As Prepared for Delivery on December 15, 2022
Last year, because of the pandemic, among other factors, I called on setting the normal operating level at 1.30, at least temporarily. When I called on lowering the NOL, I did so because it became clear to me that the NOL was too high because the taxi medallion crisis is behind us, and any risk from the closure of the Temporary Corporate Credit Union Stabilization Fund has generally ceased. From 1984 until 2017, the normal operating level set by the NCUA Board was 1.30.
It stayed at 1.30 during times of conflict, and in times of relative calm, through economic booms and busts, and through societal and technological changes. It stayed that way until 2017 when I believe the agency was worried about the failure of credit unions heavily concentrated in taxi medallion loans, and quite rightfully so.
I'll note when the NOL increase was done in 2017, the Board at the time indicated the increase, and I quote from the remarks at the Board meeting, “...was intended to be temporary.”
I now want to pose what I realize is a hypothetical question, but for every basis point increase in the NOL, how much does that have the potential to take away from credit unions and, ultimately, their member owners in the form of a potential dividend based on this current point in time, assuming hypothetically, that we are, in fact, required to pay a dividend.
Thank you. Having a NOL above 1.30 negates a lot of the benefit that credit unions receive by perpetually underwriting the 1 percent capital commitment to the National Credit Union Share Insurance Fund.
I do have some questions:
- How does a high loss reserve balance impact the equity ratio?
- What do we currently have estimated in our loss reserve balance?
- How much was lost in the high-water mark of losses for the Fund with the taxi-medallion crisis?
- Five years ago, what did we estimate losses would be over a five-year period and what were the losses?
- Have we overestimated or underestimated losses over this time frame in the NCUSIF under the NOL model?
Thank you. And wrapping up, I do have a few more questions:
- In February 2023, do we think the equity ratio will be at or over 1.30?
- How many times, since the inception of the Fund, have we assessed premiums?
- And finally, for next year, do we expect any type of share growth?
Here's my thinking: if 1.30 is not adequate, I think the burden of proof, then, should be on the NCUA to show this figure is inadequate. While I believe you can easily make the case to have the NOL set at 1.30, I do think we have been more transparent this year in how we arrived at 1.33. Given the economic uncertainty we face, and the need to potentially avoid a hypothetical premium in a recession, I can understand the 1.33 suggestion, but it is not my preference. However, I will accept today’s recommendation given the other views of my Board colleagues.