As Prepared for Delivery on February 17, 2022
Thank you, Scott and Rachel, for your presentation on the proposed rule to adjust the asset thresholds for certain consumer credit unions when assigning supervision to the Office of National Examinations and Supervision, otherwise known as ONES. Frank, I appreciate your willingness to answer any questions, as well. And, many thanks to everyone in ONES and the General Counsel’s office for their efforts in bringing this proposed rule before the NCUA Board.
This proposed rule results from staff recommendations and the collaboration between all three Board offices during the development of the NCUA’s 2022 and 2023 budget, which we approved in December. This proposed rule is also a natural evolution in the agency’s examination program resulting from industry growth and a reconsideration of risk management.
Over the last two years, many federally insured credit unions have experienced significant balance sheet growth resulting from three stimulus packages, changes in consumer behavior, and other pandemic-related policy actions. For example, credit unions with just below $10 billion in total assets saw their balances sheets grow by approximately 14 percent on average in 2020 during the first year of the pandemic—and more than 34 percent in one case. In contrast, in 2019, these same credit unions saw their assets increase, on average, by 9 percent.
Under this proposed rule, the NCUA would recalibrate the asset threshold that would move a consumer credit union from supervision by one of the NCUA’s regional offices to ONES. In creating ONES a decade ago, we set that threshold at $10 billion. But, this proposal would adjust that threshold to $15 billion. Thus, credit unions with assets between $10 billion and $15 billion would remain with their current regional office. And, all large consumer credit unions currently under ONES’ supervision with less than $15 billion in assets would continue to be supervised by ONES. No other regulatory requirements for credit unions covered under these regulations would be altered.
The NCUA Board is considering this regulatory change for two reasons: resource allocation and risk management. First, the agency can more effectively manage its resources by continuing to supervise most credit unions with between $10 billion and $15 billion in assets through the regional offices. Without this adjustment, the number of covered credit unions supervised by ONES would nearly double in 2023. That would require a substantial reallocation of personnel within the agency.
Additionally, this hybrid arrangement in the supervision of the system’s largest credit unions provides other benefits to the NCUA, including sharing knowledge and expertise between ONES and regional staff, creating new developmental opportunities for our examiners, and ensuring credit unions that transition to ONES’ supervision are better prepared for the change. So, this modified approach truly leverages the best of the agency’s regional structure with ONES’ expertise while efficiently using existing resources and stabilizing and maintaining ONES’ workload demands. In the longer term, we should, in my view, consider the development of a regional large credit union program for larger credit unions.
Second, the Board has reconsidered the level of risk to the National Credit Union Share Insurance Fund posed by a credit union with between $10 billion and $15 billion in assets. Scott, would you explain in more detail how the risk profile of a credit union of $15 billion or more in assets today compares to one with $10 billion or more assets in 2013?
Thank you, Scott. I think that is an important point on the evolving risks that larger credit unions potentially pose to the Share Insurance Fund and the broader credit union system. Finally, credit unions with $10 billion or more in assets are subject to capital planning requirements. For those credit unions that will be new to this process, what is the timeline for when they need to comply with those regulations? And, how will we train our regional examiners about their new responsibilities related to supervising for capital planning?
Thank you, Scott, for those clarifications.
In closing, this proposed rule is a natural evolution in the agency’s examination program as the number of large, complex credit unions increases. Additionally, this proposed rule leverages the strengths of the agency’s regional structure to ensure the NCUA can effectively and efficiently monitor potential risks associated with these institutions with existing resource allocations. It also provides proper oversight of those systemically critical credit unions, which pose a significant risk to the Share Insurance Fund because of their size and complexity.
That concludes my remarks. I now recognize Vice Chairman Hauptman.