WEBVTT NOTE This file was generated by Descript 00:00:00.400 --> 00:00:01.840 Samantha: This is Samantha Shares. 00:00:02.360 --> 00:00:06.500 This episode is the actual audio from the N C U A May Board meeting. 00:00:07.000 --> 00:00:08.980 But first a few words from our sponsor. 00:00:10.127 --> 00:00:10.607 Hey everyone. 00:00:10.607 --> 00:00:11.657 This is mark Treichel. 00:00:11.807 --> 00:00:15.077 And this is a different type of podcast. 00:00:15.077 --> 00:00:20.357 It is going to be an audio of the entire into a board meeting from 2024. 00:00:20.417 --> 00:00:22.067 There was only one agenda item. 00:00:22.187 --> 00:00:23.627 The insurance fund. 00:00:24.167 --> 00:00:24.707 Briefing. 00:00:25.067 --> 00:00:28.187 And there is also an interesting discussion. 00:00:28.517 --> 00:00:32.207 Between the two board members that were present again, chairman Todd Harper missed 00:00:32.237 --> 00:00:36.777 this meeting due to back surgery and is going to be out, until further notice, 00:00:36.817 --> 00:00:38.677 that'd beginning of this discussion. 00:00:39.307 --> 00:00:45.577 Kyle Helpmann talks about his displeasure on how the overdraft data gathering 00:00:45.577 --> 00:00:48.097 project at NCUA has been going. 00:00:48.127 --> 00:00:49.177 The fact that he. 00:00:49.807 --> 00:00:51.517 He has been ignored in the process. 00:00:52.037 --> 00:00:55.537 , and then, , board member, democratic board member, Tanya Otsuka goes 00:00:55.567 --> 00:00:57.517 on to explain her, take on it. 00:00:57.607 --> 00:01:01.637 And then they pivot into the insurance fund , which shows a camel code threes. 00:01:02.417 --> 00:01:04.307 Insured dollars went up. 00:01:04.577 --> 00:01:08.407 I'll have more on those topics, , next week, but I wanted to put 00:01:08.407 --> 00:01:12.727 up the entire audio of the board meeting about 35 minutes long and 00:01:12.757 --> 00:01:14.707 a good discussion on overdrafts. 00:01:14.797 --> 00:01:17.407 A good discussion on camel codes. 00:01:18.097 --> 00:01:21.547 And I will be cross posting this on. 00:01:21.997 --> 00:01:22.327 Both. 00:01:22.657 --> 00:01:23.887 By podcasts. 00:01:24.347 --> 00:01:27.077 Have a great Memorial day and. 00:01:27.077 --> 00:01:28.907 Give, thanks to those who served. 00:01:29.897 --> 00:01:30.987 Speaker: Good morning, everyone and welcome. 00:01:31.117 --> 00:01:33.207 I call this meeting of the board to order. 00:01:34.057 --> 00:01:37.287 In addition to those joining us in the boardroom today, I want to note that 00:01:37.397 --> 00:01:39.057 for the record today's meeting is open. 00:01:39.507 --> 00:01:42.237 To the public through a live webcast as well. 00:01:42.627 --> 00:01:45.637 For anyone watching online, if you'd like to view the closed captioning 00:01:45.647 --> 00:01:50.207 of the meeting, please click on the little CC icon located in the lower 00:01:50.237 --> 00:01:52.037 left corner of the WebEx window. 00:01:52.587 --> 00:01:54.837 You may also change the layout to one of your choosing by 00:01:54.837 --> 00:01:58.687 clicking the layout option on the top right side of your screen. 00:01:58.957 --> 00:02:02.627 Our recommended viewing option for this meeting is the stack view. 00:02:04.637 --> 00:02:06.907 Before we begin the formal agenda, we have a couple things to mention. 00:02:06.907 --> 00:02:10.132 This Most importantly, we all wish Chairman Harper well on 00:02:10.132 --> 00:02:11.732 his recovery from back surgery. 00:02:12.642 --> 00:02:15.672 We look forward to his return to regular duties in July. 00:02:16.532 --> 00:02:19.332 There are only two board members participating in today's meeting. 00:02:19.442 --> 00:02:21.662 This has happened before for various reasons, and I'm 00:02:21.662 --> 00:02:22.982 sure it will happen again. 00:02:23.662 --> 00:02:26.172 While out on medical leave, Chairman Harper, like the rest 00:02:26.172 --> 00:02:27.482 of us, did get some good news. 00:02:28.372 --> 00:02:32.152 NCUA Tide for number nine is the best places to work in the federal 00:02:32.162 --> 00:02:35.022 government for mid sized agencies, and I believe there's like 30 of them. 00:02:36.152 --> 00:02:39.362 This is based on the Federal Employee Viewpoint Survey produced by the 00:02:39.362 --> 00:02:41.992 Partnership for Public Service with Boston Consulting Group. 00:02:43.612 --> 00:02:49.232 In particular, NCUA's Office of the CFO, who is presenting today at the board 00:02:49.232 --> 00:02:54.047 meeting, place number five in the best places to work subcomponents department 00:02:54.107 --> 00:02:59.657 and there are a lot more of those So well done to Eugene and your team. 00:02:59.707 --> 00:03:02.887 All I want to say is you're number five you get one more spot to go 00:03:06.617 --> 00:03:11.957 Eugene got his name in the Washington Post Uh, about that ranking after the 00:03:12.037 --> 00:03:15.847 Silicon Valley Bank collapse 2023, Eugene Sheed and his team assessed how a similar 00:03:15.847 --> 00:03:19.197 exposure could impact federal credit unions and how they would ensure money 00:03:19.197 --> 00:03:20.847 was available if a credit union did fail. 00:03:20.897 --> 00:03:24.577 It was an exercise they say they handled easily because the team 00:03:24.587 --> 00:03:28.817 had reorganized themselves to share workloads better after the pandemic. 00:03:29.387 --> 00:03:32.407 She listened to their suggestions and put more emphasis on shortcuts 00:03:32.407 --> 00:03:34.577 and automations to ease the workload. 00:03:34.607 --> 00:03:35.807 There's no magic innovation. 00:03:35.807 --> 00:03:37.847 He said it was just going through having discussions. 00:03:38.347 --> 00:03:44.107 Uh, but to me, that is good management and, um, leaders of these 00:03:44.107 --> 00:03:46.367 agencies, just like politicians, sometimes get too much credit. 00:03:47.197 --> 00:03:47.827 And credit. 00:03:48.157 --> 00:03:49.867 And so you gotta take the wins while you're there. 00:03:50.137 --> 00:03:52.877 Uh, chairman Harper, even though he is recovering, uh, 00:03:52.877 --> 00:03:54.287 he is the leader of the agency. 00:03:54.287 --> 00:03:57.067 So this was good news for him, uh, while he was out. 00:03:57.127 --> 00:04:01.297 So congratulations to you guys and, uh, we hope to see Todd, uh, uh, fairly soon. 00:04:01.297 --> 00:04:02.257 I know he's recovering well. 00:04:02.437 --> 00:04:03.997 Board member SKO would like to say a few things. 00:04:04.477 --> 00:04:05.377 Speaker 3: Yes, thank, thanks. 00:04:05.467 --> 00:04:06.247 Vice Chair Hopman. 00:04:06.277 --> 00:04:09.397 Um, I wanna echo Vice Chair Attman's, uh, points on that. 00:04:09.727 --> 00:04:13.597 We're sending chair Harper all, you know, all the well wishes as he recovers, and 00:04:13.597 --> 00:04:15.487 we're looking forward to his return. 00:04:15.547 --> 00:04:16.717 And I also wanna. 00:04:17.222 --> 00:04:22.462 I'd like to share my congratulations, um, for the NCUA's receipt of the 00:04:22.462 --> 00:04:25.402 award as one of the top ten best mint sized government agencies to 00:04:25.402 --> 00:04:29.132 work for, and the Office of the Chief Economist for fifth best sub component, 00:04:29.222 --> 00:04:30.462 which is really an accomplishment. 