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NCUA Chairman Todd M. Harper's Written Statement Submitted to the Senate Banking, Housing, and Urban Affairs Committee

May 2024
NCUA Chairman Todd M. Harper's Written Statement Submitted to the Senate Banking, Housing, and Urban Affairs Committee

The following statement was submitted for the record of the hearing entitled: Oversight of U.S. Financial Regulators: Accountability and Financial Stability

The NCUA protects credit union member-owners and the safety and soundness of the credit union system by managing risks to the National Credit Union Share Insurance Fund (Share Insurance Fund). In my testimony today, I will discuss the state of the credit union system, recent efforts by the agency to strengthen the system, and four legislative requests.

State of the Credit Union System

Credit union performance during 2023 was mixed due to increased market competition and rising interest rates. Large, complex credit unions (those with assets greater than $500 million) posted a decline in the aggregate return on average assets stemming from deposit competition and increased use of wholesale funding. In contrast, credit unions with assets less than or equal to $500 million in assets have a more stable deposit base, which mitigates the cost of funding increases. While these credit unions generally experienced some deposit decline, earnings remained stable. Both groups increased net interest margins by reacting to interest rate movements to benefit from higher yields on loans and investments.

In general, credit union liquidity appears to be stable, but the NCUA is seeing signs of stress linked to the current interest rate environment. This financial stress is reflected in the increasing number of credit unions with a composite CAMELS code rating of 3, 4, and 5.1 Assets in institutions with a composite CAMELS 3 rating increased from December 2022 to December 2023, especially among large, complex credit unions with greater than $500 million in assets.2 Credit unions with composite CAMELS 4 and 5 ratings remained relatively stable during 2023. Year over year, credit unions with a liquidity component rating of three nearly doubled. Just over three hundred credit unions experienced a decline in the liquidity component rating from a 1 or 2 to a 3, 4, or 5. Additionally, during 2023, the number of credit unions with a high liquidity risk rating tripled.

Credit Union System Performance

As of December 31, 2023, federally insured credit unions’ aggregate net worth ratio was 10.95 percent, an increase of 17 basis points over the year. There was continued year-over-year growth in assets and lending, albeit at a slower pace, with the credit union system’s total assets surpassing $2.2 trillion and total loans outstanding reaching more than $1.6 trillion. Insured shares and deposits increased slightly during 2023, ending the year almost 1.7 percent higher than one year earlier.

The growing financial strain on credit unions’ balance sheets and consumer financial stress due to elevated interest rates and economic uncertainty were more noticeable in the fourth quarter. The delinquency rate for total loans and leases rose to 0.83 percent in the last quarter of 2023, the highest year-end rate in the previous seven years. The delinquency rate on credit cards and automobile loans rapidly increased during 2023, ending the year at 2.11 and 0.90 percent, respectively. It might be noted that the 2.11 percent rate for credit cards was higher than rates observed during the Great Recession. Additionally, the aggregate net charge-off rate on loans and leases has risen over the last year, climbing to 0.61 percent in the fourth quarter, reaching its highest point since June 2018.

Funding costs for credit unions have increased significantly in the rising interest rate environment. Credit unions have increased their issuances of time deposits, leading to total interest expenses growing substantially over the year. As a result, the industry’s return on average assets has declined over the prior year but remains satisfactory at 0.69 percent. Additionally, the industry doubled its credit loss provision expense from $5.5 billion in 2022 to $11.3 billion in 2023. This shift was the combined result of the final implementation of the Current Expected Credit Loss accounting methodology and rising expectations of elevated problem loan levels. Despite the loan deterioration over the year, earnings, net worth, and reserves for credit losses indicate a resilient credit union industry.

External Factors Affecting the System

The NCUA is closely monitoring the economic landscape that credit unions and their member-owners face. Elevated prices and interest rates continue to negatively affect some household budgets, leading to a deterioration in loan performance and rising credit risk. In addition, the prevalence of hybrid work environments continues to strain commercial real estate lending. Overall, the credit union system has modest exposure to this type of lending; however, the NCUA is tracking specific credit unions with material exposure to such loans.

