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

May 2023
NCUA Chairman Todd M. Harper's Oral Testimony Before the U.S. House Committee on Financial Services

Chairman McHenry, Ranking Member Waters, and members of the committee, thank you for the invitation.

My written testimony outlines the state of the credit union industry, some of the NCUA’s recent efforts to strengthen the system, and several legislative requests. So, I will focus here on only a few key issues.

Overall, the performance of federally insured credit unions remains stable. Total loans, assets, insured shares, and deposits all increased last year. The system’s aggregate net worth ratio also rose to 10.75 percent, representing a recovery of 73 basis points from its pandemic low.

What’s more, 91 percent of total share deposits within the system are insured. That has contributed to stability within the credit union sector in recent months.

The NCUA’s Share Insurance Fund also continues to perform well. Although the fund’s equity ratio is three basis points below the desired operating level, no premiums are expected at this time.

That’s because the system is currently well positioned to handle any dislocation resulting from a moderate recession.

Nevertheless, during the last year, we have experienced growing interest rate and liquidity risks within the system — including at several billion-dollar-plus institutions.

Aggregate cash positions have declined and are below pre-pandemic levels as well. Further, unrealized losses in securities limit their utility as a source of liquidity.

The recent increase in these risks underscores the value of the NCUA’s Central Liquidity Facility. Otherwise known as the CLF, the facility acts as a shock absorber to contain or avert liquidity crises before they escalate.

However, with the termination of the temporary CLF statutory enhancements last December, more than 3,000 credit unions with less than $250 million in assets lost access to the CLF, contracting the facility’s capacity by almost $10 billion.

With risks rising within the financial system and at individual credit unions, now is not the time to cut a liquidity lifeline.

As such, the NCUA Board fully supports restoring the ability of corporate credit unions to serve as CLF agents on behalf of a subset of their members. Notably, the Congressional Budget Office has scored the CLF reforms at no cost to the taxpayer.

Additionally, with increased industry concentration, intensifying cyber threats, and greater outsourcing of core business functions, the Government Accountability Office, the Financial Stability Oversight Council, and the NCUA’s Inspector General have all recommended congressional action to restore the NCUA’s statutory examination authority over third-party vendors.

I fully agree and respectfully request that Congress close this growing regulatory blind spot.

Lastly, the NCUA defers to Congress on determining what statutory changes, if any, should be made to deposit insurance coverage levels and account types.

But, if Congress does act in this area, the NCUA has two requests. First, we ask Congress to maintain parity between the share insurance coverage provided by the NCUA and the deposit insurance coverage provided by the FDIC.

Second, because an expansion in coverage will generally increase resolution costs, the NCUA requests greater flexibility for administering the Share Insurance Fund.

This flexibility, which would be more in line with the FDIC’s current administrative powers, includes allowing the NCUA Board to establish a higher normal operating level and modifying the current limitations on assessing premiums.

Together, these changes would better enable the NCUA Board to build reserves during economic upturns so that sufficient money is available during economic downturns.

In sum, the credit union system currently remains well capitalized, stable, and well positioned to handle a relatively broad range of economic outcomes.

And, the NCUA stands ready to respond to any economic uncertainty and will continue to work through the supervisory process with individual credit unions experiencing problems.

Consumers, therefore, should remain confident that their insured share deposits at federally insured credit unions are safe.

And, the NCUA stands ready to work with Congress on any legislative reforms to safeguard and strengthen the system.

Thank you again. I look forward to your questions.

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