As Prepared for Delivery on March 31, 2020
Thank you. I’m pleased to have this opportunity to update you on the National Credit Union Administration’s activities during the public health emergency that surrounds the COVID-19 pandemic.
Over the last several weeks, as the scope of the crisis has grown both broader and more acute, the NCUA has carefully monitored developments so that we could offer clear advice and guidance to both our employees and to the institutions, we regulate.
It’s a situation that’s highly fluid and marked by tremendous uncertainty. So, our approach has been to be prepared and flexible so we can respond to an environment that can change rapidly.
We have sought to protect the health and safety of all members of the NCUA team. To this end, we’ve made some prudent changes to our daily operations, including adjustments to the examination and supervision program and requiring telework arrangements for most of the agency’s staff.
To date, we have published Letters to Credit Unions addressing:
- The NCUA’s initial actions related to COVID-19;
- Annual meeting flexibilities for federal credit unions;
- The identification of essential critical infrastructure workers;
- Responsible small-dollar lending in response to the pandemic; and
- NCUA’s offsite examination and supervision approach.
We’ve also issued, interagency guidance encouraging financial institutions to work with borrowers affected by COVID-19 and announced the availability of urgent needs grants to help credit union affected by the pandemic. We are working with our partners at other regulatory agencies to develop addition guidance, including evaluating areas for potential regulatory relief. We’re providing relief by extending reporting deadlines, including for our CUSO Registry and for capital plans and stress testing. Most recently, we provided relief for filing your March 31, 2020, Call Report.
On our COVID-19 webpage, we are highlighting the safety of federal share insurance and encouraging members to contact their credit unions if their finances are being affected by COVID-19.
We are taking every step to ensure that our agency’s critical mission of protecting the safety and soundness of the credit union industry, and ensuring the well-being of the industry’s members, will continue to be executed as effectively and efficiently as possible. We will continue providing appropriate oversight, as well as needed advice and support, so credit unions can maintain ongoing service to their members.
We are currently working on guidance addressing the agency’s offsite examination and supervision approach, temporary enhancements to the Central Liquidity Facility membership and borrowing authority, and additional details on how credit unions can work with their borrowers. We are also looking at ways we can provide regulatory relief.
I’ve made it clear that NCUA examiners and staff stand ready to work with the credit unions we oversee to respond to these unusual and difficult circumstances. If a credit union needs to make policy adjustments to meet the needs of borrowers who are facing stress, we want to give you the flexibility you need.
If a credit union deems it prudent to ease loan terms to help members through a difficult time, we’ll try to work with you. The bottom line is that we want your institutions to be able to respond to the needs of your members, your employees, and your communities in the best way you know how.
Given the uncertainty surrounding this public health threat, we don’t know what the coming weeks and months will hold. But we can expect that they will bring an unprecedented test of all of our capabilities. I’ll note that, in a crisis, it can be difficult to get accurate information. Speculation, anecdotal evidence, and outright misinformation abound, and that can lead to anxiety, stress, and a poor understanding of risk. In that environment, it can be difficult to hear the signal in the noise.
To counter that dynamic, I have made it clear: the NCUA will communicate with clarity and precision, and on a timely basis. The NCUA COVID-19 webpage includes all of the information related to the pandemic response we are providing credit unions. As new information is available, we’ll update the frequently asked questions and other materials on that site regularly.
Likewise, I would like the communication channel to work both ways, so I look forward to hearing from you on this call. In a time of crisis, I need unfiltered concerns or feedback so that we can respond effectively. You can send your questions to COVID19Questions@NCUA.GOV.
Over the last several weeks, I have been heartened and impressed by how people are meeting the challenge of this pandemic. Among NCUA’s employees, I’ve witnessed steadfast dedication, unflagging professionalism, and a deep commitment to the agency’s mission that goes above and beyond the call of duty. This agency is blessed to have so many capable men and women who have responded to the call of public service.
Likewise, what I’ve heard from speaking with leagues and credit unions, and what I’ve witnessed myself, has been equally encouraging. While making necessary adjustments to your service models, like encouraging use of online options and routing customers to drive-thru services to limit potential exposure, credit unions have shown foresight and prudence while providing critical financial services to your members.
Last week, President Trump signed the Coronavirus Aid, Relief and Economic Security Act, which provides vital economic support and regulatory relief, and will ensure that credit unions play a critical role in the economic recovery following the coronavirus outbreak.
The CARES Act allows credit unions to provide guaranteed loans to businesses and self-employed individuals through the U.S. Small Business Administration’s paycheck protection program. This will allow credit unions to assist members with payroll, benefits, and other eligible expenses.
The act provides the NCUA Board with the ability to increase share insurance coverage for noninterest-bearing transaction accounts. I look forward to working with my fellow board members to provide additional coverage for credit union members with applicable accounts that have balances above the current limit of $250,000.
The act offers relief from accounting requirements and impairments resulting from loan modifications for borrowers affected by the coronavirus pandemic. I am also pleased that Congress provided temporary relief from the implementation of the Financial Accounting Standards Board’s current expected credit losses methodology.
Most importantly, the act provides the NCUA Board with the power to expand access to and increase the borrowing authority for the Central Liquidity Facility. This will enhance its role as a liquidity backstop for the credit union system.
Here in a moment Acting General Counsel, Frank Kressman, and Acting Director of Examination and Insurance Myra Toeppe will be providing details about the CARES Act legislative changes and the Central Liquidity Facility. However, I wanted to share with you how important the CARES act changes to the Central Liquidity Facility are. These changes provide significant liquidity support to the entire credit union system to work through the impact of the COVID-19 pandemic. I also want to highlight what regulatory changes we are considering to facilitate credit unions joining the Central Liquidity Facility.
