Against the backdrop of a maturing economy and a healthy credit union system, the timing is favorable for the NCUA Board to consider more regulatory relief, examination and data collection improvements, and additional agency efficiencies. All of these matters are under review now by the Board, laying the groundwork for an important year ahead to improve the regulatory environment for credit unions while strengthening our supervisory capabilities.
More specifically, the Board is carefully considering:
- The regulatory reform package that we published in August and the comments credit union officials filed in response. We want to incorporate as many workable recommendations from the credit union system as possible and will be reconsidering the package later this year as well as looking for additional rules to update.
- Additional improvements to our examination program. We have undertaken a comprehensive review of the loan, deposit, and investment information the NCUA collects electronically during examinations. We want to be more efficient and effective in how we collect this data in support of our ultimate goal of implementing “virtual examinations,” to the extent feasible, without jeopardizing safety and soundness.
- How we can use technology in an even smarter, more efficient way to facilitate our supervisory work while easing examination burdens on federally insured credit unions. For example, virtual examinations are an important objective that could be a useful mechanism to promote effective and focused supervision for many credit unions.
In January, the Board adopted NCUA’s new 2018–2022 Strategic Plan (opens new window), which is available on our website. I urge the credit union system to read the plan. It provides the overall blueprint the agency will be following in the coming years to improve our operations and enhance the safety and soundness of the credit union system, while seeking to remove regulatory barriers, when and where we can, to make it easier for credit unions to serve their members.
The NCUA has more work ahead to address regulatory relief, examination modernization and fairness, and to streamline our supervisory capabilities. However, 2018 has already provided a strong foundation to accomplish even more improvements throughout this year.
One major milestone for the credit union system has already occurred, which is the first dividend to federally insured credit unions following the closure of the Temporary Corporate Credit Union Stabilization Fund. Here, we closed the Stabilization Fund and transferred its funds, assets and liabilities into the National Credit Union Share Insurance Fund last fall.
The prudent management of the Stabilization and Share Insurance Funds and the early closing of the Stabilization Fund has accomplished two significant goals:
- First, it is projected the credit union community will avert having to pay a Share Insurance Fund premium in 2018 of approximately 13 basis points or about $1.3 billion needed to build up the necessary reserves to restore the fund’s equity ratio to the previous normal operating level of 1.30 percent.
- Second, it allowed the Board to approve a distribution of surplus equity to credit unions in the range of approximately 7.3 basis points, or $735.7 million estimated to be paid in the third quarter of 2018.
In a nutshell, the early closing of the Stabilization Fund transformed a projected premium assessment of approximately $1.3 billion into an anticipated distribution of $735.7 million, while materially increasing the reserves for expected Share Insurance Fund losses in the future.
It is worth restating that we were able to close the Stabilization Fund because the recoveries in the housing market were better than experts originally predicted and because interest rates remained low during the economic recovery. The closure of the Stabilization Fund was also possible because, through the efforts of our General Counsel and the Board, the agency was able to recover over $5.1 billion—much larger than anticipated—by suing the banks and Wall Street firms that sold faulty securities to corporate credit unions that were backed by home loans that should not have been made.
When we closed the Stabilization Fund, we raised the normal operating level of the Share Insurance Fund from 1.30 percent to 1.39 percent. As a reminder, this increase was necessary because the normal operating level of 1.30 percent would not have been sufficient to cover all of the Insurance Fund’s exposures as a result of closing the Stabilization Fund and the insurance losses that could occur if a recession unfolds in the next five years. In fact, even if the Stabilization Fund was not closed last fall, the NCUA Board would have to address the issue of whether to increase the normal operating level given the pressures on the Share Insurance Fund. These stresses include strong and consistent share growth, low yields on investments due to the low interest-rate environment, and insurance losses that have rendered the previous 1.30 percent normal operating level insufficient.
Which brings us to yet another positive development that benefits credit unions well into the future. By merging the Stabilization Fund into the Share Insurance Fund, we were able to increase the normal operating level without assessing an insurance premium on credit unions. Moreover, we do not anticipate premiums in the future, absent any unforeseeable negative changes in the economy or within the credit union system. In closing the Stabilization Fund, we considered all these factors to balance our desire to maximize the return of monies to credit unions from the Stabilization Fund with the need to maintain sufficient resources for the Share Insurance Fund as the economy grows and changes over time.
The NCUA has more work ahead to address regulatory relief, examination modernization and fairness, and to streamline our supervisory capabilities. However, 2018 has already provided a strong foundation to accomplish even more improvements throughout this year. I am energized, and I look forward to working with the NCUA Board and the credit union system to achieve as many positive changes as we can in the year ahead.