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NCUA Chairman Todd M. Harper Remarks at the Credit Union Leadership Convention

July 2023
NCUA Chairman Todd M. Harper Remarks at the Credit Union Leadership Convention

As Prepared for Delivery on July 27, 2023

Good morning, everyone. And thank you, Dennis, for the invitation to join you this week and for that warm introduction. I always enjoy meeting with the credit union system’s leaders and volunteers to hear what’s on their minds and identify emerging issues. In fact, it’s meetings like this one where I often get the best ideas about what the NCUA needs to address and change.

Without question, the issue of financial stability at certain depository institutions — namely Silicon Valley, Signature, and First Republic banks — has dominated business news cycles this year. Those failures have demonstrated the importance of rapid and decisive regulatory action and led to questions about the impact of those events on the NCUA, credit unions, and their members, as well as the overall financial system.

The recent turmoil within the banking system is a reminder — for us all — of the need to carefully manage capital, interest rate, liquidity, and credit risks. That’s why the NCUA highlighted each of those risks as areas of focus in its recent supervisory priorities. In concentrating on these issues when examining credit unions, the NCUA must be forward looking, risk focused and ready to act expeditiously, if needed.

To that end, we also recently updated our guidance on how examiners work with credit unions exposed to the market risk of rising interest rates. By increasing clarity and flexibility, these changes to the supervisory framework for interest rate risk are a win for both examiners and credit unions.

However, credit union executives, supervisors, and boards of directors must remain diligent in managing the potential risks on their balance sheets and continue to monitor economic conditions and the interest rate environment. The good news is that the credit union system — overall — remains well positioned at this time to handle any economic disruptions and market uncertainty. What’s more, the NCUA is well positioned through the supervisory process to address issues that may arise from broader market concerns about liquidity in the financial services sector. We will continue to monitor credit union performance through the examination process, offsite monitoring, and tailored supervision. In addition, the agency is coordinating with other federal financial institution regulators to ensure the overall resiliency and stability of our nation’s financial services system.

Interest Rate Risk, Liquidity Risk, and the Central Liquidity Facility

Changes in inflation, the interest rate environment, and broader economic conditions over the last year call for extra vigilance. A credit union’s ability to manage interest rate risk will remain a crucial factor in its performance going forward.

The current economic environment also underscores the value of the NCUA’s Central Liquidity Facility. The CLF functions as an emergency liquidity backstop for the industry, similar to the Federal Reserve’s Discount Window. And, while the CLF is an effective mechanism for managing liquidity risk, legislative enhancements would provide the NCUA with greater flexibility to respond to future liquidity events.

At the start of the COVID-19 pandemic, Congress allowed corporate credit unions to join the CLF and to serve as a CLF agent for a subset of the corporate’s members. However, when that temporary authority expired at the end of last year, more than 3,300 credit unions lost access to the CLF. And the CLF’s liquidity capacity contracted by nearly $10 billion. Now is not the time to cut a liquidity lifeline. That’s why the NCUA Board is united in its legislative request to restore the CLF’s agent-member flexibility, and the agency will continue to engage with Congress on this legislative priority.

Well-run and well-capitalized credit unions also have access to the Federal Reserve’s Discount Window and the newly created Bank Term Funding Program to manage their liquidity needs. Whether your credit union chooses a liquidity facility operated by the NCUA or the Federal Reserve doesn’t matter, but it does matter that you establish access to a federal liquidity backstop before a liquidity event occurs. Once the pipes freeze, it’s difficult to restore liquidity. And, liquidity events can often occur without much warning, as was the case in the collapse of Silicon Valley and Signature banks. So, please review your credit union’s liquidity options as soon as you return from this conference.

As always, the NCUA is committed to protecting credit union members and the safety and soundness of the credit union system. No one has ever lost a single penny of insured share deposits within the credit union system. And maintaining your members’ confidence applies to both protecting their savings and ensuring their safe, fair, and affordable access to financial products and services.

