As Prepared for Delivery on November 17, 2022
Thank you, Eugene and staff.
Credit unions have a vested interest in the health of the share insurance fund. Under the Federal Credit Union Act, credit unions are legally required to update the bulk of the Fund’s equity contribution — one percent of the credit union’s insured shares. Their capital contributions are the basis of the Fund’s soundness. Although managed by the NCUA, the share insurance fund is cooperative in nature — much like the credit union movement itself.
Deposit insurance is about trust. The only way to build trust is to make processes transparent. These quarterly updates remind us of our responsibility for transparency to the owners of the share insurance fund.
Many economic forecasts suggest an increased risk of a downturn on the horizon. I want to remind everyone that this country and credit unions have weathered recessions in the past. Downturns are normal and so is preparing for them.
An increase in unrealized losses is not a surprise. Holding investments to maturity ensures the returns to the fund. It also means that losses remain unrealized and do not impact the fund’s equity ratio – that’s good news. But that requires careful planning of the share insurance fund’s liquidity needs. We must be careful to ensure liquidity levels are sufficient enough to cover sudden changes to avoid or minimize selling investments at a loss. The share insurance fund must remain ready to pay claims in a downturn.
On a related note, I would like to point out that both credit unions and the share insurance fund use the Central Liquidity Facility as a source of emergency liquidity. In fact, the CLF is the only practical source of emergency liquidity for over 3,600 credit unions under $250 million in assets. The current agent program – which was included in the CARES Act in 2020 – allows corporates to put up the capital for a subset of their credit union members. The agent provision is set to expire at the end of this year unless it is made permanent or extended by Congress.
If the provision is not extended or made permanent, we expect a reduction of $9.7 billion in reserve liquidity for the credit union system – including the share insurance fund – due to the corporates withdrawing their funds. That’s a $9.7 billion buffer between the credit union system and the American taxpayer. NCUA will continue to communicate this to Congress.
Mr. Chairman, that concludes my remarks.