As Prepared for Delivery on February 18, 2021
Thank you, Mr. Chairman. And thank you to the staff for the work that went into this briefing.
I can’t imagine a bigger one-year change than from last February’s meeting to this meeting. On top of the pandemic, this morning there are credit unions and their members without power in freezing temperatures.
Credit unions, as always, did what they had to do. I am pleased, but not surprised, that the third quarter 2020 data showed the resilience of credit unions. Deposits have surged, capital has remained strong, and loan delinquency rates declined to their lowest levels since 2014.
Loan originations, led by mortgage lending, are at record levels, with credit unions granting 1.1 million fixed-rate purchase-money and refinance loans on an annual basis during the first three quarters. At the same time, credit union provisioning for loan losses was at an annualized pace of around $9.4 billion, meaning that they were on pace to reserve about $1.42 for every dollar of delinquent loans. Collectively, regular shares, share drafts, and money market accounts grew at a rate over five times greater than 2019.
Credit unions did all this while easing the financial burdens on members by deferring loan payments and reducing or eliminating fees. The record number of mortgage loans included mortgage refinancing, which reduced income to the credit union but put more money in members' pockets just when they needed it most. Fee income per member in the first three quarters of 2020 was more than 14 percent below such income in the first three quarters of 2019 and was the lowest since 2005.
The Share Insurance Fund’s safety and soundness is our core responsibility. The year-end equity ratio of 1.26 percent is within statutory guidelines for the NCUA Board to consider a premium assessment, but that ratio must be considered in context.
First, the capital deposit adjustment — a record $866 million from the credit unions — won’t be counted until April but will impact the Fund. Second, stimulus checks, and significantly elevated savings rates by members, created a surge in core deposits in credit unions. The driver of the change in the equity ratio is the continued growth of insured shares –the denominator in the calculation. We don’t know how long insured shares will continue to grow; we also do not know how much of those shares will remain in credit unions.
The decline in the equity ratio is not due to risky or unsound practices by credit unions. Quite the opposite — it is a result of members turning to their credit unions for the services they need in a crisis.
The NCUA is responsible for safeguarding the Share Insurance Fund as well as evaluating the safety and soundness of the credit unions it supervises. The crisis brought on by the pandemic makes that work particularly difficult, as it reinforces the need to achieve the appropriate balance between prudential objectives and the needs of credit unions and the members they serve. Taken to excess, building up capital and liquidity in the Share Insurance Fund because of our concern of the unknown, reduces the ability for credit unions to provide the financial services we know members need today. As a general matter, when someone may be facing financial difficulty, we’d prefer not to react to that by saying “ok, now please write us a big check.
The financial performance data for 2020 show credit unions have demonstrated they can manage safety and soundness with service to members in times of crisis. While NCUA’s role in managing the Share Insurance Fund is more complex than ever, credit unions have been managing successfully through an equally complex environment.
Right now, we do not have enough information to determine if a premium assessment is necessary. While we are still in the midst of dealing with the effects of the pandemic, we must proceed carefully. We will indeed be true fiduciaries of the Share Insurance Fund- we have to be- while making every effort to allow credit unions to continue to focus on real member needs, not our fear of the future.
Thank you, Mr. Chairman. This concludes my remarks.