As Prepared for Delivery on May 20, 2021
Thank you, Eugene, Myra, and Andy, for today’s presentation.
As we all know, one of the most important ways for the Fund to build revenue is through investments in Treasuries. These investments drive income, so most of my questions today will be focused on this part of the National Credit Union Share Insurance Fund. I believe this is important for the Board to consider in today’s low rate environment.
Let’s look at the Share Insurance Fund portfolio on slide six. I have several questions, so let’s dive in:
- For the record, can you state who oversees the Share Insurance Fund investment strategy and what is the role the Board plays in investment decisions?
- When was this investment policy put in place?
- For the recent investments made by the Committee with the 7-year ladder, does the Committee look at other Treasury investment options before making investment decisions? And, for the record, does the Committee use models in making decisions before executing any trades?
A little over a decade ago, we were making 10-year ladder Treasury investments, which I mention just to note that we have changed our investment strategy over time. I understand we made the ladder investment change from 10-years to seven-years because of the taxi medallion crisis. Rick, do you wish to elaborate?
While I understand we are not able to sell our investments to take advantage of fluctuations in Treasury yields, just for the purpose of recognizing interest income alone, as I understand it, there is nothing in the Treasury circular that specifically prohibits the Share Insurance Fund from selling Treasury investments, hypothetically speaking, for the sole purpose to avoid assessing a premium on credit unions at a given point in time. While none of us is a clairvoyant, I want the NCUA to exhaust all options before assessing a premium on credit unions, which is ultimately borne by their member-owners. If we find this hypothetical situation playing out in the days ahead, would the NCUA be able to do this or is this explicitly prohibited by the Treasury circular?
I do have a few more questions and comments:
- For the record, can you state what happens to our investments if the yield goes negative, as we have seen in Germany?
- Shifting gears, during the last quarterly update in February, Eugene, I asked you about the Operating Fund year end cash position. From 2020 to 2021, the Operating Fund year end cash position increased from $94 million to $111 million.
Eugene, in your discussions with my office since the last quarterly update, I understand that one of the reasons that the Operating Fund carryover balance has increased is because of capital budgets. But this is just one reason, among several. And speaking of capital expenditures, I believe we should be more transparent to the credit union community about capital expenditures as an agency. It should be very clear how much we are spending on capital projects in the aggregate and segmented by each project. When I was last at the agency, we didn’t have large capital expenditures like we do today with the advances in information technology. So, as we have evolved as an agency, how can we increase transparency for capital projects for the public?
I will be asking tough — albeit fair — questions about the Operating Fund carryover balance when we prepare for next year’s budget because I will have a healthy skepticism of the Operating Fund carryover cash balance growing even more, if that is the case, for next year’s budget.
Eugene, I look forward to working with you and the Board as we evaluate budgets, projects, and cash being carried over from year to year for the Operating Fund.
I have no further comments, Mr. Chairman.