As Prepared for Delivery on April 16, 2020
Thank you, Mr. Chairman.
First and foremost, I wish to express my thanks and appreciation to the staff of the NCUA. I have, yet again, witnessed the hard work and dedication that each of them has for the wellbeing of the agency and the credit union community. Nothing is more critical than their work to the fulfillment of the agency’s mission.
In my recent GAC speech and Board Statement on Subordinated Debt I stressed the critical importance of liquidity and capital for credit unions and other financial institutions. Both the regulators and the regulated must at all times remain mindful that, in a financial crisis or economic downturn, the fate of a financial institution depends upon its liquidity and capital levels.
At the height of a financial crisis, when asset values may have fallen or collapsed precipitously or cash flow has deteriorated unexpectedly, nothing matters more than liquidity or the ability of a financial institution to pay its debts and other obligations as they come due. In tandem with the role of liquidity, capital serves as a buffer to absorb the losses booked from declining asset values and the recognition of enhanced losses that inevitably follows an economic downturn and the often dramatic and unexpected end of myopic financial activity, a bursting asset bubble or a wholly unexpected event such as the current COVID-19 pandemic. These points were made abundantly clear in 2008 with the $700 billion liquidity infusion implemented through the TARP program and have arisen again, today, with the over $2 trillion CARES Act.
With the growing number of economic disruptions — including the closing of credit union offices and branches — caused by the COVID-19 pandemic, I am concerned that credit unions may experience liquidity and capital shortfalls as their members avail themselves of forbearance options, suffer job losses or become unable to repay their auto, mortgage, and other indebtedness in the ordinary course. This also includes the liquidity funding and other commitments of credit union servicers under their servicing contracts and related obligations.
As it is all but impossible to predict with certainty the economic consequences that may follow the closures, slowdowns, forbearances, job losses and other pandemic related fallout, it is vitally important that we continue to thoroughly and thoughtfully monitor the liquidity and capital needs of the credit union community and individual credit unions, and develop viable, transparent contingency plans that we may implement on a short notice. Simply put, and without appearing needlessly alarmist, we must continue to develop an array of plans and approaches to address a financial crisis that may be developing at this time. In my view, this should serve as the agency’s top priority. We owe this to the taxpayers and the approximately 120 million account holders who rely on credit unions for their financial services.
Finally, I would like to offer suggestions for legislative action that would benefit the credit union system, the unserved, the underserved and those of modest means, and assist the NCUA in carrying out its safety and soundness mission during the COVID-19 pandemic and beyond:
- The creation of a permanent, separate and robust, standby liquidity facility for the NCUA to employ as needed or the permanent restructuring of the Central Liquidity Facility CLF to create the same;
- Capital reform to assist credit unions who may experience a downtick in capital from business and other closures, economic slowdowns, mortgage and loan forbearances, job losses, flights to credit union depository quality, and other COVID-19 pandemic related consequences;
- Raising or eliminating the member business lending cap to assist small businesses and their employees, customers, suppliers and communities;
- Permit all credit unions to participate as borrowers in the Paycheck Protection Program under the CARES Act and SBA regulations as some credit union members risk joining the ranks of the unserved and underserved if their credit unions cease operations;
- Permit single common-bond and community chartered credit unions, not just multiple common-bond institutions, to add unserved and underserved areas to their field of membership so as to expand access to federally insured financial institutions for the unserved, the underserved and those of modest means;
- Expand the Community Development Revolving Loan Fund by an additional $10 million or more in appropriations to support low-income credit unions and small credit unions in assisting their members and those who are unserved and underserved; and
- Provide the NCUA with examination and enforcement authority over third-party vendors, including IT and fintech-related vendors.
In closing, it’s important to note that the COVID-19 pandemic and crisis knows no boundaries. It impacts each of us throughout every community regardless of our age, gender, ethnicity or religion. It does not differentiate based upon political status or the color of our state or jurisdiction. It's a systemic, relentlessly rolling disaster that we can address only by working together in a collegial, collaborative and bipartisan manner.
At the NCUA, I pledge to you that I will endeavor to ensure that we all work together in utmost good faith to protect our staff and each employee, officer, director and member of the credit union community as well as the safety and soundness of the National Credit Union Share Insurance Fund and the credit union system. My thoughts and prayers are with each of you and I wish you and your families, friends and colleagues the very best in this unexpected and unwelcomed journey.