Elevated interest rates and the challenging shape of the yield curve continue to present liquidity and interest rate risks in the credit union system, including at several of the 432 federally insured credit unions with more than $1 billion in assets. Accordingly, the NCUA has emphasized the importance of liquidity risk management and contingency planning in its industry communications. The agency will continue to ensure credit unions conduct liquidity and asset-liability management planning to address current challenges and future uncertainties.

To mitigate potential risks and safeguard the Share Insurance Fund against possible losses, the NCUA will also remain vigilant in monitoring credit union performance through examinations, offsite monitoring, and supervision. Additionally, the NCUA will take necessary action to protect credit union member-owners and their deposits whenever required.

Artificial intelligence (AI), like every new technology, offers both promise and peril. The NCUA’s goal is to maximize and deliver on the former while identifying and mitigating the risks of the latter. Consistent with the Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, the NCUA is in the early stages of researching, assessing, and developing plans to address opportunities and risks associated with AI tools.3

In 2023, the NCUA issued guidance reminding credit unions of their obligation to comply with the Equal Credit Opportunity Act’s nondiscrimination requirements in using automated underwriting systems. The NCUA also joined other federal financial regulators to issue a proposed rule about automated valuation models incorporating fair lending principles. While AI allows credit unions to automate certain functions like member communication, fraud detection, and loan underwriting, it must be used to ensure fairness, transparency, privacy, and consumer protection.

Share Insurance Fund Performance

Backed by the full faith and credit of the United States, the Share Insurance Fund provides insurance coverage for individual accounts at federally insured credit unions of up to $250,000.4 As of December 31, 2023, the Share Insurance Fund insured $1.7 trillion in share deposits. Notably, the Share Insurance Fund protects nearly 91.4 percent of total share deposits in the credit union system. In comparison, uninsured shares and deposits equaled nearly $161.4 billion at year-end 2023 or 8.6 percent of total share deposits.

The Share Insurance Fund continues to perform well, with no premiums currently expected. As of December 31, 2023, the Share Insurance Fund reported a year-to-date net income of $209.7 million, a net position of $21.2 billion, and an equity ratio of 1.30 percent,5 which is sufficient but below the 1.33 percent normal operating level target set by the NCUA Board. Given the liquidity events in 2023, economic conditions, and the growing stress in the credit union system from liquidity and interest rate risks, the NCUA Board decided to build up the Share Insurance Fund’s liquidity position. The current overnight balance is $5.6 billion. The NCUA Board continues to monitor liquidity in the Share Insurance Fund.

State of the Central Liquidity Facility

Inflationary pressures, elevated interest rates, and liquidity risk all underscore the importance of the NCUA’s Central Liquidity Facility (CLF).6 The CLF is an important tool that acts as a shock absorber when unexpected liquidity events occur.

Under the NCUA’s regulations, federally insured credit unions with assets of $250 million or more must establish and document access to at least one contingent federal liquidity source for emergency liquidity as part of their contingency funding plans. This federal emergency liquidity backstop can be the CLF, the Federal Reserve’s Discount Window, or both. Credit unions with less than $250 million in assets are not required to have membership with a contingent federal liquidity source; however, they must identify external sources as part of their liquidity policy or provide a written contingency funding plan that is commensurate with their complexity, risk profile, and scope of operations.7

As of December 31, 2023, the CLF had 407 consumer credit union members, providing $20.2 billion in lending capacity. These credit unions range in asset size from less than $50 million to more than $10 billion. The CLF helps protect approximately $370 billion in credit union assets. The more members the CLF has, the more effective it is as a liquidity facility. In December 2022, the CLF had a much greater total membership of 3,673 consumer credit unions with a combined $537 billion in member assets and a lending capacity of $27.5 billion. This rapid decline in membership followed the expiration of the temporary statutory enhancements that provided greater flexibility and affordability to corporate credit unions to serve as agent members of the CLF to cover their smaller credit union members, and that:

  • Increased the CLF’s maximum legal borrowing authority;
  • Permitted access for corporate credit unions, as agent members, to borrow for their own needs; and
  • Gave the NCUA Board the clarity and flexibility about the loans it could approve by removing the phrase, “the Board shall not approve an application for credit the intent of which is to expand credit union portfolios.”

These enhancements expired on January 1, 2023, resulting in 3,322 credit unions with less than $250 million in assets losing access to the CLF.