00:04:31.062 --> 00:04:34.792 Um, Eugene and Melissa, and Melissa's going to be presenting today, later, uh, 00:04:34.792 --> 00:04:38.162 this is a testament to your leadership and your team's dedication to our mission. 00:04:38.712 --> 00:04:42.252 Um, and everybody at the agency has helped make the NCUA a place where people 00:04:42.252 --> 00:04:43.712 are proud to come to work every day. 00:04:44.192 --> 00:04:47.372 While there's always more work to be done to improve and grow as an agency, 00:04:47.762 --> 00:04:51.832 and we will continue to do that work, and as so many of you know, that work 00:04:51.832 --> 00:04:56.672 for an organization is always ongoing, um, it is still great to be recognized, 00:04:56.692 --> 00:05:01.612 and I congratulate the dedicated staff of the agency, um, on this achievement. 00:05:01.622 --> 00:05:03.042 So thank, thank you everyone. 00:05:05.377 --> 00:05:05.797 Thanks, Scott. 00:05:05.887 --> 00:05:06.357 Speaker: Okay. 00:05:06.507 --> 00:05:09.077 We have one other thing to mention before we get into the, 00:05:09.077 --> 00:05:12.137 uh, agenda with the CFO's office. 00:05:12.317 --> 00:05:16.487 Uh, I'd like to mention, uh, the changes to NCUA's all report. 00:05:24.647 --> 00:05:27.787 So I wanted to use this meeting, uh, to talk about NCUA's recent decision 00:05:27.787 --> 00:05:30.657 to require credit billions with assets over one billion to publicly 00:05:30.657 --> 00:05:34.177 publish their revenue from overdraft fees and fees for insufficient funds. 00:05:34.187 --> 00:05:36.867 So no one likes paying these fees. 00:05:37.847 --> 00:05:39.037 Uh, I paid them myself. 00:05:40.077 --> 00:05:44.737 But anytime you wake up and you have, and you owe X dollars that day. 00:05:45.822 --> 00:05:47.762 But you have less than X available. 00:05:48.992 --> 00:05:50.822 There are only a series of bad options. 00:05:52.702 --> 00:05:55.902 We are pressuring credit units to limit what is often the least bad option 00:05:55.922 --> 00:05:57.522 for members under financial stress. 00:05:57.842 --> 00:06:01.592 The reason for making the comments today is, uh, we haven't discussed 00:06:01.592 --> 00:06:03.442 these changes at a board meeting. 00:06:04.352 --> 00:06:06.462 And, uh, we don't have to. 00:06:07.612 --> 00:06:10.382 But because every time I go to an event, I can't go anywhere 00:06:10.382 --> 00:06:11.642 without hearing the same questions. 00:06:12.407 --> 00:06:14.927 Why are you doing to this, doing this to us? 00:06:14.927 --> 00:06:17.057 Do you realize how harmful it is to members? 00:06:18.457 --> 00:06:22.677 So my answers are, I wish NCUA was not doing it, especially on such short notice. 00:06:22.687 --> 00:06:26.087 And finally, yes, I understand how harmful it is to consumers, 00:06:26.177 --> 00:06:27.687 uh, and to credit unions. 00:06:28.547 --> 00:06:31.037 I found out about this burdensome requirement in January. 00:06:31.437 --> 00:06:34.857 In lieu of repeal, I have suggested several ways to make it less 00:06:34.887 --> 00:06:37.357 damaging to both credit unions and to our transference fund. 00:06:37.927 --> 00:06:40.177 For example, the same data could be collected in a manner where 00:06:40.177 --> 00:06:41.817 it's available to NCUA examiners. 00:06:42.122 --> 00:06:44.212 But published in aggregates. 00:06:45.342 --> 00:06:47.632 We could also listen to those pleading for adequate time to 00:06:47.632 --> 00:06:49.532 prepare and not publish the data. 00:06:49.812 --> 00:06:52.412 We could collect it now, but not publish it until next year. 00:06:52.582 --> 00:06:57.152 Especially since it's been harder than expected by myself and others. 00:06:57.392 --> 00:07:00.362 Harder than expected to figure out what numbers are to use for each category. 00:07:00.852 --> 00:07:03.152 Uh, my, all of my ideas were rejected. 00:07:03.752 --> 00:07:07.142 Credit unions will now face reputational risk for data that neither they 00:07:07.162 --> 00:07:09.252 nor the MQA knows to be correct. 00:07:11.282 --> 00:07:15.662 So, it appears we're another agency mathematically incentivizing institutions 00:07:15.662 --> 00:07:18.432 to avoid serving low income people. 00:07:20.582 --> 00:07:23.452 This policy is very clear, don't serve the underserved. 00:07:24.182 --> 00:07:26.412 It's not that most low income people 00:07:28.432 --> 00:07:31.572 have a lot of balanced checks, but most people who have overdraft are low income. 00:07:31.962 --> 00:07:32.572 That makes sense. 00:07:33.517 --> 00:07:35.747 We're now working against the Federal Credit Union Act, which 00:07:35.757 --> 00:07:42.117 mentions credit unions are to create credit for those of modest means. 00:07:42.527 --> 00:07:46.377 Well, it's not the rich that are going to worry about overdraft 00:07:46.377 --> 00:07:47.517 protection being removed. 00:07:47.897 --> 00:07:50.177 It's not those with secure, high paying jobs. 00:07:51.197 --> 00:07:53.597 They're going to suffer from further reduction in offers 00:07:53.607 --> 00:07:55.207 for free checking accounts. 00:07:56.537 --> 00:08:00.367 Make no mistake, N2A's requirement is designed to pressure those fees 00:08:00.377 --> 00:08:05.237 downwards, since one of the main reasons credit unions want more time to comply 00:08:05.467 --> 00:08:10.797 is to lower those fees and try to raise revenue from other people and to overall 00:08:10.807 --> 00:08:12.307 re evaluate their business model. 00:08:13.847 --> 00:08:15.007 We've seen this movie before. 00:08:16.992 --> 00:08:21.302 The bill had a provision on debit cards that contained government price setting, a 00:08:21.302 --> 00:08:26.092 provision that mathematically made it less profitable to serve low income people. 00:08:26.982 --> 00:08:30.402 The outcome was as painful as it was predictable. 00:08:30.942 --> 00:08:34.612 Free checking fell away significantly as new requirements kicked in for direct 00:08:34.612 --> 00:08:37.082 deposits, higher minimum balances, etc. 00:08:37.652 --> 00:08:41.842 Anyone who can't meet those requirements has to pay monthly account fees or lose 00:08:41.842 --> 00:08:43.892 access to the banking system and become 00:08:46.042 --> 00:08:46.352 unbanked. 00:08:46.482 --> 00:08:53.432 It doesn't seem odd for anyone to support regulations that make it infeasible to 00:08:53.432 --> 00:08:58.452 serve low income people and then talk about financial inclusion and lament the 00:08:58.452 --> 00:08:59.992 millions of Americans who are unbanked. 00:09:02.212 --> 00:09:05.992 Reminds us of a story about the guy that killed his own parents and asked 00:09:05.992 --> 00:09:07.362 for leniency because he's an orphan. 00:09:09.332 --> 00:09:11.482 Can we guarantee the SIF is better off because of this? 00:09:11.532 --> 00:09:11.932 Nope. 00:09:12.632 --> 00:09:14.362 And yet we're adding a regulatory burden. 00:09:16.467 --> 00:09:19.757 Two beneficiaries of this misguided interference are two interest groups. 