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

February 2024
NCUA Board Member Tanya F. Otsuka’s Statement on the Share Insurance Fund’s Quarterly Performance

As Prepared for Delivery on February 15, 2024

Thank you, Eugene.

First and foremost, the NCUA’s job is to insure deposits at credit unions, and the Agency cannot fulfill its mission of protecting our system of cooperative credit without an adequately funded Share Insurance Fund. I appreciate the balance that is necessary when considering what constitutes an adequate Share Insurance Fund. The Fund must be large enough to absorb losses from failed credit unions while minimizing the potential for credit unions to recapitalize the Fund during a period of economic turmoil. It’s important that the Fund can withstand the potential for large losses and not rely on taxpayers for support. We want to make sure the Fund is proportionate to the risks and that credit unions can deploy capital to support members and their community. Balancing these factors is something I will continue to consider as we move forward.

I am encouraged by the strong performance of the Share Insurance Fund. Fewer failures and higher yields appear to have resulted in substantial net income for the Fund. The Fund had its highest yield in a decade at 2.33 percent. Additionally, I believe it is prudent to distribute the net income evenly in investments with varying maturities. 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.

It’s also good to see that the Fund exceeded the predicted equity ratio of 1.27 percent. However, I have some concerns that the Share Insurance Fund has been below the Normal Operating Level since June 2019; though I appreciate that it appears stable around 1.3 percent. Eugene, do we expect the Share Insurance Fund to reach 1.33 percent through retained earnings?

Thank you. 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 in the last two years and more than doubled this last year. The increase has largely come from a decline in CAMELS ratings for credit unions over $500 million. In fact, in the third quarter of 2023, small credit unions under $100 million were the only category of credit unions that saw CAMELS ratings increase across the Board. But, the rising percentage of CAMELS 3 credit unions combined with a $5 million reduction in the Fund’s reserve for future losses appears unusual. Eugene, do the reserves historically decrease as the number of CAMELS 3 credit unions increase?

Thank you. I understand we had few credit union failures this year and that the necessary reserves decreased in part due to greater economic stability forecasted in the macroeconomy, but this is a concerning trend that I will be focused on as the year progresses.

This may be one of the moments where it is good to be prepared and think about the “what ifs.” While there are several positive factors to be encouraged about, there are some worrying signs as well. An adequate Share Insurance Fund today means that in the future credit unions will not have to pay into the Fund during a potential crisis, at the exact moment when spare funds are the hardest to come by.

Thank you, I have no further questions.

Tanya F. Otsuka Share Insurance Fund
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