NCUA Chairman Todd M. Harper Statement on the Share Insurance Fund 2022 Normal Operating Level

As Prepared for Delivery on December 16, 2021

Thank you, David and Russell, for your briefing on the policy for setting the National Credit Union Share Insurance Fund’s normal operating level and for underscoring the importance of maintaining a strong fund, which is essential to maintaining confidence in the cooperative credit system. And, thank you Myra, Viki, and Andy for being available to answer questions. Vice Chairman Hauptman and Board Member Hood both offered thoughtful changes to this final policy statement. I thank my colleagues for their contributions.

As members of the NCUA Board, one of our most important responsibilities is maintaining the health and stability of the Share Insurance Fund. With nearly $21 billion in assets, this Fund insures the savings of more than 128 million Americans. The Fund guarantees more than just accounts or balances on a spreadsheet. It protects the financial well-being and dreams of families, businesses, and communities who have placed their faith and hard-earned nest eggs in credit unions. These members, from all walks of life, are counting on the NCUA to make the right decisions in managing the Fund and ensuring its continued resiliency. It is a sacred duty that none of us can waiver from.

Setting the normal operating level is a critical part of the Board’s management of the Fund. As former NCUA Chairman McWatters said when the Board last considered the normal operating level policy in 2017:

“The NCUA must be mindful not to hold too little equity in the Share Insurance Fund, with the corresponding risk that premiums will be necessary when credit unions can least afford them. Nor should the NCUA hold too much equity, which could lead to underutilization of resources within the credit union community. Instead, the goal should be to have a reasonably prudent level of equity consistent with contemporary risk exposures to fulfill our duty in managing the Insurance Fund.”¹

Much has changed since 2017, but the wisdom of his statement still holds true.

In May, the agency issued a request for information to aid in determining how the normal operation level should be set going forward. In addition to considering current economic conditions, the working group also considered the feedback of credit union leagues, trade associations, credit unions, and credit union service organizations. After carefully weighing these comments, economic forecasts, and credit union performance, the working group recommended an updated policy that produces a new normal operating level of 1.33 percent for the Share Insurance Fund in 2022.

Many within the credit union system undoubtedly wanted to see the normal operating return to 1.30 percent, which is where it has been historically before the Temporary Corporate Credit Union Stabilization Fund was merged into the Share Insurance Fund in 2017. In normal times, that might make sense. However, there is nothing normal about what we have all experienced for nearly two years because of the COVID-19 pandemic. No previous recession or financial crisis that I have seen in my lifetime has caused such fundamental shifts in the way that credit unions provide services to their members, and to the ways in which we live, work, and interact, than this global pandemic.

We must acknowledge that much uncertainty remains. From an economic perspective, the unemployment rate was 4.2 percent in November, an incredibly low level by historical standards. Yet, 3 million workers sit on the sidelines and out of the labor force. Supply chain disruptions continue and will likely last into next year, placing additional stress on consumers and businesses. And, as the Federal Reserve has noted, the rise of the Omicron variant could slow progress in the labor market and intensify supply-chain disruptions.

Additionally, for the first time in more than 40 years, Americans must deal with inflation. This is especially true for our nation’s poorest households, which were hit hard by the pandemic and are now seeing increasing prices for essential goods and services. Higher inflation has led the Federal Reserve’s Federal Open Market Committee to announce that it will remove its monetary policy accommodation earlier and more aggressively than expected, boosting short-term interest rates. These economic challenges will place additional stress on household finances, and that stress could lead to rising delinquencies and charge-offs at credit unions in the coming months.

With this uncertainty, it is essential that the Share Insurance Fund is strong and prepared. I remember when it was not. Less than 15 years ago, the Share Insurance Fund teetered precipitously close to a danger zone in the wake of the collapse of faulty mortgage-backed securities. The Temporary Corporate Credit Union Stabilization Fund allowed the system to absorb and pay back those losses over time, but it also led me to conclude that we should strengthen the Share Insurance Fund to better prepare for the future.

The staff’s recommendations to revise the existing policy based on changes in the system and set the normal operating level at 1.33 percent are prudent. This revised policy will continue the policy objectives of retaining public confidence in federal share insurance, preventing impairment of the one percent contributed capital deposit, and ensuring the Share Insurance Fund can withstand a moderate recession without the equity ratio declining below 1.20 percent over a five-year period. 

Given my experiences just over a decade ago, I would have preferred that we prepare for a severe recession, but I recognize the consensus on the Board lies elsewhere. What is more, the updated policy and resulting normal operating level for 2022 provides a measure of additional protection against the unknown as we navigate through the next phase of the pandemic. So, I will support the item before us today.

Finally, while the Share Insurance Fund continued to show solid performance throughout 2021, the equity ratio is projected to rise only to 1.28 percent at the end of the year. That is still below the new proposed normal operating level of 1.33 percent. As a result, credit unions should not expect a distribution in the near term. Additionally, the stresses on the equity ratio from continued share growth, the low interest-rate environment, at least historically, and insurance losses remain constant. So, the NCUA Board will need to continue to analyze the Fund’s risk exposure and remain prepared to act to ensure the continued stability of the Fund in the future.

As I have said before, the millions of members who utilize the national system of cooperative credit to meet their financial needs are counting on us to get it right, and we need to do just that.

That concludes my remarks. I now recognize Vice Chairman Hauptman.