00:09:20.547 --> 00:09:24.897 One, those who benefit politically, and two, members of the media who get to 00:09:24.897 --> 00:09:29.187 write clickbait articles that are often devoid of financial or business literacy. 00:09:29.247 --> 00:09:30.237 We've already seen this happen. 00:09:31.917 --> 00:09:34.497 It goes without saying that none of the people supportive of these 00:09:34.497 --> 00:09:38.287 policies will be out there with their own money to offer you a better deal 00:09:38.837 --> 00:09:42.447 when you're a few bucks short and desperately want to avoid a 500 leak 00:09:42.447 --> 00:09:43.977 fee to the government, which I've paid. 00:09:45.487 --> 00:09:46.297 And that's what's going to happen. 00:09:48.367 --> 00:09:50.497 Just like in 2010, it's a mathematical certainty. 00:09:51.887 --> 00:09:54.717 Overdraft protection in particular will become less common. 00:09:54.747 --> 00:09:58.537 Overdraft is when a credit union pays part of your bills for you when 00:09:58.537 --> 00:09:59.887 your account doesn't have enough. 00:10:00.767 --> 00:10:03.817 Anyone in a banking institution will tell you the most distraught 00:10:03.817 --> 00:10:08.417 customers are not those whose bills were paid for overdraft and paid a fee. 00:10:10.027 --> 00:10:12.377 Uh, as much as they don't like that 30 fee. 00:10:13.267 --> 00:10:17.817 Now, the most distraught customers are those upset that a bill wasn't 00:10:17.817 --> 00:10:22.757 paid due to insufficient funds, forcing them to pay much higher costs. 00:10:25.207 --> 00:10:31.527 Anyone would rather pay a 30, would rather pay 30 than a 500 government fee. 00:10:32.337 --> 00:10:35.427 What about someone in my position who owed 4, 000 to my state 00:10:35.427 --> 00:10:40.307 government and it's a 1, 000 fee? 00:10:41.002 --> 00:10:45.512 The next day, if I didn't pay that day, right, uh, DC is 25 percent 00:10:45.512 --> 00:10:47.882 automatically, then they add interest charges from there, okay? 00:10:48.602 --> 00:10:52.622 If I had a 3980 in my account, I would desperately want that to be paid. 00:10:53.112 --> 00:10:55.902 I paid the $30 fee instead of a thousand bucks. 00:10:59.252 --> 00:11:02.342 If my, you know, account was a few bucks short of 4,000, would I rather 00:11:02.342 --> 00:11:06.472 pay $30 overdraft or be forced to pay the extra thousand to the government? 00:11:06.732 --> 00:11:08.172 Remember, I was short of cash to start with. 00:11:08.412 --> 00:11:09.852 The thousand dollars fee didn't help. 00:11:11.262 --> 00:11:16.422 Uh, remember years ago I was living in an expensive city, LA uh, on $27,000 a year 00:11:16.422 --> 00:11:18.162 salary while paying my student loans. 00:11:18.862 --> 00:11:20.972 Went to go to work one morning and saw my car was gone. 00:11:20.982 --> 00:11:21.682 I called the police. 00:11:22.872 --> 00:11:25.832 Turns out it wasn't stolen, it was towed for late registration. 00:11:26.742 --> 00:11:29.362 Back then, I was constantly juggling payments, trying to avoid 00:11:29.362 --> 00:11:31.392 the highest costs of being broke. 00:11:32.212 --> 00:11:36.202 The highest costs were, and are, invariably charged by the same governments 00:11:36.202 --> 00:11:37.592 that lecture the private sector. 00:11:38.222 --> 00:11:41.952 Governments charge fees and use coercive tactics that are significantly worse 00:11:41.992 --> 00:11:44.812 than anything labeled a junk fee. 00:11:45.532 --> 00:11:49.877 And yet, we rarely hear, about government's fees and actions from self 00:11:49.877 --> 00:11:52.247 proclaimed consumer protection advocates. 00:11:52.967 --> 00:11:56.287 Anyway, about my car that was towed, I wound up paying six times total 00:11:56.297 --> 00:11:58.787 the registration fee after paying the government for impound costs, 00:11:58.807 --> 00:12:00.827 other charges, but I was lucky. 00:12:01.777 --> 00:12:04.757 I had a salary job, at least, and I could call work and say 00:12:04.757 --> 00:12:05.947 I wasn't coming in that day. 00:12:07.417 --> 00:12:10.377 Millions of Americans in that situation would lose a day's pay. 00:12:11.657 --> 00:12:16.657 Then there are those whose government had towed their car or put a boot in it, and 00:12:17.167 --> 00:12:18.687 their car's gone, or they can't use it. 00:12:19.232 --> 00:12:22.632 And they're late to work, which is a parole violation. 00:12:24.662 --> 00:12:26.712 Of course you would pay 30 to avoid that. 00:12:27.272 --> 00:12:30.622 That is the real world reality that people live in every day. 00:12:30.982 --> 00:12:36.222 Anyone whose account is slightly short of money would rather pay a 30 overdraft 00:12:36.542 --> 00:12:39.822 than miss the child support payment that is the only way they can get 00:12:39.822 --> 00:12:41.452 visitation to see their child that year. 00:12:41.992 --> 00:12:43.172 That's the real world. 00:12:44.182 --> 00:12:47.702 I do agree there are only bad choices for anyone short of cash. 00:12:48.632 --> 00:12:52.202 There may be policies to make life more affordable and less inflationary. 00:12:52.502 --> 00:12:56.622 Uh, one thing Senator Schatz from Hawaii often says is, uh, he quotes a 00:12:56.622 --> 00:13:00.952 study that up to a third of late fees, credit cards and late fees overdraft, 00:13:01.242 --> 00:13:05.022 up to a third of them would go away if we had faster settlement, meaning 00:13:05.023 --> 00:13:07.472 all the money coming your way was already accessible in your account. 00:13:08.052 --> 00:13:11.392 Okay, so faster, but there are ways to alleviate this issue and I, and I sure 00:13:12.342 --> 00:13:18.392 both policies and the private sector create those, but there is a real world 00:13:18.412 --> 00:13:22.132 people live in, and there's only bad choices when you don't have enough money. 00:13:22.722 --> 00:13:25.562 But NCWA's recent policy and overdrafts and NSC fees. 00:13:25.583 --> 00:13:29.010 People will say I'm going to move, uh, back, and I say, But I'm going 00:13:29.010 --> 00:13:30.382 to do something else for you. 00:13:30.382 --> 00:13:32.667 They're going to ask you, Well, what are you doing? 00:13:32.667 --> 00:13:35.181 Uh, I'm going to ask you to bring me that thing. 00:13:35.181 --> 00:13:38.380 I'm going to go back and I'm going to do something else for you. 00:13:38.380 --> 00:13:41.808 So I'm going to go back and I'm going to say, All right, I've got 00:13:41.808 --> 00:13:43.636 that thing and I'm going to do this. 00:13:43.636 --> 00:13:45.007 I'm going to say, Okay, good. 00:13:49.147 --> 00:13:54.637 No regulation or law passed by government repeals the law laws of economics. 00:13:55.767 --> 00:13:56.567 That's it board member. 00:13:56.567 --> 00:13:57.637 Oh, it's good Would you like to make a few remarks? 00:13:58.547 --> 00:14:04.437 Speaker 3: Thank you vice chair Hoffman so, you know, I I also wanted 00:14:04.867 --> 00:14:10.632 to speak a little bit about the the Uh, the overdraft and NSF fees. 00:14:10.702 --> 00:14:16.772 Um, so, you know, I think the NCOA has a responsibility to make 00:14:16.772 --> 00:14:19.782 sure that we have a safe and sound system of cooperative credit. 