To address this expiration and growing liquidity risks, the NCUA Board has unanimously requested that Congress allow corporate credit unions the flexibility to purchase capital stock in the CLF for a subset of their members, to provide their smaller credit union members with access to the facility. The Congressional Budget Office has scored this and the other CLF reforms at no cost to taxpayers.8

NCUA’s Efforts to Protect and Strengthen the Credit Union System

In the past few months, the NCUA has taken actions to respond to cybersecurity risk; enhance consumer financial protection; support minority depository institutions; improve the credit union system’s and the NCUA’s diversity, equity, inclusion, and accessibility efforts; and has considered rulemaking activities that strengthen the system.

Enhancing Cybersecurity

Cybersecurity threats within the financial services industry are high and expected to remain so. To maintain vigilance against these threats, the NCUA is ensuring consistency, transparency, and accountability in its cybersecurity examination program and related activities.

The NCUA’s recently implemented cyber incident reporting rule has proven helpful to the agency and credit union industry. The final rule requires a federally insured credit union to report a substantial cyber incident to the NCUA as soon as possible but no later than 72 hours after the credit union reasonably believes a reportable cyber incident has occurred. In the first 30 days after the rule became effective, the NCUA received 146 total incident reports, exceeding all previous reporting from the prior year. As of March 2024, the total number of incident reports is just under 1,000. The data collected has significantly improved our capacity to identify trends, vulnerabilities, and potential risks that could affect the entire sector’s cybersecurity. This, in turn, has allowed us to develop strategies to enhance cyber resilience across the board. Moreover, this information will help us to evaluate the effectiveness of current cybersecurity practices among credit unions, leading to more informed regulatory guidance and better mitigation of future cyber risks. More than 70 percent of these incident reports involve third-party providers and credit union service organizations (CUSOs).

The NCUA also actively communicates with credit unions about the increased likelihood of cyberattacks resulting from geopolitical tensions and other cyber events. Credit unions of all sizes are a part of U.S. critical infrastructure and will likely remain consistent targets for certain criminals, as well as our nation’s most capable foreign adversaries, and as such, should implement appropriate controls in the technology they use to deliver member services.

Maintaining Consumer Financial Protection

An essential part of the NCUA’s mission is to examine credit unions with $10 billion or less in assets for compliance with consumer financial protection laws and regulations.9 The agency’s consumer compliance efforts are integral to ensuring the credit union system remains safe and sound.

In 2024, the agency’s consumer financial protection supervisory priorities include overdraft programs, fair lending, and automobile lending, including assessing compliance with Truth in Lending Act requirements and reviewing credit unions’ practices related to Guaranteed Asset Protection Insurance. This year, the NCUA is also focusing on credit union compliance with the Flood Disaster Protection Act, including its disclosure requirements.

In addition, the agency continues to review credit union overdraft programs and non-sufficient funds fee practices. Credit union member-owners and the public should have clear visibility into the income a credit union generates from overdraft and non-sufficient funds fees charged to its member-owners. Therefore, beginning with the 2024 first quarter Call Report, the NCUA required federally insured credit unions with more than $1 billion in assets to disclose, separately, income from overdraft and non-sufficient funds fees. These Call Report changes will allow credit unions to benchmark their overdraft programs against other financial institutions. The NCUA’s supervision of these services aims to create a more equitable system that supports financial stability for credit union members, improves transparency, and advances the statutory mission of credit unions to meet the credit and savings needs of their members, especially those of modest means.

Furthermore, the NCUA is conducting targeted fair lending examinations at federal credit unions to assess compliance with federal fair lending laws and regulations. These reviews are critical to identifying discrimination and economic equity. In the fair lending examinations conducted in 2023, the NCUA identified pattern or practice of discrimination violations, illegal redlining, indirect lending pricing concerns, systemic Home Mortgage Disclosure Act violations, Regulation B notification and government monitoring information violations, and numerous instances of inadequate fair lending compliance management systems. In 2023, the NCUA referred six credit unions to the Department of Justice for discrimination based on age or marital status. These referrals impacted over 55,000 consumers, and associated remediation expenses exceeded $575,000.

In February, the NCUA joined the other Federal Financial Institution Examination Council agencies to issue a statement of examination principles related to valuation discrimination and bias in residential real estate lending. The principles will assess whether credit unions’ compliance and risk management practices are sufficient to identify and mitigate discrimination or bias in their residential real estate valuation practices.

