As Prepared for Delivery on February 16, 2022
Thank you, Mr. Chairman. Eugene and Kelly, good morning, and thank you as always for your oversight of our National Credit Union Share Insurance Fund. I want to applaud you, Eugene, and OCFO for the hard work you've done and congratulate you on getting a clean audit opinion.
I would like to begin by asking this question: What is the equity ratio of the share insurance fund once the true-up issue is accounted for?
Thank you. While the shares fell in the last quarter of 2022, something we haven’t seen in quite some time, this is causing the equity ratio to be higher by about 3 tenths of a basis point than what it would be if we factored in the true-up adjustment. In other years, the true-up adjustment has a much more material impact. I think this really gets to the timeliness of data. At a previous Board meeting 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 timeliness and accuracy of reporting the equity ratio. I recall your telling me, Eugene, that staff was on track to do an assessment of this matter by the fourth quarter of last year and then bring it forward to the Board.
- Was the assessment completed, and when will the Board be updated?
- Thank you. Shifting gears, we do have a significant change in the investment profile, driven by the $4 billion in overnight liquidity.
- What drove this change, and how does this support our investment policy?
- How did we arrive at $4 billion?
- Can you describe a liquidity event where we would need this much liquidity?
- I understand we do not want to recognize investment losses by selling Treasuries if liquidity is needed, but why would we not borrow if we lack liquidity?
- What is the weighted average maturity of the Share Insurance Fund, and how are we managing this for liquidity needs and operating costs?
- For the investment strategy overall, can you please address our interest rate risk and how we are managing it?
Turning to slide 20, we see adverse trends regarding CAMELS data. I think it would not be wise at this time to try to interpret the numbers or the trends at this point in time. I will say, however, it is clear this is not like the financial crisis when I was last on this Board, so we should not manage this situation like we are dealing with the last crisis. We are clearly not.
The risk profile in the system appears to be changing. In slide 20, it shows an increase in CAMELS 3 ratings for credit unions with $1 billion or more in assets.
I do have several questions:
- For the record, how are CAMELS codes assigned? Is it strictly from examiners? Do the call report data factor into CAMELS codes or is this outside of examiner input? Do call reports set priorities for examiner work?
- For the change this quarter in CAMELS data, how much of this can be attributed to us being on-site for examinations?
- For the CAMELS 3 changes over $500 million, and the two large credit unions with CAMELS 4 and 5 ratings, are the problems due to temporary declines in investments or other issues?
- Looking at slide three, full year’s operating expenses at $208 million, how much above or below Share Insurance Fund budget is this final amount?
- Looking at slide 5, the allowance for loss in December was $185 million. What percent of year-end insured shares would that be in basis points? If we exclude the taxi medallion losses, what is the actual net loss in basis points for the National Credit Union Share Insurance Fund in the last five years? And the net loss for 2022 in basis points?
Thank you. I have no further questions.