Vice Chairman Kyle S. Hauptman during a meeting of the NCUA Board.
As Prepared for Delivery on May 25, 2023
Thank you, Mr. Chairman. Before I get started, two quick things:
I’d like to congratulate you on your testimony to Congress last week, as well as the nice appearance on CNBC. As you stated, the credit union industry is in good shape, but liquidity remains a concern. I appreciate you mentioning that, in addition to the National Credit Union Share Insurance Fund, American taxpayers are protected by the buffer the Central Liquidity Facility (CLF) provides. Thank you for stressing the need for changes to enhance it now — before a potential liquidity crisis.
Second, it’s always a good meeting when we can mention a new credit union. Congratulations to Generations United Federal Credit Union in New York and their CEO John Linzey, and to my colleagues at NCUA — Sam Stahlman (CURE Consumer Access Coordinator), Tom DeSantis (Examiner), and Jon Flagg (Supervisory Examiner) — who helped them get started. Generations United, a church-based credit union, is the second credit union charter issued this year. I’ve said it before, but new charters are the purest form of financial inclusion.
Now, to the matter at hand, the Share Insurance Fund update. Thank you, Eugene and staff, for your work on this.
Firstly, given the recent large bank failures, I want to stress the strength of the NCUA’s Share Insurance Fund. The Fund protects about 91 percent of total share deposits within the credit union system. Credit union members should remain confident that their hard-earned deposits are safe.
Second, despite persistent economic uncertainties — the Fed had raised interest rates 10 times in a row in just over a year — the Share Insurance Fund remains well-capitalized and continues to perform well. This quarter, the Fund reported a net income of $41.9 billion. The Fund’s equity ratio is projected to decline from 1.30 to 1.25 percent for June 30, 2023. A decline in the projected equity ratio is typical in the first half of the year and does not reflect an increase in credit union failures. Instead, we have seen strong credit union share growth and, thus far, we’ve seen no significant movement of deposits out of credit unions.
Last year, the NCUA reviewed and updated the SIF’s investment policy, subsequently increasing the percentage of investment in overnight funds. The Fund has about $2.4 billion in overnight funds earning over 5 percent, and we project to reach our target of $4 billion in overnights by October. Once this goal is met, the Share Insurance Fund’s investment strategy will be reevaluated, especially as the rate environment may change. Despite the Fed’s longest, sharpest series of rate hikes since the 1980s, the fed funds market is pricing in rate cuts by this December.
I will take every opportunity to stress that credit unions have access to a wide range of liquidity sources. The small credit unions out there may not have liquidity options set up, so I implore those institutions to seek out liquidity options. Talk to your examiner, talk to your league, talk to your corporate credit union. There are ways to handle a short-term liquidity crunch but still live to fight another day.
Thank you, sir. This concludes my remarks. Back to you Mr. Chairman.