As Prepared for Delivery on May 26, 2022
Thank you, Eugene, and staff.
First, congratulations on NCUA’s Annual Report being recognized by the Association of Government Accountants for the fourth year in a row. This significant achievement is the result of a lot of hard work. Thank you.
As was the case last quarter, there is a lot of good news in this report. The credit union movement continues to perform well as the nation emerges from the pandemic. This is no surprise as credit unions have repeatedly shown their resilience in economic down turns.
The key thing is that both our insurance fund and the credit union system are in healthy shape as we possibly enter an economic slowdown. Home prices are obviously a key indicator for us since mortgages are a core product for credit unions. I was reminded yesterday that more than half of our examiners started at NCUA after the last housing downturn. Our ground troops are excellent but don’t have much combat experience.
The good news is the system has tried to prepare for the rainy day that may be heading our way. Ninety-nine-point-eight percent of assets are held in CAMEL 1, 2 and 3 credit unions with 97.4 percent in CAMEL 1 and 2 credit unions. Losses to the Share Insurance Fund are at historic lows and a fraction of what they were over the past decade.
The growth in insured shares has slowed, given the absence of further government stimulus. This has relieved pressure on credit union net worth ratios and in turn, the National Credit Union Share Insurance Fund’s equity ratio. The 1.25 percent projected equity ratio for June 30 is very good news.
At just over $20 billion, the Share Insurance Fund is as large as it has ever been. It is a mutual asset of the credit union movement and the NCUA. The Fund is both reported and controlled by the NCUA, and an asset reported by the credit unions. Credit unions are required to supply the majority of the fund’s equity through a 1-percent contribution of their insured shares. The rest is made up cumulative results of operations—largely derived from investment income.
It’s worth reminding everyone that every dollar of that 1-percent contribution belongs to credit union members. The NCUA has the obligation to credit unions and their members to manage that fund prudently and effectively.
At our last update, we posted our current investment policy, which hasn’t been updated since 2013. We called for a re-evaluation of the effectiveness of the policy, which I understand you and the investment committee are working on. I appreciate your desire to listen to our stakeholders to ensure we are pursuing the best possible investment strategy. I look forward to reviewing the committee’s recommendations for updates to the policy soon.
I do have a few questions for you.
- Let’s say we have an average recession, one that isn’t as severe as 2008–2009 but perhaps akin to the post-Dotcom-crash recession in 2001. What would be the effect on the Share Insurance Fund?
- On slide 4 you talk about unrealized losses in our investment portfolio. Can you tell me why we aren’t required to recognize those losses?
- When can the Board expect to review recommendations for an updated investment policy?
Thank you, Eugene. I look forward to working with my fellow Board Members on reviewing and updating the investment policy soon. Mr. Chairman, this concludes my remarks.