NCUA Vice Chairman Kyle S. Hauptman during a meeting of the NCUA Board in Alexandria, Virginia.
As Prepared for Delivery on September 19, 2024
Yesterday, the Fed cut interest rates for the first time since March 2020 – that was at their emergency meeting the week that the COVID pandemic arrived. Markets are pricing in further cuts in the months ahead.
This matters to the Share Insurance Fund for two reasons:
NCUA has parked a lot of money in overnights and other short-term investments, so the Share Insurance Fund will receive lower income going forward from that sort of investing. Interest rates are just the price of money, and the NCUA is a seller of money, meaning we lend it out. And like any seller of anything, we get hurt when prices fall.
Secondly, and somewhat countering the first factor, is that credit unions face less interest-rate risk than they did during the Fed’s aggressive rate-hiking cycle. That was a major problem last year, but less so now. That’s a positive thing for the Share Insurance Fund, but one that’s hard to measure and obviously not reflected in today’s report. Our short-term income will be reduced, but so is the interest-rate risk facing credit unions. And risks to credit unions is why the share insurance exists in the first place.
The big picture is that despite ongoing economic uncertainty, the NCUA’s Share Insurance Fund remains well-capitalized and continues to perform effectively. This quarter, the Fund reported a net income of $86 billion, with its equity ratio decreasing slightly from 1.30 percent in December 2023 to 1.28 percent as of June 30, 2024. While this remains both well above the statutory floor and below the normal operating level, the equity ratio is higher than our projected 1.24 percent.
While we have witnessed robust growth in credit union shares since the pandemic, and to date, there has been no significant movement of deposits out of credit unions – share growth was only a little over 2 percent for the first half of the year, a bit smaller than expected. In Q2 of this year, NCUA resumed purchases in the ladder, while the overnights remained about the same. We’ve since seen a reduction in unrealized losses.
Lastly, I want to acknowledge the hard work your team put into the 2024 Mid-Session Budget Update. We are currently running a $5 million budget surplus, compared to $23 million last year.