The CLF is able to borrow from the U.S. Treasury and make loans to member credit unions and the National Credit Union Share Insurance Fund. The CLF’s ability to borrow from the U.S. Treasury’s Federal Financing Bank was an essential element of the NCUA’s and credit union system’s ability to work through the last financial crisis. Although we hope for the best outcome, we need to prepare now for the possibility that the CLF will prove vital in addressing the impact of the COVID-19 pandemic on credit unions and the Share Insurance Fund.
The CARES Act makes several substantive changes to Title III of the Federal Credit Union Act, which involves the Central Liquidity Facility. First, it increases the CLF’s borrowing capacity. The Federal Credit Union Act provides the CLF with the authority to borrow, if these obligations do not exceed twelve times the subscribed capital stock and surplus of the CLF — that is, the sum of its retained earnings and capital stock.
The CARES Act temporarily increases the multiplier from “twelve times” to “sixteen times.” This means that for every dollar of capital and surplus, the CLF can now borrow sixteen dollars. As credit unions that join the CLF only have to pay in one-half of the capital stock subscription amount, this means that for every new dollar paid in of the capital stock subscription amount, the CLF can now borrow 32 dollars.
Second, the law temporarily relaxes the requirements on agent, such as a corporate credit union, membership to make being an agent more economically feasible. The legislative change makes it much easier for a corporate credit union to join the CLF and become an agent for other credit unions. Agent members are no longer required to buy capital stock for all of their member institutions.
Rather the agent may buy the CLF capital stock for a subset of their choosing of the credit unions they serve. By reducing the stock purchase requirement and granting this flexibility, agent membership is now affordable for corporate credit unions to provide as a member service and to support the liquidity needs of the credit union system. Importantly, corporate credit unions have expressed interest in serving as the CLF as agents by acquiring membership stock on behalf of smaller member-credit unions.
Third, the law allows the CLF to meet the liquidity needs of corporate credit unions. Lastly, the legislation provides more flexibility for the CLF in granting loans.
I also have staff working on additional regulatory changes to improve the CLF’s flexibility. For example, we are considering waiving the six-month waiting period for a new member to receive a loan.
We are also considering easing the collateral requirements to provide more borrowing flexibility. We are exploring the option to waive the explicit waiting period for a credit union to terminate its CLF membership. Under the existing rule, a CLF member can only terminate its membership after a specified amount of time — 6 to 24 months based on the size of the credit union’s stock subscription in the CLF. This flexibility will help encourage the greatest number of eligible credit unions to join the CLF now.
The more capital subscriptions the CLF has, the higher the borrowing authority the CLF and the NCUA have. As a reminder, CLF members also earn a quarterly dividend on their stock.
As a result, CLF membership provides a form of liquidity insurance for individual credit unions and the broader credit union system as a whole. CLF stock subscriptions provide the credit union system and the Share Insurance Fund with a vital contingent source of funds to assist with system-wide liquidity events, which may be necessary in addressing the impact of the COVID-19 pandemic on individual credit unions, groups of credit unions, and the Share Insurance Fund.
Becoming a member of the CLF is affordable and relatively easy. A credit union may become a CLF member by completing a membership application and contributing one-half of its stock subscription requirement, which equates to approximately one-fourth of one-percent (0.0025 percent) of a credit union’s assets.
Additional funding sources for the Share Insurance Fund means a stronger system. Liquidity, like capital, is a pillar of strength upon which the safety and soundness of the credit union system rests. The CLF is a proven solution for individual credit unions, and it helps to stabilize liquidity throughout the credit union community. Together, credit unions can help ensure the credit union system has access to sufficient liquidity.
The NCUA has confidence that the credit union system will remain safe and sound. These measures are intended to be proactive efforts to ensure sufficient liquidity is available until the extent of the COVID-19 impact on credit unions has been fully determined. By working together in the cooperative spirit on which you were founded, the credit union community can assist one another in protecting the credit union system through membership in the CLF.
We all work hard to think about the risks that might affect the industry, and to develop plans for disaster response, continuity of operations, and so forth. The current pandemic, and the associated stress is placing on the economy, are greater threats than were modeled. But I am confident the industry will come through with flying colors, as it has done when facing previous challenges.
The last time I was at NCUA as Vice Chairman, we were facing a global economic crisis, and the most significant recession our nation had faced in decades. I think all of us who were around back then can recall the uncertainty we were dealing with. And we had little sense of what we might expect for the credit union industry, not to mention for the U.S. economy as a whole. As an astonishing testament to the resiliency of the American economy and the American worker, and the American spirit of entrepreneurship, the credit union industry came back stronger than ever.
Just as we experienced nearly a decade ago, this is a time of trial and challenge, but it is the times of trial and challenge that bring out the best in all of us.
Our nation has faced even greater disruptions in the past, and we’ll face disruptions in the future. But as the old adage reminds us, “this too shall pass.” And when it does pass, it is my great hope that this agency, the credit union industry, and all of our communities will be even stronger from the lessons we take from this experience.
I’ll close on a note of thanks. Thanks to the NCUA’s employees, contractors, and other stakeholders for their resilience and commitment. Thank you to the industry’s leaders and your hardworking staff members for your efforts to meet the needs of your members in this time of great national challenge. Your efforts are truly in the best tradition of the “people helping people” ethos that has guided this industry since its founding a century ago. Thank you once again.
Thank you everyone for participating in today’s webinar. As we close, I want you to be assured that NCUA will continue to monitor the COVID-19 situation and work diligently to support the credit unions we regulate and the members they serve. Thank you all again, and be safe.