00:14:20.432 --> 00:14:23.132 And we also have a mandate to ensure that credit unions are 00:14:23.132 --> 00:14:24.742 following all applicable laws. 00:14:25.162 --> 00:14:27.982 And I agree that credit unions. 00:14:28.262 --> 00:14:31.052 The purpose of credit unions are to serve those of modest means. 00:14:31.092 --> 00:14:34.962 I, I would like to see more credit unions serve more low income 00:14:34.962 --> 00:14:39.032 people, more underserved people, more people of modest means. 00:14:39.832 --> 00:14:43.282 The action that NCOA has taken over the years with respect to overdraft 00:14:43.282 --> 00:14:48.322 fee income Overdraft and fee income is consistent with those responsibilities. 00:14:49.752 --> 00:14:52.932 It's important for the NCUA to understand the data both at the 00:14:52.972 --> 00:14:55.342 institution level and system wide. 00:14:55.872 --> 00:14:59.042 We need to make sure that it is transparent for credit unions, 00:14:59.722 --> 00:15:02.022 credit union members, and the public. 00:15:02.762 --> 00:15:06.252 Overdraft practices and fees should already be disclosed to members and 00:15:06.252 --> 00:15:07.952 in compliance with applicable laws. 00:15:08.822 --> 00:15:12.642 An over reliance on overdraft and NSF fees adversely affects both 00:15:12.642 --> 00:15:14.312 members and their credit unions. 00:15:15.077 --> 00:15:19.087 So, institutions that rely more on fee income can have greater concentration 00:15:19.117 --> 00:15:22.227 risk, and that is a significant concern. 00:15:22.228 --> 00:15:28.317 NCUA supervisory priorities over the years have included overdrafts. 00:15:29.107 --> 00:15:33.337 Uh, in 2018 and 2019, NCUA examiners reviewed credit union overdraft 00:15:33.337 --> 00:15:37.017 practices, including opt in disclosures and conducted transaction testing. 00:15:37.412 --> 00:15:40.362 To verify that credit unions were complying with the applicable regulatory 00:15:40.362 --> 00:15:45.052 provisions in 2022, examiners requested information about a credit union's 00:15:45.052 --> 00:15:50.372 policies and procedures governing its overdraft programs in 2023, and CUA 00:15:50.372 --> 00:15:53.572 examiners started conducting reviews of overdraft website advertising, 00:15:53.992 --> 00:15:59.882 balance calculation methods, settlement processes, um, and more, 00:16:00.142 --> 00:16:03.962 excuse me, for federal credit unions with assets of 500 million dollars. 00:16:04.297 --> 00:16:05.017 Uh, or more. 00:16:06.667 --> 00:16:11.367 And I think that, again, that, that, you know, focus on both the safety 00:16:11.367 --> 00:16:14.497 and soundness side of the, side of things and the consumer protection 00:16:14.507 --> 00:16:16.747 side of things are equally important. 00:16:18.657 --> 00:16:23.797 Over the years, I have heard from so many consumers, including credit union 00:16:23.797 --> 00:16:32.697 members, about Overdraft practices and, and, and fees and, you know, Vice Chair 00:16:32.697 --> 00:16:39.497 Hottman did raise a lot of good points about how when you are struggling to make 00:16:39.517 --> 00:16:43.837 ends meet, you may need to overdraft. 00:16:44.507 --> 00:16:48.147 But I've also heard from a lot of consumers about excessive overdrafts, 00:16:48.148 --> 00:16:55.057 overdrafting over and over and over again, pushing their account even further. 00:16:56.962 --> 00:16:57.742 into the red. 00:16:58.212 --> 00:17:04.842 And so there needs to be some recognition that, that our agency has 00:17:04.842 --> 00:17:08.392 a responsibility to make sure that those practices are not happening. 00:17:09.082 --> 00:17:14.342 With respect to the reporting of the data on fee income, I think it's 00:17:14.342 --> 00:17:16.512 really important not to prejudge. 00:17:17.822 --> 00:17:21.412 We can't assume a narrative before assessing the data in aggregate. 00:17:22.362 --> 00:17:25.712 And I think that The public does have a right to know. 00:17:26.082 --> 00:17:29.522 Members have a right to know what that fee income looks like. 00:17:29.572 --> 00:17:33.612 The agency needs to know from a system wide safety and soundness perspective. 00:17:34.122 --> 00:17:36.672 And I know our staff is, is looking at that. 00:17:37.052 --> 00:17:38.742 But I do think it's important not to prejudge. 00:17:38.742 --> 00:17:43.837 I've heard a lot of concerns about What this means, you know, whether there 00:17:43.837 --> 00:17:48.197 is going to be risk for institutions or not about the perception of their, 00:17:48.877 --> 00:17:52.977 their overdraft programs, a lot of that information is already disclosed. 00:17:53.627 --> 00:17:57.677 And again, members, members should know member owners, right? 00:17:57.687 --> 00:18:00.737 This is, this is important for member owners. 00:18:01.527 --> 00:18:06.067 There's also many credit unions who do not charge overdraft fees and who also 00:18:06.067 --> 00:18:08.027 are able to serve low income people. 00:18:09.157 --> 00:18:10.587 I think really here. 00:18:11.452 --> 00:18:17.372 My focus is on how this is going to help members, and how this is 00:18:17.372 --> 00:18:21.652 going to help us as an agency make sure that we can keep a safe and 00:18:21.652 --> 00:18:23.212 sound system of cooperative credit. 00:18:23.982 --> 00:18:29.912 And this is not, there is nothing that, in this, that will, you know, 00:18:29.932 --> 00:18:33.572 we are requiring a ban on overdraft. 00:18:33.582 --> 00:18:42.312 But, um, you know, I've also heard that These changes may have an 00:18:42.332 --> 00:18:46.332 impact on what credit unions do. 00:18:46.352 --> 00:18:48.782 Each credit union has a very different overdraft program, 00:18:48.782 --> 00:18:50.622 as, as you all know, as I know. 00:18:51.392 --> 00:18:57.312 Um, but in the financial services sector over the past five or so 00:18:57.312 --> 00:19:01.042 years, many institutions have started to get rid of overdraft. 00:19:01.252 --> 00:19:04.292 And so the market forces are already in play as well. 00:19:05.212 --> 00:19:12.172 Um, so again, you know, I, I just, I want to emphasize that I don't 00:19:12.172 --> 00:19:13.712 think we should prejudge the data. 00:19:14.262 --> 00:19:20.702 Um, I think we should see what the lay of the land looks like, and I, I look forward 00:19:20.702 --> 00:19:25.382 to reviewing it to get a better sense of what it looks like from a safety and 00:19:25.382 --> 00:19:30.562 soundness perspective and from a consumer protection standpoint, um, and I look 00:19:30.562 --> 00:19:34.552 forward to working with my fellow board members and with members of the public, 00:19:35.012 --> 00:19:41.047 um, on whether any additional steps are necessary, but, um, You know, I think, 00:19:41.967 --> 00:19:46.447 I, I think it would be, it's a, it's a helpful exercise and one that I think our 00:19:46.447 --> 00:19:48.747 agency has a responsibility to look into. 00:19:49.357 --> 00:19:51.267 So thanks, Vice Chair Hoffman. 