As part of its consumer financial protection efforts, the NCUA’s Consumer Assistance Center resolves consumer complaints against federal credit unions with total assets of $10 billion or less and, in certain instances, federally insured, state-chartered credit unions. In 2023, the Consumer Assistance Center responded to 12,276 written complaints, 884 inquiries, 35,098 telephone calls, and recovered over $1.1 million in monetary benefits for complaints from consumers and credit unions concerning consumer financial protection regulations.

Finally, the NCUA regularly offers webinars promoting financial education and economic equity. Over the past year, the agency has hosted webinars on cybersecurity and identity protection, the IRS’s Volunteer Income Tax Assistance program, appraisal bias, elder financial exploitation, and closing the racial wealth gap and increasing financial equity. The NCUA also released the Money Basics Guides, a series of learning tools developed to assist financial educators, credit unions, and other financial institutions with promoting financial literacy in their communities. The guides are also designed to provide consumers with practical skills to manage their money and increase their financial capability. The series includes guides on draft and share accounts, saving and budgeting, and building and maintaining credit. Lastly, the agency participates in national financial literacy initiatives, including the interagency Financial Literacy and Education Commission.

Supporting Minority Depository Institutions

Minority depository institutions (MDIs) play a crucial role in providing safe, fair and affordable financial services to people with modest means, especially minority individuals and communities that have traditionally been underserved by the financial services system. At the end of the fourth quarter of 2023, there were 492 MDI credit unions—about one in ten of all federally insured credit unions—serving more than 6.5 million members and holding assets of more than $88 billion. Although MDIs are typically smaller institutions, with average assets of approximately $181 million, they are solid performers with a return on average assets, net worth ratio, and net interest margin comparable to or exceeding those of credit unions overall.

The NCUA’s MDI Preservation Program, in place since 2015, assists in cultivating and sustaining existing MDIs. In 2022, the NCUA launched the Small Credit Union and MDI Support Program to help MDIs with operational challenges such as staff training, examination concerns, and earnings improvement. For 2024, the NCUA is allocating 4,600 staff hours across its three regional offices to support and consult with MDIs.

In the 2023 grant round, 42 MDIs received over $1.4 million in technical assistance grants, a five-fold increase from the previous year. Earlier that year, Congress authorized all MDIs to be eligible for Community Development Revolving Loan Fund grants and loans. Prior to 2023, MDIs had to meet the low-income credit union designation to qualify. This authorization was not extended in the recent appropriation, and I respectfully request that lawmakers reinstate CDRLF eligibility for all MDIs. MDIs are very small credit unions with average assets of $180 million and, in many circumstances, are supported by unpaid volunteer staff. Due to limited resources, CDRLF grants assist MDIs in remaining competitive by starting a new product or service such as ATMs, online banking, and other products consumers expect from a financial institution.

In addition, the NCUA hosted an MDI Awareness Month in 2023 to showcase the work of these credit unions. Similar efforts will continue in 2024. In October, the agency hosted an MDI Symposium that discussed how it could better serve MDIs, and the NCUA plans to hold a similar event again this year. The NCUA intends to use information from this outreach to further improve its MDI Preservation Program.

Advancing Diversity, Equity, Inclusion, and Accessibility

The NCUA is fully committed to fostering diversity, equity, inclusion, and accessibility (DEIA) within the agency and the credit union system. Through external initiatives like the agency’s DEI Summit and internal efforts like employee resource groups, outreach to potential diverse suppliers, and hiring initiatives to promote a diverse pipeline of applicants, the NCUA advances important DEIA principles within the agency and across the credit union system. These efforts are outlined in the NCUA’s Diversity, Equity, Inclusion, and Accessibility Strategic Plan 2024–2026, released earlier this year.10 The four strategic goals in this plan will guide the NCUA’s efforts and reinforce its commitment to DEIA as a business imperative for the agency and the credit union industry. In doing so, the agency and the broader credit union community will be well-positioned for significant, long-term, and sustainable progress.

As shown in the agency’s Federal Employee Viewpoint Survey results, the NCUA draws strength from a broad range of talents and perspectives. The agency uses data from the U.S. Office of Personnel Management’s Federal Employee Viewpoint Survey, including the Diversity, Equity, Inclusion, and Accessibility Index, to inform its data-driven DEIA strategies and activities.11 In 2023, the DEIA index revealed that 77 percent of NCUA respondents reported positive perceptions of agency practices related to DEIA. The government-wide DEIA index average was 72 percent and 76 percent for medium-sized agencies in 2023.

