As Prepared for Delivery February 17, 2022
Thank you, Eugene, for that quarterly update on the National Credit Union Share Insurance Fund and its performance in 2021. And, thank you, Rick for being available for questions.
Before I begin, I would like to thank you and everyone on the team in the Office of the Chief Financial Officer for their contributions in ensuring that the NCUA’s four funds earned another unmodified, or “clean,” audit opinion in 2021. I also want to thank the Office of Inspector General and our independent auditor, KPMG, for their excellent work throughout this process.
For nearly 40 years now, the NCUA has earned an unmodified opinion for the audits of its funds. This sustained achievement underscores the NCUA’s commitment to transparency, accountability, sound financial management, and the careful stewardship of the resources entrusted to the agency. As a regulator, we need to hold ourselves to the same standard that we expect of the credit unions we oversee. So, thank you again to everyone for a job well done.
After another challenging year, the Share Insurance Fund continues to perform well and remains on a solid footing. Overall, the credit union system has also, thus far, withstood the pandemic’s evolving economic fallout. This is a testament to the strength of the credit union system going into the pandemic and the skillful management of credit union CEOs, boards of directors, and staff over the last two years.
Nonetheless, the credit union system and the Share Insurance Fund continued to experience elevated insured shared growth in 2021. To illustrate this point, the insured capital deposit for the Share Insurance Fund was $12 billion at the end of 2019. Two years later, the insured capital deposit increased to $15.8 billion at the end of 2021, a nearly 32 percent increase since the pandemic began. If the elevated growth of insured shares continues, we can expect a further erosion of the Share Insurance Fund’s equity ratio. So, we must remain watchful.
What is more, the emergence of inflation—something many Americans have never experienced at this rate before—means that the interest rate environment is uncertain. To slow inflation, the Federal Open Market Committee is expected to increase interest rates starting in March. How often and how much interest rates increase have yet to be determined. Nevertheless, the NCUA and credit unions must be ready to adjust to these changes.
Additionally, the NCUA must continue to monitor credit union performance because, in my view, the system has not experienced the full extent of the pandemic’s financial and economic disruptions just yet. With this added level of uncertainty, the NCUA Board will need to continue to analyze the Share Insurance Fund’s risk exposure and remain prepared to act, consistent with our statutory and regulatory obligations.
Before concluding, I do have three questions. First, on slide 3, the Share Insurance Fund’s net income for 2021 was approximately $150 million higher than it was at year-end 2020. What were the key contributors to this significant and positive change to the Fund?
Thank you, Eugene. Looking at slide 5, I see that the net position of capital deposits grew by nearly $2 billion in 2021. That’s on top of elevated growth in insured shares in 2020, which I mentioned earlier. Is this the fastest growth we have experienced in the total amount of insured shares since the creation of the Share Insurance Fund? I ask because later today we will consider whether to extend the temporary modifications to prompt corrective action that we adopted in response to the considerable increase in insured shares at the start of the pandemic. Does this trend in insured shares show any signs of abating?
My last question is about interest rates. With the Federal Open Market Committee scheduled to meet March 15 and 16, many analysts and forecasters are predicting it will increase interest rates. What are the potential effects these rate increases will have on the equity ratio and the Share Insurance Fund going forward?
Thank you, Eugene, for that thoughtful answer. That concludes my remarks. I now recognize Vice Chairman Hauptman.