00:19:51.937 --> 00:19:53.127 Yes, uh, thank you for those 00:19:53.127 --> 00:19:56.947 Speaker: remarks, uh, and I, uh, completely agree on there are some 00:19:56.987 --> 00:20:02.727 unsavory practices out there, ordering of payments, racking up fees, uh, 00:20:02.837 --> 00:20:06.527 that didn't have to happen, purposely structuring your transactions and running 00:20:06.537 --> 00:20:11.507 badges so that on a given day you got more fees incurred than you had to. 00:20:11.578 --> 00:20:13.757 I 100 percent agree on that. 00:20:14.187 --> 00:20:18.537 Um, I do, uh, if the market is changing and I have heard of that, well, that's 00:20:18.537 --> 00:20:21.437 just a reason to say we shouldn't have to force or pressure people to 00:20:21.437 --> 00:20:23.937 if the market's already doing it, you can't have both opinions at once. 00:20:24.587 --> 00:20:27.837 Um, and, but the market will change and better, like we said, faster 00:20:27.837 --> 00:20:30.247 payments, the financial system will change for the better as it has 00:20:30.247 --> 00:20:32.177 for the last, you know, 100 years. 00:20:32.447 --> 00:20:35.537 Uh, I do believe that the ones who say we don't want to charge overdrafts, 00:20:35.577 --> 00:20:37.077 they just return more items. 00:20:37.517 --> 00:20:40.097 Uh, they just don't pay them, uh, if you're short. 00:20:40.657 --> 00:20:42.987 Um, no one else is going to pay my bills for me. 00:20:43.677 --> 00:20:45.867 Indefinitely, without some kind of compensation. 00:20:46.097 --> 00:20:47.397 So they just return more. 00:20:47.567 --> 00:20:49.787 Uh, so those examples that I gave, uh, would be there. 00:20:49.787 --> 00:20:52.557 Plus, if you're going through the mortgage process, the last thing 00:20:52.557 --> 00:20:55.377 you need, right, when you're about to buy, when you're trying to buy 00:20:55.377 --> 00:20:56.787 a home, is a ding on your credit. 00:20:57.587 --> 00:20:58.917 Like a late payment, you know. 00:20:59.047 --> 00:21:03.407 Uh, so instead of overdraft though, just do, uh, return your credit card payment. 00:21:03.537 --> 00:21:05.877 And now you have a late payment that can cost you a quarter point. 00:21:05.877 --> 00:21:06.137 In D. 00:21:06.137 --> 00:21:06.327 C. 00:21:06.327 --> 00:21:10.482 that'd be 35, 000 on the average mortgage, uh, over the life of it. 00:21:10.932 --> 00:21:13.152 Um, I appreciate those remarks. 00:21:13.192 --> 00:21:19.562 Let's now invite Melissa up here for the one official item of the day. 00:21:19.732 --> 00:21:22.532 Uh, we are going to get a report on the Share Insurance Fund. 00:21:24.002 --> 00:21:28.192 The staff presenting is Melissa Loudon, Deputy Chief Financial Officer. 00:21:28.222 --> 00:21:31.262 Melissa, this is the first time you've That 00:21:32.042 --> 00:21:34.592 Speaker 4: this is the first time I've presented the share insurance fund 00:21:34.592 --> 00:21:38.622 quarterly I've been at the board table before but I usually have a co presenter. 00:21:38.672 --> 00:21:39.532 So it's a little 00:21:42.562 --> 00:21:48.852 Speaker: Yeah, you are the rather name on the marquee, all right, let's do it. 00:21:48.852 --> 00:21:49.172 Good morning. 00:21:49.172 --> 00:21:50.197 What's up begin whenever you're ready 00:21:50.647 --> 00:21:51.287 Speaker 4: Okay, thanks. 00:21:51.777 --> 00:21:54.967 Good morning, Vice Chairman Hoffman and Board Member Oskar. 00:21:55.037 --> 00:21:58.587 I'm pleased to present the 2024 First Quarter Statistics 00:21:58.597 --> 00:21:59.927 for the Shared Insurance Fund. 00:22:00.727 --> 00:22:03.927 Before I begin, I'd like to mention the NCUA released its 00:22:03.957 --> 00:22:07.907 2023 Annual Report, which is published on our agency's website. 00:22:08.187 --> 00:22:11.767 The report was again recognized with a Certificate of Excellence 00:22:11.777 --> 00:22:12.867 in Accountability Reporting. 00:22:13.697 --> 00:22:18.467 I want to thank our OCFO team, our partners in the Office of External Affairs 00:22:18.467 --> 00:22:22.807 and Communications, and other staff in the agency who contributed to making 00:22:22.807 --> 00:22:27.407 this an informative report on NCUA's programs, performance, and finances. 00:22:32.207 --> 00:22:32.717 Slide two. 00:22:38.017 --> 00:22:42.827 This table shows the funds, revenue, and expense for the first quarter of 2024. 00:22:43.112 --> 00:22:47.912 For the quarter that ended March 31st, the fund recorded a net income of 68. 00:22:47.962 --> 00:22:48.942 1 million. 00:22:49.492 --> 00:22:51.212 A few highlights are as follows. 00:22:51.832 --> 00:22:54.532 Total income was 133. 00:22:54.532 --> 00:22:58.652 7 million for the quarter, mainly from investment income of Treasury securities. 00:22:59.222 --> 00:23:02.622 Investment income increased 6 percent compared to the prior quarter 00:23:02.642 --> 00:23:06.852 and increased 47 percent compared to the first quarter of 2023. 00:23:07.902 --> 00:23:10.242 Operating expenses were 59. 00:23:10.242 --> 00:23:14.102 7 million for the quarter, primarily due to the overhead transfer 00:23:14.112 --> 00:23:16.212 for agency operating expenses. 00:23:17.352 --> 00:23:21.212 The provision for insurance losses reserve expense increased by 8. 00:23:21.262 --> 00:23:22.862 1 million during the quarter. 00:23:25.142 --> 00:23:25.572 Slide three. 00:23:25.582 --> 00:23:25.782 Thank you. 00:23:29.857 --> 00:23:34.517 This table shows the funds balance sheets as of March 31st, 2024, 00:23:34.707 --> 00:23:36.247 compared to the previous quarter. 00:23:36.877 --> 00:23:40.218 As of March 31st, total assets were valued at 21. 00:23:40.218 --> 00:23:44.837 6 billion, of which 98 percent were funds held with the U. 00:23:44.837 --> 00:23:45.007 S. 00:23:45.017 --> 00:23:49.087 Treasury in cash, overnight investments, and long term Treasury notes. 00:23:50.027 --> 00:23:52.157 A few highlights to take away from this slide. 00:23:52.742 --> 00:23:56.842 are that the fund recognized the capitalization deposits receivable of 212. 00:23:56.842 --> 00:23:58.752 3 million. 00:23:58.962 --> 00:24:05.212 In addition, accounts payable and other liabilities include a refund of 238. 00:24:05.252 --> 00:24:09.152 8 million to credit unions with declining insured shares. 00:24:10.042 --> 00:24:13.632 This resulted in a net refund of about 26. 00:24:13.652 --> 00:24:17.062 5 million and reflects the net decline in insured shares 00:24:17.072 --> 00:24:19.052 during the second half of 2023. 00:24:20.747 --> 00:24:23.407 Cumulative results of operations increased by 8. 00:24:23.457 --> 00:24:25.717 3 million due to 68. 00:24:25.757 --> 00:24:31.317 1 million in net income offset by an unrealized loss on investments of 59. 00:24:31.318 --> 00:24:31.747 8 million. 00:24:34.247 --> 00:24:34.967 Slide four. 00:24:38.517 --> 00:24:41.697 The fund records an insurance program liability comprised of 00:24:41.697 --> 00:24:43.667 general and specific reserves. 00:24:44.097 --> 00:24:47.657 This is a contingency to cover anticipated future losses resulting 00:24:47.657 --> 00:24:49.267 from insured credit union failures. 00:24:50.282 --> 00:24:54.202 Each quarter, we assess the reserve needs for potential and actual credit 00:24:54.202 --> 00:24:57.692 union failures to make a reasonable estimate of potential losses. 