The NCUA also supports workforce diversity, equity, inclusion, and accessibility through its training, outreach and recruitment, special emphasis programs, and employee resource groups (ERG). During fiscal year 2023, ERGs expanded their presence in the NCUA community—41.4 percent of NCUA employees are members of ERGs, putting the NCUA well above the industry-standard ERG membership goal of 10 percent of an organization’s total workforce.

In addition, the NCUA routinely recruits employees with diverse backgrounds and seeks to ensure broad applicant pools for vacancies. These diversity recruitment efforts aim to attract and retain highly qualified individuals from historically underrepresented groups. The agency continues to build a pipeline of diverse talent in attracting, hiring, and retaining a diverse workforce. Since 2017, the NCUA has consistently exceeded the federal employment rate goals for employees with disabilities and employees with targeted disabilities, with 17.0 percent of individuals reporting disabilities and 4.7 percent reporting targeted disabilities.12

The NCUA supports accessibility through its hiring efforts, reasonable accommodations program, Disability Solutions Desk, and Section 508 compliance program. In GSA’s 2023 report to Congress on compliance with Section 508 of the Rehabilitation Act of 1973, the NCUA had a maturity level of Moderate and a conformance level of Very High.13 In 2024, training, human capital, culture, and leadership will be the agency’s focus areas for further improvement in its compliance with Section 508.

The NCUA continues to build a diverse supplier network to obtain innovative solutions and the best value, particularly in technology and information technology solutions. The agency is committed to supporting minority- and women-owned businesses through our supplier diversity program. Diverse suppliers and vendors play a vital role in the economic success of small businesses and diverse communities, and in the success of the NCUA, by bringing in new perspectives and delivering innovation. By fiscal year-end 2023, the agency awarded 47.5 percent of reportable contract dollars to minority- or women-owned businesses. This performance represents a strong, sustained showing for the NCUA and places it among the top performers among federal financial regulatory agencies.

The NCUA also provides credit unions with a diversity self-assessment tool to help measure their progress in applying DEIA principles.14 Credit unions may assess their DEIA policies and programs through this voluntary credit union diversity self-assessment offered annually. Credit union voluntary self-assessments have no bearing on CAMELS rating and examiners cannot access the data. The NCUA reports credit union diversity data only in the aggregate. The agency encourages credit unions to use this tool to support and evaluate their DEIA efforts and benchmark themselves with peer institutions. Credit unions can use the self-assessment to establish a baseline for action, such as committing to develop new products and services to address the needs of communities of color, increasing investment in underserved areas, and improving community marketing and outreach.

Finally, from July 9-11, the NCUA will host its annual Diversity, Equity, and Inclusion Summit in Minneapolis, Minnesota. This event provides a forum for hundreds of stakeholders to attend workshops, network, share best practices, and meet with leaders on ways to expand DEIA efforts.

Rulemaking Activities

In November, the NCUA Board unanimously approved a final rule that adds “war veterans’ organizations” to the definition of a “qualified charity” that a federal credit union may contribute to using a charitable donation account. Specifically, the final rule adds a post or organization of past or present members of the Armed Forces of the United States, or an auxiliary unit or society of, or a trust or foundation for, any such post or organization recognized as exempt from taxation under section 501(c)(19) of the Internal Revenue Code to the definition of a “qualified charity” that a federal credit union may contribute to using a charitable donation account. With this final rule, the NCUA took an important step in honoring our nation’s many veterans.

In March of this year, the NCUA Board finalized updates to the Interpretive Ruling and Policy Statement that governs the agency’s Minority Depository Institution (MDI) Preservation Program for credit unions. MDIs play an important and unique role in promoting the economic viability of minority and underserved communities. Through its MDI Preservation Program, the NCUA engages in a range of efforts to preserve MDIs and foster their success. The MDI Preservation Program is designed to comply with section 308 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

The updates included incorporating recent program initiatives, referencing examiner guidance, explaining how the NCUA will review an MDI’s designation status during routine evaluations, and adding new subsections on engagement, technical assistance, MDI examinations, Community Development Revolving Loan Fund grants and loans, training and education, and MDI preservation. These changes to the structure and current administration of the MDI Program will better enable hundreds of MDI credit unions to meet the needs of their members and communities.

