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NCUA Chairman Todd M. Harper Statement on the Asset and Supervision Thresholds Final Rule

July 2022
NCUA Chairman Todd M. Harper Statement on the Asset and Supervision Thresholds Final Rule

As Prepared for Delivery on July 21, 2022

Thank you, Scott and Rachel, for providing the NCUA Board with an overview of the final rule to adjust the asset thresholds for assigning supervision of covered consumer credit unions to the Office of National Examinations and Supervision, otherwise known as ONES. Frank is here to answer any questions, so thanks to you as well. Your teams did an excellent job working together to finalize the rule that the Board will vote on today.

As I have previously said, this rule is a natural evolution in the NCUA’s examination program as the number of large, complex consumer credit unions continues to grow. Additionally, this final rule continues to provide appropriate oversight of those systemically critical credit unions, which pose a greater risk to the Share Insurance Fund, given their size and complexity. By adjusting the asset threshold for determining which covered credit unions fall under ONES supervision, the NCUA can leverage the strengths of its regional structure to ensure the agency can effectively and efficiently monitor potential risks associated with these institutions within existing resource allocations and current organizational structures.

With the rapid balance sheet growth across the credit union system since the onset of the pandemic, especially for the largest of credit unions, recalibrating the threshold was always a question of when, not if. In fact, federally insured credit unions with just under $10 billion in total assets experienced balance sheet growth of about 14 percent on average during the first year of the COVID-19 pandemic, and more than 34 percent in one case. This asset growth represented a marked increase from the average increase of 9 percent for the same group in 2019.

Without today’s action, the number of covered credit unions supervised by ONES would nearly double in 2023. Such growth would have required a substantial reallocation of personnel within the agency, and thereby incurred an undue and avoidable cost burden. So, with the adoption of this rule, we are minimizing budget expenditures and reducing organizational disruptions. That is good for the agency, good for staff, good for large credit unions, good for credit union members, and good for the taxpayers who back the Share Insurance Fund.

This change has other benefits, such as creating new development opportunities for examiners, providing a smoother transition for consumer credit unions that will eventually transfer to ONES’ supervision, and enhancing knowledge sharing and expertise between ONES and regional staff. That collaboration extends to training regional staff on their new supervisory responsibilities related to capital planning and stress testing.

What is more, approval of this final rule is a significant acknowledgement of the industry’s ongoing maturation and the evolving role the NCUA plays in supervising and insuring our nation’s largest credit unions. Looking ahead, the NCUA will revisit the rule at a future time, as consumer credit unions continue to increase in size and complexity and as we refine our assessments of risks to the Share Insurance Fund.

Mindful of these long-term trends, we should also consider the development of a regional large credit union program for larger credit unions to further stabilize ONES’ workload demands and better address the unique needs of this important industry segment, as suggested by staff last year.

If implemented, the NCUA would have four exam processes: a streamlined system for well-run small credit unions, a risk-focused exam program for small credit unions experiencing difficulties and slightly bigger credit unions up to a certain threshold, a specialized regional program for even larger credit unions nearing or crossing the $10 billion threshold, and then ONES supervision for the largest credit unions above $15 billion in assets.

Scott, would you give us an initial idea about how a regional large credit union program might work, understanding that these are your thoughts and that the Regional Directors also need to weigh in? And, what is the timeline for staff to further refine this idea for future Board action?

That is good to know. The concept of creating a regional large credit union program makes sense, and I look forward to learning more as staff develop the idea.

Scott, my next question concerns risk management. In finalizing this rule, the Board has reconsidered the level of risk to the Share Insurance Fund posed by a credit union with between $10 billion and $15 billion in assets. Would you explain in more detail how the risk profile of a credit union of $15 billion or more in assets today compares to one with $10 billion or more assets in 2013 when ONES began operations?

Thank you for that analysis. Finally, Scott would you outline how the NCUA consulted with regional offices and state regulators in developing this final rule? And, going forward, how will ONES coordinate with regional offices and state regulators in the areas of capital planning and stress testing?

Thank you, Scott, for those observations. I will support this final rule on modifying asset thresholds for ONES supervision.

In closing, in addition to Scott, Rachel, and Frank, I also thank the ONES team, including Lynn Markgraf, Travis Vaughn, and Dale Klein, as well as Ian Marenna in the Office of General Counsel, for your collaboration in shepherding this rule to completion. That concludes my remarks. I now recognize Vice Chairman Hauptman.

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