Monetary Fund has already downgraded their global growth projections for this year.
That’s only to take some of the top-line concerns we’re all seeing. If we wanted to keep going, we could add to that list climate risks, rising debt levels in the U.S. and elsewhere, the ever-present and growing risk of cyberattacks, and so on.
That’s a rather foreboding outlook, I know. It’s not my intention to dwell on the negative, but I do think that we need to have a frank accounting of the headwinds we face.
But let’s be honest. While we might like to think there’s some mythical time of peace and stability, it never really has been that way, has it? It certainly may seem like the challenges are more plentiful today because they in fact are, but the reality is that adversity, instability, and risk are constant factors in our world. But one constant has been the resilience of the human spirit. And that spirit of people helping people is the foundation that the credit union system rests. Through times of conflict and times of relative calm, through economic booms and busts, through societal and technological changes, credit unions have carried on that tradition in serving their members and communities. They have kept the promise of people helping people.
If we think about what that theme of resilience means for credit unions, that comes back to focusing on credit unions’ mission, which is providing the highest level of service to credit union members and communities. Credit unions are purpose-driven organizations — and I would argue with a stronger sense of purpose than most other financial institutions — with a strong sense of history, service to members, and commitment to their communities.
Now to focus on the board update before us today, I repeated the statement at previous quarterly Board updates, but I will say it again: the 1-percent capital deposits which comprise most of the Share Insurance Fund’s equity is also an asset of the credit union. We should never forget this.
Eugene, at a previous board update on the status of the Share Insurance Fund, we discussed the outside accounting firm we hired to look at the true-up issue and how this impacts the equity ratio. For the record, at one of the last share insurance board updates, we discussed that the true-up memo by the outside accounting firm states that the timeliness and accuracy of the data is required in the Federal Credit Union Act so this provision in the law, and I quote, “May provide some latitude from a strict interpretation, that the equity ratio must be calculated based on the financial statements amounts, particularly given the knowledge of the timing effect on the calculation of the equity ratio. Accordingly, it may be permissible to use the pro forma calculation of the contributed capital amount when calculating the actual equity ratio.”
At the time, you mentioned you were assessing the recommendations and engaging the Office of General Counsel. Can you update the NCUA Board on what steps you have taken since then? And to follow up, when will we see recommendations given to this Board?
Thank you. During your presentation today, I noticed that both credit union failures up to this point in 2022 were due to fraud. How should we learn from this as we seek to continually enhance our examinations and insurance program?
I do have some other questions before I close:
- I have consistently focused on the Fund’s investment strategy. Can you discuss why we recently moved to a 10-year ladder?
- On slide 3, I see the fund balance with Treasury and investments is down. What are the reasons why this would decrease?
- And what is the reasons for the decline between February and March?
- We are projecting the retained earnings $4.7 billion on June 30, 2022. What were the actual retained earnings at the yearend 2021? If we are projecting lower retained earnings in June than at year end 2022, what drove this loss in retained earnings? We made money the first three months according to today’s presentation, $54 million, so are we projecting a loss?
- What is the annual rate of share growth when projecting June 30 insured shares?
Thank you. I have no further questions.