In addition, the NCUA has begun plans to review credit union records preservation requirements to understand how the agency can update its records preservation program regulations and accompanying guidelines. The NCUA will also be considering a rulemaking to address succession planning in federal credit unions.

Legislative Requests

Certain amendments to the Federal Credit Union Act would allow the NCUA to do its job more effectively and safeguard credit union member-owners, the Share Insurance Fund, and ultimately the taxpayers who back the Share Insurance Fund.

Restoration of Third-Party Vendor Examination Authority

The NCUA’s lack of third-party vendor examination authority is a regulatory blind spot that must be addressed. Unlike the federal prudential banking regulators, the NCUA lacks the authority to examine credit union third-party vendors and CUSOs. Yet, the risks associated with credit union reliance on third-party services are expanding, increasing the potential for losses to the Share Insurance Fund.

The absence of third-party vendor examination authority limits the NCUA’s ability to assess and mitigate potential risks associated with these vendors. Vendors typically decline requests or refuse to implement recommended actions, exacerbating credit unions’ exposure to operational, cybersecurity, and compliance risks that can arise from these relationships. Without the authority to supervise and enforce corrective actions and visibility into these entities, the NCUA cannot effectively protect credit unions and their member-owners.

This regulatory blindspot has already had a negative impact on the industry. Between 2008 and 2015, nine CUSOs contributed to material losses to the Share Insurance Fund, causing losses in 24 credit unions, some of which failed. According to NCUA staff calculations, at least 73 credit unions incurred losses between 2007 and 2020 as losses at CUSOs rolled onto credit union ledgers and led to liquidations.15 And, last years’ third-party core service provider disruption affecting 60 credit unions illuminated the NCUA’s challenges as it tried to mitigate issues on behalf of impacted credit unions and their member-owners.

Independent entities such as the Government Accountability Office, the Financial Stability Oversight Council, and the NCUA’s Office of Inspector General have identified this deficiency as a significant obstacle to the NCUA’s mission to safeguard credit union members and the financial system. All of them have recommended that Congress provide the NCUA with this authority.

Moreover, this lack of vendor authority also impacts the nation’s critical economic infrastructure and national security, as the interconnectedness of financial services expands with other industries and national infrastructure, making any exposure potentially perilous. Currently, one in three Americans use a credit union for basic financial services, and there are many credit unions with fields of membership that are tied to high-risk populations such as congressional staff, the U.S. military, the State Department, and members of the U.S. Intelligence Community. Many of these credit unions utilize third-party service providers to provide critical member services and a sophisticated cyberattack against a vendor can have measurable impacts on the personnel who are critical to government operations and national security. By current estimates, roughly 90 percent (or approximately $1.9 trillion) of industry assets are in some way touched or managed by unregulated third-party service providers.

If Congress grants the NCUA examination authority over credit union third-party vendors, risks would be considerably mitigated. Furthermore, credit unions would have access to NCUA examination summaries when conducting their own due diligence of vendors and there would be fewer requests from the NCUA to credit unions to intervene with vendors experiencing problems. If granted this authority, the NCUA would implement a risk-based examination program focusing on services that relate to safety and soundness, information security, cybersecurity, the Bank Secrecy Act and Anti-Money Laundering Act compliance, consumer financial protection, and areas posing significant financial risk for the Share Insurance Fund.

Central Liquidity Facility Reforms

The NCUA Board, as noted earlier, has unanimously supported a proposed statutory change that would restore the ability of corporate credit unions to serve as CLF agents on behalf of a subset of their member credit unions. In the first session of the 118th Congress, lawmakers introduced a bipartisan bill allowing corporate credit unions to buy CLF capital stock on behalf of a subset of their members. This bill enables corporate credit unions to contribute capital to provide coverage for smaller members with assets under $250 million. As liquidity risks within the credit union system continue to rise, prompt consideration of this bill would help protect the system from future liquidity events.