00:24:58.502 --> 00:25:01.342 During the first quarter, the reserve balance increased by 8. 00:25:01.382 --> 00:25:05.392 5 million, primarily due to the increase in general reserve. 00:25:05.942 --> 00:25:08.862 The reserve balance totaled 217. 00:25:08.902 --> 00:25:11.862 5 million and is comprised of 7. 00:25:11.862 --> 00:25:15.412 3 million for specific reserves and 210. 00:25:15.472 --> 00:25:17.352 2 million for general reserves. 00:25:19.922 --> 00:25:20.472 Slide 5. 00:25:24.102 --> 00:25:26.172 Through the first quarter of 2024. 00:25:26.427 --> 00:25:29.927 There were no credit union failures that incurred losses to the fund. 00:25:32.457 --> 00:25:33.267 Slide six. 00:25:36.237 --> 00:25:39.727 As of March 31st, 2024, the fund had over 22. 00:25:39.727 --> 00:25:44.407 2 billion at par value invested in Treasury securities with 00:25:44.407 --> 00:25:46.827 maturities until May 2030. 00:25:47.627 --> 00:25:50.498 The weighted average life of securities held by the fund is 2. 00:25:50.498 --> 00:25:51.587 2 years. 00:25:51.747 --> 00:25:55.617 The weighted average yield of the securities increased 10 basis points 00:25:55.617 --> 00:25:58.257 from the last quarter to 2.43%. 00:25:59.377 --> 00:26:05.367 During the first quarter of 20 24, 4 Treasury notes matured for $650 million. 00:26:05.787 --> 00:26:13.297 These securities had yields ranging from 0.2% to 2.26% as of last night. 00:26:13.687 --> 00:26:18.307 The portfolio balance invested in overnights now stands at 5.6 billion 00:26:18.457 --> 00:26:21.277 at a rate of 5.37 basis points. 00:26:23.727 --> 00:26:24.387 Slide seven. 00:26:28.232 --> 00:26:31.542 The equity ratio is updated on a semiannual basis. 00:26:31.892 --> 00:26:36.912 As of December 31st, 2023, the equity ratio was 1. 00:26:36.913 --> 00:26:40.562 30 percent and was calculated using an insured share base of 1. 00:26:40.562 --> 00:26:42.002 7 trillion. 00:26:42.762 --> 00:26:46.162 The blue line across the chart represents the normal operating level. 00:26:46.622 --> 00:26:51.252 This was last set and approved by the board in December 2021, and the 00:26:51.252 --> 00:26:54.702 current level remains unchanged at 1. 00:26:54.703 --> 00:26:54.952 33%. 00:26:57.632 --> 00:26:58.172 Slide 8. 00:27:02.572 --> 00:27:06.512 The projected equity ratio for June 30th, 2024 is 1. 00:27:06.512 --> 00:27:11.872 24%, a decrease of 6 basis points from the current equity ratio. 00:27:12.712 --> 00:27:16.932 The projected decline is due primarily to the forecasted insured share growth. 00:27:17.432 --> 00:27:21.762 The projected equity ratio is calculated on the same basis as the actual 00:27:21.762 --> 00:27:25.832 equity ratio and the formula and calculation are shown on this slide. 00:27:29.297 --> 00:27:29.827 Slide 9. 00:27:34.187 --> 00:27:38.507 This slide shows the percentages of insured shares by CAMELS codes from 00:27:38.507 --> 00:27:41.737 2019 through the first quarter of 2024. 00:27:42.777 --> 00:27:48.037 In the graph, the dark blue represents CAMELS coded 4 or 5, the gray represents 00:27:48.037 --> 00:27:52.297 CAMELS coded 3, and the light blue represents CAMELS coded 1 or 2. 00:27:53.632 --> 00:27:56.802 During the quarter, the percentage of insured shares at credit unions 00:27:56.802 --> 00:28:03.072 Camel's Coded 3, 4, or 5 increased, while Camel's Coded 1 or 2 decreased. 00:28:04.162 --> 00:28:08.202 The table below the graph shows the number of credit unions by Camel's Codes. 00:28:08.882 --> 00:28:14.742 The total number of credit unions as of March 31st was 4, 578. 00:28:15.142 --> 00:28:18.282 This is a decrease of 44 credit unions from the prior quarter. 00:28:19.892 --> 00:28:20.472 Slide 10. 00:28:24.392 --> 00:28:28.432 This slide compares credit unions CAMELS code by asset size. 00:28:28.832 --> 00:28:33.022 The CAMEL code 4 or 5 credit unions are shown on the left hand side and 00:28:33.022 --> 00:28:36.752 CAMELS coded 3 credit unions are shown on the right hand side of the graph. 00:28:37.807 --> 00:28:43.327 Looking at the 125 credit unions Camels coded 4 or 5, most of these 00:28:43.327 --> 00:28:47.257 credit unions continue to have assets of 100 million or less. 00:28:47.787 --> 00:28:52.167 For those with assets greater than 100 million, there were two additional credit 00:28:52.167 --> 00:28:55.137 unions in the 100 to 500 million range. 00:28:55.477 --> 00:28:59.227 For those greater than 500 million, There was one more credit union 00:28:59.227 --> 00:29:03.047 from December 2023 to March 2024. 00:29:03.827 --> 00:29:07.847 During the quarter, both assets and insured shares for credit unions 00:29:07.847 --> 00:29:09.847 CAMELS coded 4 or 5 increased. 00:29:11.797 --> 00:29:17.767 Considering that 760 credit unions CAMELS coded 3, 92 percent of these credit 00:29:17.767 --> 00:29:20.227 unions have assets less than 500 million. 00:29:21.427 --> 00:29:25.717 During the quarter, there was a decrease in credit unions with assets less than 00:29:25.717 --> 00:29:30.687 100, 000, 000 and an increase in credit unions with assets in the 100, 000, 000 00:29:30.687 --> 00:29:35.767 to 500, 000, 000 and greater than 500, 000, 000 ranges for Campbell's Coded III. 00:29:36.807 --> 00:29:40.847 During the quarter, both assets and insured shares for credit unions 00:29:40.847 --> 00:29:42.667 Campbell's Coded III increased. 00:29:44.967 --> 00:29:45.697 Slide 11. 00:29:48.657 --> 00:29:51.617 The supplemental slides provided with this presentation include 00:29:51.617 --> 00:29:54.707 more investment information to help interested parties better 00:29:54.707 --> 00:29:56.697 understand the operations of the fund. 00:29:57.317 --> 00:29:58.377 Thank you for your time. 00:29:58.487 --> 00:30:02.137 This concludes my presentation and I'm happy to answer your questions. 00:30:03.217 --> 00:30:04.017 Speaker: Thank you, Melissa. 00:30:04.857 --> 00:30:06.647 Well done for your first in any year, or any time. 00:30:07.427 --> 00:30:12.787 Uh, so rewind back to 2022, the NCOA increased its share of investments 00:30:12.787 --> 00:30:16.437 in overnight funds with a goal of at least 4 billion in overnight funds. 00:30:16.497 --> 00:30:19.937 Uh, last year at this time, we'd gotten 2. 00:30:19.937 --> 00:30:23.687 4 billion in overnight funds, at that time earning over 5%. 00:30:24.487 --> 00:30:27.647 And today, we've got over 5. 00:30:27.677 --> 00:30:31.047 5 billion in overnight funds, earning about 5. 00:30:31.087 --> 00:30:31.637 4%. 00:30:32.807 --> 00:30:35.957 And looking forward, you know, we saw the Fed at its latest meeting. 00:30:36.433 --> 00:30:40.133 Kept rates steady again at its range of five and a quarter to five and a half. 00:30:40.913 --> 00:30:43.363 The stuff was easier before the financial crisis when they just picked 00:30:43.363 --> 00:30:45.343 one number, right, to talk about. 00:30:45.893 --> 00:30:49.223 The big change in the last few months is that expectations for industry cuts have 00:30:51.233 --> 00:30:54.113 So, for those selling money, i. 00:30:54.113 --> 00:30:54.243 e. 00:30:54.253 --> 00:30:55.083 rent to get out to the U. 00:30:55.083 --> 00:30:55.193 S. 00:30:55.203 --> 00:30:56.913 Treasury, that brings some good news. 00:30:57.083 --> 00:30:58.883 Industry rates are the price of money. 