NCUA Vice Chairman Kyle S. Hauptman during a meeting of the NCUA Board in Alexandria, Virginia.
As Prepared for Delivery on November 16, 2023
Thank you, Mr. Chairman. Thank you, Eugene, and staff for your work on this.
We here at NCUA have observed the strain on the credit union system due to inflation and higher interest rates. Heightened risks related to liquidity and interest rate risks, which are essentially two sides of the same coin, have put increased pressure on credit union balance sheets and household budgets. Notably, delinquency rates for loans rose slightly to 63 basis points. This financial pressure is also evident in the rising number of CAMELS code 3, 4, and 5 credit unions, especially among credit unions with more than $500 million in assets.
However, I want to stress that credit unions have demonstrated stability and resilience in the face of economic challenges. As of June 30, the system’s net worth ratio was 10.6 percent, and there was continued year-over-year growth in assets and lending. While total interest expenses have grown substantially over the year, the industry’s return on average assets remains solid at 79 basis points.
As of June 30, the Share Insurance Fund insured $1.7 trillion in deposits and shares, protecting nearly 92 percent of total share deposits in the credit union system. Only 8 percent of total share deposits are uninsured. And if we look back at the failure of Silicon Valley Bank this past spring, it’s worth noting that not one credit union has a situation remotely comparable to Silicon Valley Bank, where 97 percent of deposits were uninsured. That was a result of a business model with a relatively small number of large business accounts, which obviously doesn’t resemble any credit union.
The Share Insurance Fund had no significant realized losses, a small increase in unrealized losses due to one credit union failure, and a small reserve expense increase due to the increase in CAMELS 3, 4, and 5 credit unions. The Fund has reached its goal of $4 billion in overnight funds, which are earning over 5 percent. As we reach the end of the year, the rate environment will continue to evolve, and the Share Insurance Fund’s investment strategy will be reevaluated.