Impact of US Debt Downgrade

Dear Board of Directors:  

On August 5, one of three main Wall Street rating agencies (Standard & Poor’s) lowered the long-term debt rating of the U.S. government and federal agencies from AAA to AA+.  That same day, NCUA and the other federal financial regulators jointly issued the attached risk-based capital guidance to reassure their regulated institutions that risk weights remain unchanged.   

Meanwhile, two of the three main Wall Street rating agencies (Fitch and Moody’s) reaffirmed their highest ratings for all debt backed by the U.S. government.

This letter more specifically describes how these various actions may affect NCUA, credit unions and members.

NCUA examiners continue to assign zero risk weights to credit union investments in NCUA Guaranteed Notes (NGNs), as well as corporate credit union investments in Treasury securities and other securities issued or guaranteed by the U.S. government.¹

• Credit unions may experience temporary balance sheet fluctuations.  Market conditions may lead to unusually large deposit inflows or draws on existing lines of credit.  Credit unions should contact NCUA and/or their State Supervisory Authority to address such developments, especially if significant balance sheet growth leads to a temporary decline in regulatory capital levels.
   
• NCUA encourages credit unions to consider all reasonable and prudent actions that could help meet the critical financial needs of their members.  The credit union system has nearly $89 billion in cash on hand.  Credit unions have ample capacity to meet members’ financial needs.
   
• Credit unions should maintain a dialogue with their examiners as they assess risk management challenges.

Communications with Members – Reassurance Needed

• The U.S. credit union system is strong and well capitalized.  Credit unions maintain an aggregate capital buffer of nearly 10% – substantially higher than the 7% threshold to be defined as “well capitalized” by law.
• Most importantly, federally insured credit union deposits remain safe and protected as always.  NCUA continues to insure deposits up to $250,000 per account at all federally insured credit unions.

And of course, NCUA will continue to work diligently with credit unions to mitigate risks and maintain stability in order to uphold the safety and soundness of the credit union industry.