00:30:59.883 --> 00:31:03.063 And the share insurance fund is solely a seller of money. 00:31:03.723 --> 00:31:07.293 So, like any seller of anything, high prices are good. 00:31:08.343 --> 00:31:11.083 So, that's the part of the numerator. 00:31:11.443 --> 00:31:15.993 In our equity ratio, and while the Fed seems to be done hiking interest 00:31:15.993 --> 00:31:18.893 rates, credit unions continue to deal with balance sheet challenges to the 00:31:18.893 --> 00:31:21.103 last few years of rapid rate hikes. 00:31:21.383 --> 00:31:24.493 The percentage of insured shares in credit unions with Campbell's four 00:31:24.493 --> 00:31:28.503 and five, that's our lowest two ratings, uh, inched higher to 0. 00:31:28.553 --> 00:31:29.863 35 percent from 0. 00:31:30.133 --> 00:31:30.433 28. 00:31:33.083 --> 00:31:39.223 The if we throw in Campbell rating three and worse, we're go from 7. 00:31:39.223 --> 00:31:39.442 8 up to 8. 00:31:39.443 --> 00:31:40.243 6. 00:31:40.243 --> 00:31:41.263 These do not seem like. 00:31:42.453 --> 00:31:44.923 But, uh, historically, they do usually mean something. 00:31:45.993 --> 00:31:47.473 But credit unions have continued to form well. 00:31:47.963 --> 00:31:48.953 Uh, they are resilient. 00:31:48.973 --> 00:31:49.833 They have been resilient. 00:31:49.843 --> 00:31:52.783 In 2023, there were only three credit union failures that cost 00:31:52.783 --> 00:31:54.552 the SIF money, totaling just 1. 00:31:54.552 --> 00:31:55.843 4 million in losses. 00:31:56.093 --> 00:31:58.853 And as of this report, there have been no credit union 00:31:58.853 --> 00:32:01.242 failures that cost money in 2024. 00:32:02.123 --> 00:32:04.853 But of course, the insurance business is about unpredictable events. 00:32:04.863 --> 00:32:08.123 Share insurance, like any insurance, is there for the chaotic times. 00:32:08.398 --> 00:32:10.518 That often follow years of calm. 00:32:11.368 --> 00:32:13.418 So today, we heard from the CFO's office, they project 00:32:13.418 --> 00:32:14.758 the CIFS equity ratio to be 1. 00:32:14.988 --> 00:32:17.298 24 when we recalculated in June. 00:32:17.718 --> 00:32:21.758 That's the projection, although as we sit here today, the ratio remains at 1. 00:32:21.758 --> 00:32:22.147 30. 00:32:22.228 --> 00:32:23.128 So why is it falling? 00:32:23.638 --> 00:32:28.468 As my colleague so ably explained, much of that downward move is to the projected 00:32:28.588 --> 00:32:30.908 5 percent growth in insured shares. 00:32:31.338 --> 00:32:36.128 So that's the denominator getting bigger, which is In general, it is a good thing. 00:32:36.188 --> 00:32:39.278 We at NCUA like to see steady growth at credit unions. 00:32:39.278 --> 00:32:43.208 That is to say, uh, steady growth is good as a stand alone variable. 00:32:43.378 --> 00:32:46.178 We're aware that the quality of growth, uh, matters a lot. 00:32:47.438 --> 00:32:48.888 Credit union liquidity continues to be an issue. 00:32:48.898 --> 00:32:52.118 I'd like to remind everyone that credit unions can and should have access to a 00:32:52.118 --> 00:32:55.668 range of liquidity sources, including NCUA's central liquidity facility. 00:32:56.698 --> 00:32:59.378 So, the small credit unions out there that may not have liquidity 00:32:59.378 --> 00:33:02.598 options set up, I strongly encourage those institutions to do so. 00:33:02.828 --> 00:33:05.378 You can talk to your examiner, you can talk to your league, talk 00:33:05.378 --> 00:33:06.498 to your corporate credit union. 00:33:08.608 --> 00:33:11.078 There are ways to handle a short term liquidity challenge and 00:33:11.078 --> 00:33:12.858 survive to fight another day. 00:33:13.138 --> 00:33:16.598 If you could see a liquidity crisis coming, because if you could 00:33:16.598 --> 00:33:20.148 see a liquidity crisis coming, it wouldn't be called a crisis. 00:33:21.338 --> 00:33:22.848 For I conclude my remarks. 00:33:23.763 --> 00:33:24.683 I've got one question. 00:33:25.293 --> 00:33:30.033 So Melissa, we're pleased that the fund has taken advantage of high 00:33:30.103 --> 00:33:33.103 short term rates, all that money in overnight's other short term 00:33:33.103 --> 00:33:37.523 paper, but obviously the pendulum swings the other direction someday. 00:33:38.743 --> 00:33:40.603 How do we prepare for possible rate cuts, Butterfed? 00:33:41.733 --> 00:33:42.113 Speaker 4: Sure. 00:33:42.143 --> 00:33:43.213 Thanks for the question. 00:33:43.403 --> 00:33:47.443 Um, the aim of the Funds Investment Committee is to pursue 00:33:47.543 --> 00:33:49.393 safety, liquidity, and yield. 00:33:50.033 --> 00:33:53.513 Um, the portfolio is comprised of readily available overnight 00:33:53.513 --> 00:33:57.103 funds and term investments that mature at regular intervals. 00:33:57.533 --> 00:34:00.233 Um, the committee does not try to time the market, and instead 00:34:00.233 --> 00:34:02.303 we rely on a ladder strategy. 00:34:02.353 --> 00:34:06.083 Um, in the current quarter, the committee reinvested all maturities 00:34:06.093 --> 00:34:07.933 back into the treasury ladder. 00:34:07.933 --> 00:34:08.162 Sure. 00:34:08.383 --> 00:34:11.913 These longer maturities create added earning stability and lock 00:34:11.913 --> 00:34:14.063 in higher yields if rates decline. 00:34:14.283 --> 00:34:15.383 That concludes my response. 00:34:15.413 --> 00:34:15.583 Speaker: Thank you. 00:34:15.583 --> 00:34:17.673 I appreciate the comment about not timing the market. 00:34:17.913 --> 00:34:21.283 Far more money has been lost by trying to time the market than has ever been gained. 00:34:22.243 --> 00:34:23.103 That concludes my remarks. 00:34:23.113 --> 00:34:23.973 Over to Board Member Oldsco. 00:34:25.023 --> 00:34:25.543 Speaker 3: Thank you. 00:34:26.103 --> 00:34:27.573 And thanks, Melissa, for the briefing. 00:34:27.613 --> 00:34:32.333 Um, so NCO's job is to protect members shares at credit unions, 00:34:32.783 --> 00:34:35.923 and we can't fulfill that mission of protecting our system. 00:34:36.773 --> 00:34:40.193 Of cooperative credit without an adequately funded share insurance fund. 00:34:40.783 --> 00:34:44.613 So I'm encouraged by the strong performance of the share insurance fund. 00:34:45.243 --> 00:34:48.433 We continue to see a trend of fewer failing credit unions combined with the 00:34:48.433 --> 00:34:53.903 higher yields, which have resulted in substantial net income for the fund. 00:34:54.443 --> 00:34:58.953 Year over year, our investment income has grown by approximately 40 million 00:34:58.953 --> 00:35:02.023 dollars in the fourth quarter of 2023. 00:35:02.023 --> 00:35:04.912 The fund had its highest yield in the decade at 2. 00:35:04.912 --> 00:35:07.713 33 percent, and this quarter surpassed that at 2. 00:35:07.713 --> 00:35:09.012 43 percent. 