Succession Planning

The continued health and success of the credit union system requires foresight by all, not just Congress. That includes the NCUA, and it includes all of you in this room, the credit union leaders who serve as the chief stewards for your members’ financial security and prosperity.

As a child, I attended Benjamin Franklin Elementary School. While there, I learned that Franklin said, “If you fail to plan, you plan to fail.” He was right. And we are seeing what happens when credit unions fail to plan for their futures. It is for that reason that the NCUA Board approved a proposed rule last year that would require the board of directors at federal credit unions to establish and adhere to processes for succession planning.

Regardless of the economic or regulatory cycle, the consolidation of credit unions has been a constant for several decades. While the pandemic initially slowed the pace, the number of mergers is now, once again, increasing. And one reason so many mergers are occurring is an absence of effective succession planning, especially in smaller credit unions.

Succession planning is recognized as vital to the long-term success of any institution, including credit unions. In fact, the word success comprises the first seven of the ten letters in succession planning. A board’s failure to plan for the transition of its management could come with high costs, including the potential for the unanticipated merger of the credit union upon the departure of key personnel. Put another way, succession planning helps to safeguard credit union members’ choice of financial institution. I urge all of you to make succession planning part of your credit union’s strategic discussions this year.

Cybersecurity Risk

Many of you might have also heard me say before that the single biggest credit union issue that keeps me up at night is cybersecurity. Ransomware, social engineering, and phishing are but a few of the known examples of the cyber threats we all face. But what is more worrisome are the countless threats we do not know about. And these risks are likely to continue and accelerate in the foreseeable future.

Therefore, all of us must improve our cybersecurity practices. The NCUA earlier this year began implementing its new Information Security Examination procedures for credit unions to prepare for, withstand, and recover from cybersecurity attacks. And the NCUA’s Community Development Revolving Loan Fund included grants to support Digital Services and Cybersecurity in the 2023 initiative. We plan on announcing the recipients of those grants in September.

Furthermore, the NCUA recently approved our Cyber Incident Notification Rule, which also goes into effect in September. While the NCUA is an independent agency, there are some matters that take a whole-of-government approach — including protecting our nation’s critical infrastructure — of which credit unions are a vital part.

In March, the White House issued its National Cybersecurity Strategy, which prioritizes the protection of critical infrastructure, including the financial services sector, through targeted grants, legislative action, and private sector engagement.

Each of us — the NCUA, state supervisory authorities, vendors, and credit unions — has a responsibility to protect our systems, improve our ability to recover from incidents, educate our teams, share information, and report and address potential vulnerabilities. And our ability to monitor and mitigate cybersecurity risks has taken on greater urgency as more credit union operations migrate to credit union service organizations and vendors.

Unfortunately, CUSOs and credit union third-party service providers do not have the same level of oversight as bank vendors, because the NCUA lacks the statutory authority to examine or supervise these entities. This growing regulatory blind spot in the financial system threatens our nation’s economic security, poses risks for the financial well-being of our citizens — and more immediately — potentially threatens the reserves of the NCUA’s Share Insurance Fund, should the problems and losses at a vendor lead to the collapse and failure of a credit union. That, in turn, could result in a direct cost to your credit union in the form of premiums.

It is, therefore, essential that stakeholders understand that the risks resulting from the NCUA’s lack of vendor authority are real. And, they can have significant implications for the health and stability of individual vendors and credit unions, as well as the credit union industry and the broader financial system. Until this growing regulatory blind spot is closed, thousands of federally insured credit unions, tens of millions of consumers who use credit unions, and $2.2 trillion in assets are exposed to potentially devastating risks.

The Government Accountability Office, the Financial Stability Oversight Council, and the NCUA’s Inspector General have all recommended congressional action to provide the NCUA with this examination authority. I agree with these independent experts.

Restoring the NCUA’s authority over CUSOs and third-party vendors will bolster our nation’s national economic security, and it will save us all time and money in the long term. That’s just good business. And, from a customer service standpoint, it will give credit union members the same protection that bank customers enjoy, which they deserve.