Additional Flexibility for Administering the Share Insurance Fund

Liquidity risks within the credit union system and rising interest rate risk highlight NCUA’s need for flexibility. Therefore, NCUA urges Congress to amend the Federal Credit Union Act to remove limitations on the Share Insurance Fund’s equity ratio and ability to assess premiums. This would provide parity with the Federal Deposit Insurance Corporation and enable better fund management.

Specifically, amendments should remove the limitations on assessing Share Insurance Fund premiums when the equity ratio of the fund is equal to or greater than 1.30 percent and if the premium charged exceeds the amount necessary to restore the equity ratio to 1.30 percent.16 Further, a statutory change should remove the 1.50 percent ceiling for the Share Insurance Fund’s equity ratio from the current statutory definition of “normal operating level,” which limits the Board’s ability to establish a higher normal operating level for the fund.

This approach would prevent credit unions from impairing their one percent contributed capital deposit or paying premiums during times of economic stress. Additionally, these amendments would enable the NCUA Board to proactively manage the Share Insurance Fund using a counter-cyclical approach, creating reserves during economic upswings and ensuring sufficient funds are available throughout economic downturns.

Increase Grant Assistance for the Community Development Revolving Loan Fund

Congress created the CDRLF program to stimulate economic development in low-income communities served by credit unions. Through its stewardship of the CDRLF, the NCUA makes technical assistance grants to eligible credit unions for a variety of initiatives, including, but not limited to, expanding outreach to underserved populations, improving digital services and cybersecurity, staff training, and capacity-building programs. The NCUA requests Congress increase the appropriation for this vital program. Although relatively small in size, these grants make a big difference to low-income and minority credit unions working to provide more and better services to their members and communities. The NCUA does not use appropriated funds to administer the CDRLF program.


The NCUA is prepared to manage the effects of the credit union system’s ever-changing economic and business landscape. The agency will continuously monitor credit union performance and collaborate with other federal financial institution regulators to ensure the stability and resilience of our nation’s financial services system and economy and to ensure that consumers are protected.

1 The CAMELS rating system is based upon an evaluation of six critical elements of a credit union’s operations: Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The CAMELS rating system is designed to consider and reflect all significant financial, operational, and management factors examiners assess in their evaluation of a credit union’s performance and risk profile.

2 86 FR 72784.

3 E.O. 14110 of Oct. 30, 2023.

4 12 U.S.C. 1751(k) Insured Amounts Payable (3). Separately, a member’s interests in all joint accounts at a federally insured credit union are combined and insured up to $250,000. The Share Insurance Fund also separately protects a member’s Individual Retirement Accounts and Keogh retirement accounts up to $250,000. The fund is administered by the NCUA. See

5 The equity ratio is the overall capitalization of the Share Insurance Fund to protect against unexpected losses from the failure of credit unions. When the equity ratio falls, or is projected within six months to fall, below 1.20 percent, the Federal Credit Union Act requires the NCUA Board to assess a premium or develop a restoration plan. When the equity ratio exceeds the normal operating level and available assets ratio at year-end, the Share Insurance Fund pays a distribution.

6 Established by statute, the CLF is a mixed-ownership government corporation created to improve the general financial stability of credit unions by serving as a liquidity lender to credit unions experiencing unusual or unexpected liquidity shortfalls. Member credit unions, which may include both federally insured and non-federally insured credit unions, own the CLF, which exists within the NCUA. The CLF’s president manages the facility under the oversight of the NCUA Board.

7 12 CFR Part 741.12.

8 S. 544, 118th Cong., 1st Sess. (2023).

9 12 U.S.C. 5516(a).

10 NCUA, Diversity, Equity, Inclusion, and Accessibility Strategic Plan 2024-2026,

11 U.S. Office of Personnel Management, Federal Employee Viewpoint Survey,

12 The Office of Personnel Management defines “targeted disabilities” on Standard Form-256, Self-Identification of Disability.

13 Robin Carnahan, Message from the GSA Administrator, U.S. General Services Administration,

14 The NCUA developed the voluntary Credit Union Diversity Self-Assessment in 2016 to comply with Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which requires certain agencies to assess the diversity and inclusion practices of their respective regulated entities (credit unions, in the NCUA’s case).

15 Office of Inspector General, OIG-20-07, “Audit of the NCUA’s Examination and Oversight Authority over Credit Union Service Organizations and Vendors”

16 See 12 U.S.C. 1782(c)(2)(C).

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