NCUA Board Member Tanya F. Otsuka Statement on the Share Insurance Fund’s Quarterly Performance

As Prepared for Delivery on May 22, 2024

Thank you, Melissa, for the briefing.

The NCUA’s job is to protect members’ shares at credit unions, and the agency cannot fulfill its mission of protecting our system of cooperative credit without an adequately funded Share Insurance Fund. Thus, I am encouraged by the strong performance of the Share Insurance Fund.

We continue to see a trend of fewer failing credit unions combined with higher yields, which have resulted in substantial net income for the Fund. Year-over-year, our investment income has grown by approximately $40 million. In fourth quarter 2023, the Fund had its highest yield in a decade at 2.33 percent. This quarter has surpassed that at 2.43 percent.

Our investment strategy of investing in a ten-year Treasury ladder that distributes our net income evenly in investments with varying maturities continues to be prudent and successful. This will provide balance to the weighted average life of the Fund and ensure more stable returns in the future, particularly if interest rates fall over time.

However, I still have some concerns that the Share Insurance Fund has been below the normal operating level since June 2019. Melissa, can you speak to what contributes to the downward pressure on the equity ratio and why the projected number may be different than the actual ratio we calculate in June? Thank you.

As I mentioned last quarter, another concern is the percentage of insured shares held by CAMELS 3 credit unions. The percentage of shares held by CAMELS 3 credit unions has more than tripled between 2021–2023 and more than doubled from 2022–2023. This trend continues into this quarter. The percentage of shares held by CAMELS 3 credit unions has grown almost a full percentage point in first quarter 2024 alone, even though we saw a decrease in the number of credit unions rated as a three over the last quarter.

Melissa, do you see any implications for the fund if this trend continues? Thank you, Melissa. While there are many signs that show stability and growth of the Share Insurance Fund, now is the time, as opposed to during a crisis, to think about what can go wrong and how to safeguard against those scenarios. It is important we, as the Board, continue to balance the short- and long-term needs of the Fund to ensure credit union members are ultimately protected.

Thank you, I have no further questions.