NCUA Vice Chairman Kyle S. Hauptman Statement on the Board Briefing, Share Insurance Fund Quarterly Report

As Prepared for Delivery on May 22, 2024

In 2022, the NCUA increased its share of investments in overnight funds with a goal of at least $4 billion. Last year, at this time, the Fund had approximately $2.4 billion in overnight funds earning over 5 percent. Today, the Fund has more than $5.5 billion in overnight funds earning about 5.4 percent.

The Fed, at its latest Board Meeting, opted to again hold interest rates steady at 5.25 percent to 5.5 percent. The big change in the last few months is that expectations for interest-rate cuts this year have faded considerably. For those ‘selling’ money i.e., renting it out to the U.S. Treasury, that brings some good news. Interest rates are the ‘price’ of money, and the Share Insurance Fund is a seller of money. Like any seller of anything, high prices are good.

While the Fed seems to be done hiking interest rates, credit unions continue to deal with balance sheet challenges due to the last few years of rate hikes. The percentage of insured shares in credit unions with CAMELS ratings 4 and 5 inched higher this quarter to 0.35 percent from 0.28 percent. Insured shares in credit unions with CAMELS ratings of 3 moved up to 8.6 percent from 7.8 percent.

Credit unions have continued to perform well and remain resilient. In 2023, there were only three credit union failures that cost the Share Insurance Fund money, totaling just $1.4 million in losses. As of this report, there have been no credit union failures in 2024. Of course, the insurance business is about unpredictable events. Share insurance, like any insurance, is there for the chaotic times that often follow years of calm.

Today, we heard from the NCUA’s CFO that they project the Share Insurance Fund’s equity ratio to be 1.24 percent when we recalculate it in June. That’s the projection, although as of this moment the ratio remains at 1.30 percent.

So why is the Share Insurance Fund ratio falling? As my colleague so ably explained, much of that downward move is due to projected growth of 5 percent in insured shares. That’s the denominator getting bigger, which in general is a good thing. We at the NCUA like to see steady growth at credit unions; that is to say, as a standalone variable. We are aware that the quality of growth matters a lot.

Credit union liquidity continues to be an issue. I would like to remind everyone that credit unions can, and should, have access to a range of liquidity sources, including the NCUA’s Central Liquidity Facility. To the small credit unions out there that may not have liquidity options set up, I strongly encourage those institutions to do so. Talk to your examiner, talk to your league, talk to your corporate credit union. There are ways to handle a short-term liquidity challenge and survive to fight another day.