For example, while a bank considering doing business with a vendor can access the exam report of a banking regulator as part of the bank’s due diligence process, a credit union cannot. Wouldn’t you want your credit union to have the same access? The NCUA, therefore, will continue to engage with Congress on this important legislative issue so this authority can be restored.

Consumer Financial Protection

It’s also critical to uphold the statutory mission of the credit union system to meet the financial needs of members, especially those of modest means. And, while that may mean swimming against the current at times, the long-term benefits are obvious.

Earlier this year, I heard a podcast with former credit union examiners talking about the NCUA’s 2023 supervisory priorities. They went one-by-one through the priorities listed in the January letter to credit unions, with each item generating strong opinions and lively discussion. However, when they arrived at the topic of consumer financial protection, the conversation ground to a halt. To recover from this awkward silence, the podcast host recounted a story from when he was a problem case officer. He described a meeting in which his director of special actions at the time addressed the team about consumer financial protection, claiming that it was irrelevant to focus on consumer protection because the focus should be on if the credit union was profitable.

Let me be perfectly clear on this point: safety and soundness and compliance with consumer financial protection laws do not compete with one another. It’s not a zero-sum game. Across the banking and credit union systems, the two — safety and soundness and consumer financial protection — go together. And, consumer compliance isn’t just a good principle, it’s good business.

De-emphasizing consumer financial protection in credit unions and at the NCUA carries consequences, such as serious harm to consumers, who could pay more for financial products and services, be denied a mortgage to buy a home, and be blocked from wealth building. It could also lead to class action lawsuits, even for minor compliance mistakes, and reputation risk for the credit unions.

Imagine the criticism from banks that would occur if the public learned that a credit union engaged in redlining, unfairly limited access to credit for certain populations, or charged abusive and disproportionate overdraft fees. So, we really ought to think of the concepts of safety and soundness and consumer financial protection compliance as two sides of the same coin. To that end, the NCUA’s supervisory efforts are aimed at creating a more equitable and legally compliant financial system.


In closing, the credit union system is rapidly changing, and the NCUA must change with it. This isn’t your grandparent’s credit union system or even your parent’s credit union system. I can say that because credit unions run in the fabric of my family. My grandfather served on the board of a soap factory credit union in Indiana in the 1930s. And my father started a teachers credit union in Illinois in the 1960s.

The world has changed considerably since then. Today, the credit union system is more dynamic, complex, and larger with 426 credit unions holding $1 billion or more in assets, which includes 22 credit unions with more than $10 billion in assets. At the end of the first quarter of 2023, federally insured credit unions also had nearly 137 million members and more than $2.2 trillion in assets.

In responding to these changes, the NCUA’s focus going forward will remain on the strength of the system, the needs and rights of credit union members, and the NCUA’s preparedness to respond to evolving security and economic conditions. As such, the NCUA will continue to be fair and forward looking; innovative, inclusive, and independent; risk focused and ready to act when needed; and engaged appropriately with stakeholders to develop effective regulation and efficient supervision.

This regulatory philosophy will continue to drive the NCUA’s actions in the years ahead. In doing so, we will prioritize capital and liquidity, cybersecurity, consumer financial protection, and inclusion. And, by inclusion, I mean both diversity, equity, and inclusion within the NCUA and throughout the credit union system. And, to keep pace with the changing competitive and technological landscape, the NCUA will foster innovation within the agency and credit unions, while balancing consumer financial protection and financial stability.

If we all do our jobs right, we will be successful in fulfilling the credit union system’s statutory mission of meeting the credit and savings needs of members, especially those of modest means, for generations to come. And no one embodies that commitment quite like Renée Sattiewhite, who will shortly be given the inaugural Neoteric Leadership Award.

She has made advancing financial inclusion for all, enhancing professional development for African Americans, and preserving minority depository institutions her life’s work. In doing so, Renée has been a beacon and an inspiration for the credit union system for years, so, congratulations to you, Renée!

With that, let me end my formal remarks. Thank you again, Dennis, for inviting me to join you today. I look forward to our conversation.

Todd M. Harper Central Liquidity Facility Consumer Compliance
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