00:35:10.493 --> 00:35:13.693 Our investment strategy of investing in a 10 year treasury ladder that 00:35:13.693 --> 00:35:17.673 distributes our net income evenly and investments with varying maturities 00:35:17.713 --> 00:35:19.773 continues to be prudent and successful. 00:35:20.413 --> 00:35:24.273 This will provide balance to the weighted average life of the fund and ensure more 00:35:24.273 --> 00:35:29.003 stable returns in the future, particularly if, if interest rates fall over time. 00:35:30.013 --> 00:35:32.713 Um, however, I still have some concerns that the chair insurance 00:35:32.713 --> 00:35:36.353 fund has been below the normal operating level since June, 2019. 00:35:36.933 --> 00:35:40.863 So my question, one of my questions is, Melissa, can you, um. 00:35:41.143 --> 00:35:44.673 Can you speak to what contributes to the downward pressure on that equity 00:35:44.673 --> 00:35:49.743 ratio and why, why the projected number, um, can sometimes be different than 00:35:49.743 --> 00:35:51.853 the actual ratio we calculate in June? 00:35:52.023 --> 00:35:52.393 Speaker 4: Sure. 00:35:52.453 --> 00:35:52.703 Yeah. 00:35:52.713 --> 00:35:53.713 Thanks for the question. 00:35:54.143 --> 00:35:58.332 So the decline between the year end equity ratio of 1. 00:35:58.332 --> 00:36:00.768 30 percent and the June projection of 1. 00:36:00.768 --> 00:36:01.243 24. 00:36:01.243 --> 00:36:01.717 Thanks. 00:36:01.718 --> 00:36:03.998 percent reflects historical trend. 00:36:04.598 --> 00:36:08.238 The June equity ratio is typically lower than the year end equity ratio 00:36:08.238 --> 00:36:12.488 because projected insured share growth is usually more robust earlier in the year. 00:36:13.648 --> 00:36:18.568 With steady earnings and few losses to the fund, the main driver with the equity 00:36:18.568 --> 00:36:20.958 ratio calculation will be insured shares. 00:36:21.468 --> 00:36:26.488 Um, the June 2024 projection is based on an estimated 5 percent 00:36:26.788 --> 00:36:29.108 um, increase in insured shares. 00:36:29.428 --> 00:36:32.908 And all other things equal, if the actual insured share growth 00:36:32.908 --> 00:36:37.778 falls short of 5%, the actual June 30 equity ratio may be higher. 00:36:38.318 --> 00:36:39.498 This concludes my response. 00:36:39.668 --> 00:36:40.128 Speaker 3: Thank you. 00:36:40.158 --> 00:36:40.898 Thank you for that. 00:36:41.498 --> 00:36:44.018 And I think I mentioned this last quarter as well. 00:36:44.018 --> 00:36:46.748 But another concern is the percentage of insured shares held 00:36:46.748 --> 00:36:48.808 by the camels code 3 credit unions. 00:36:49.468 --> 00:36:54.818 Um, this percentage has more than triple between 2021 and 2023, more 00:36:54.818 --> 00:36:56.248 than doubled from 2022 to 2023. 00:36:57.613 --> 00:36:59.573 And the trend continues into this quarter. 00:37:00.083 --> 00:37:05.893 Um, So, you know, this percentage of share is held by, uh, CAMEL 3 credit unions is 00:37:05.943 --> 00:37:11.723 almost, has grown almost a full percentage point, um, in first quarter 2024 alone. 00:37:12.063 --> 00:37:14.773 Even though we did see a decrease in the number of credit unions rated 00:37:14.773 --> 00:37:16.043 as a three over the last quarter. 00:37:16.473 --> 00:37:19.363 So, you know, there's a bit of fluctuation going on, but it 00:37:19.373 --> 00:37:21.013 still seems like it's a concern. 00:37:21.443 --> 00:37:24.853 Um, do you see any implications for the fund if this trend continues? 00:37:25.843 --> 00:37:26.423 Speaker 4: Um, sure. 00:37:26.433 --> 00:37:27.523 Thanks for the question. 00:37:27.603 --> 00:37:32.913 Uh, To calculate general reserves, the NCOA uses an econometric reserve 00:37:32.943 --> 00:37:38.503 model, and the model uses external economic predictors and also 00:37:38.523 --> 00:37:42.683 individual credit union specific data, call report data, camel's code 00:37:42.693 --> 00:37:47.553 data, to predict the probability of failure and estimated expected loss. 00:37:48.078 --> 00:37:52.518 So, based on the information that we get from that model, the SIF records 00:37:52.518 --> 00:37:54.608 an insurance program liability. 00:37:54.978 --> 00:38:00.698 Uh, increasing percentages of insured shares in CAMELS coded 3, 4, 5, um, 00:38:00.768 --> 00:38:04.978 could pose higher risk in the system and increase SIF reserve needs. 00:38:05.468 --> 00:38:06.598 That concludes my response. 00:38:06.818 --> 00:38:06.938 Got 00:38:06.938 --> 00:38:07.048 Speaker 3: it. 00:38:07.128 --> 00:38:07.678 Thank you. 00:38:08.288 --> 00:38:11.568 Um, well, there's many signs that show stability and growth of the 00:38:11.568 --> 00:38:15.018 share insurance fund now is the time as opposed to during a crisis. 00:38:15.583 --> 00:38:19.103 Uh, to think about what can go wrong and how to safeguard against those scenarios. 00:38:19.103 --> 00:38:23.553 I think Vice Chair Hoffman shared a similar sentiment, uh, about preparing 00:38:23.553 --> 00:38:27.103 for, for the, the crisis situation when, when there's good times. 00:38:27.763 --> 00:38:30.103 So it's important we, as the board, continue to balance the 00:38:30.103 --> 00:38:32.893 short term and long term needs of the fund to ensure credit union 00:38:32.893 --> 00:38:34.923 members are ultimately protected. 00:38:35.373 --> 00:38:36.393 Um, so thanks, Melissa. 00:38:36.393 --> 00:38:39.393 to you and the team for your work on this. 00:38:39.463 --> 00:38:41.633 Um, and I have no further questions. 00:38:42.183 --> 00:38:42.913 Although I did. 00:38:43.858 --> 00:38:47.718 One thing, Vice Chair Hoffman, that you mentioned in our overdraft 00:38:47.718 --> 00:38:49.628 discussion was, um, faster settlement. 00:38:50.238 --> 00:38:54.648 Um, you know, I know, I agree, I think faster settlement is really important. 00:38:55.218 --> 00:39:00.148 Um, I know there's a lot of credit unions that are, um, currently trying to, you 00:39:00.148 --> 00:39:03.708 know, try to take advantage of FedNow and some of the, some of the work there. 00:39:03.708 --> 00:39:07.428 So, um, you know, I'd love to, I'd love to talk more about that. 00:39:07.428 --> 00:39:12.008 And I, you know, to the extent that credit unions want to, um, you know, Become 00:39:12.018 --> 00:39:17.088 members of FedNow and and use that that service to increase the settlement times. 00:39:17.088 --> 00:39:20.458 I think that's a really great development So ha you know open 00:39:20.458 --> 00:39:21.548 to further discussion on that. 00:39:21.668 --> 00:39:21.968 Speaker: Mm 00:39:21.978 --> 00:39:21.988 Speaker 3: hmm. 00:39:22.158 --> 00:39:27.678 Speaker: I mentioned that For all the hype and abuse the crypto world gets 00:39:27.678 --> 00:39:32.108 and it deserves a lot of it Stable coins instant settlement 24 hours a day 00:39:32.128 --> 00:39:35.918 are one of the main actual legit use cases that are used all over the world 00:39:37.008 --> 00:39:38.688 Remittances people use them constantly. 00:39:38.688 --> 00:39:42.243 It's a 24 7 Actual sediment. 00:39:42.503 --> 00:39:43.413 It is pretty cool. 00:39:43.813 --> 00:39:45.883 Uh, that is the end of our agenda today. 00:39:45.943 --> 00:39:46.773 That being no further business