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NCUA Chairman Todd M. Harper's Oral Testimony before the U.S. House Committee on Financial Services

November 2022
NCUA Chairman Todd M. Harper's Oral Testimony before the U.S. House Committee on Financial Services

Chairwoman Waters, Ranking Member McHenry, and Members of the Committee, thank you for inviting me to discuss the state of the credit union system.

While the economic fallout of the COVID-19 pandemic, plus rising interest rates, have influenced credit union performance over the last year, the credit union industry remains on a solid footing.

At the end of the second quarter of this year, there were 4,853 federally insured credit unions, with nearly 133 million members and $2.1 trillion in assets.

Notably, the industry’s aggregate net worth ratio rose to 10.42 percent, representing a recovery of 40 basis points from a pandemic low.

Further, the National Credit Union Share Insurance Fund continues to perform well, with no premiums or distributions expected at this time.

During the last year, the NCUA has taken several notable actions to strengthen capital, enhance cybersecurity, and support small and minority credit unions.

To fortify the credit union system’s ability to better withstand future crises, the NCUA implemented its risk-based capital rule, along with a simplified compliance option at the start of 2022.

The agency will also begin deployment of its new, scalable Information Security Examination program to allow the NCUA to better evaluate credit union cyber risks.

Further, the agency has increased available resources in the field to assist small and minority credit unions.

And, we will soon modify our examination procedures for minority credit unions to better recognize their unique strategies.

Additionally, the NCUA is paying closer attention to consumer financial protection, which buttresses and complements our safety-and-soundness efforts.

This year, NCUA examiners are reviewing compliance with pandemic-assistance programs, fair lending rules, servicemember protections, fair credit reporting laws, and overdraft programs.

We have also increased resources for fair lending supervision.

And, as we move into 2023, the NCUA is emphasizing that all credit unions remain vigilant in managing safety and soundness and consumer financial protection to prepare for rising interest rates, inflationary pressures, liquidity concerns, and cybersecurity threats.

Additionally, as the financial services system and credit unions continue to evolve—especially with many credit unions growing larger and more complex—the industry’s regulatory framework must keep pace to maintain the strength and stability of the credit union system.

In response to these changes and to legislation recently enacted into law, the NCUA has undertaken several rulemakings, or implemented new rules during the last year.

These rules address member expulsion procedures, subordinated debt, emergency capital investments, and cybersecurity notifications.

Finally, I want to highlight two legislative changes that would help the agency better fulfill its statutory mission.

Most timely, the NCUA requests a permanent adjustment to agent-member requirements for the Central Liquidity Facility.

Notably, the extension of this enhancement comes at no cost to the taxpayer, as scored by the Congressional Budget Office.

Currently, corporate credit unions may serve as an agent for a subset of their members.

But, without legislative action, by year’s end, three out of every four credit unions—including most minority credit unions—will soon lose access to an important liquidity backstop.

And, the credit union system’s capacity to address liquidity events will shrink by almost $10 billion.

With growing interest rate risk and rising liquidity concerns, now is not the time to decrease access to the system’s liquidity shock absorber.

The NCUA is also seeking the restoration of its ability to oversee third-party vendors.

This statutory change would provide the NCUA parity with other agencies that supervise and regulate federally insured depository institutions.

This examination authority is critical given the system’s increased reliance on third-party vendors and credit union service organizations.

The Government Accountability Office, Financial Stability Oversight Council, and the NCUA’s Office of Inspector General have all recommended that Congress restore the NCUA’s vendor authority.

The U.S. House of Representatives has passed legislation, as part of the 2023 National Defense Authorization Act, to reinstate the NCUA’s vendor authority.

In the Senate, bipartisan legislation has been introduced.

I would like to thank this committee for its continued support and Subcommittee Chairman Foster for introducing H.R. 7022, the Strengthening Cybersecurity for the Financial Sector Act. This legislation would close a growing regulatory blind spot.

That concludes my statement. I look forward to your questions.

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