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This podcast provides you the ability to listen to new regulatory guidance issued by the National Credit Union Administration, and occasionally the F D I C, the O C C, the F F I E C, or the C F P B. We will focus on new and material agency guidance, and historically important and still active guidance from past years that NCUA cites in examinations or conversations. This podcast is educational only and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated. We also have another podcast called With Flying Colors where we provide tips for achieving success with the N C U A examination process and discuss hot topics that impact your credit union.
Samantha: Hello, this is Samantha Shares.
This episode covers N C U A Chairman
Todd Harper's Written Testimony Before
the House Financial Services Committee
The following is an audio
version of that testimony.
This podcast is educational
and is not legal advice.
We are sponsored by Credit Union
Exam Solutions Incorporated, whose
team has over two hundred and
Forty years of National Credit
Union Administration experience.
We assist our clients with N C
U A so they save time and money.
If you are worried about a recent,
upcoming or in process N C U A
examination, reach out to learn how they
can assist at Mark Treichel DOT COM.
Also check out our other podcast called
With Flying Colors where we provide tips
on how to achieve success with N C U A.
And now the testimony.
N C U A Chairman Todd Harper's
Written Testimony Before the
House Financial Services Committee
Chairman McHenry, Ranking Member
Waters, and members of the committee,
thank you for the invitation to
discuss the operations, programs, and
initiatives of the National Credit
Union Administration (N C U A).
In todayâs testimony, I will discuss
the current state of the credit
union system; the agencyâs efforts
to maintain its safety and soundness,
protect the consumers who use credit
unions, advance economic opportunity;
the N C U Aâs response to Hurricanes
Helene and Milton; and several of
the N C U Aâs legislative requests.
State of the Credit Union System
Overall, the credit union system remains
strong, although there are some warning
signs of potential weaknesses that
the N C U A is closely monitoring.
Namely, the agency is seeing growing
signs of weak loan performance, declining
capital levels, rising delinquency
rates, and lower earnings across the
system and at specific institutions.
Credit Union System Performance
As of June 30, 2024, federally insured
credit unionsâ aggregate net worth
ratio was 10.84 percent, an increase
of 22 basis points over the year.
Year-over-year growth in
assets and lending continued,
albeit at a slower pace.
For the first time since 2008,
quarter-to-quarter asset growth was
negative; however, the total assets of
the credit union system nearly reached 2.3
trillion dollars, while total outstanding
loans exceeded 1.6 trillion dollars.
Year-over-year share growth
remains positive, even after
negative quarter-to-quarter
share growth in June 2024.
Like negative asset growth, declining
total shares were last seen during 2008.
The industryâs return on average assets
has slowed compared to one year earlier
but remains sound at 0.69 percent.
The net interest margin has also
increased to near the levels prior to
the most recent rise in interest rates.
Credit loss reserving expense has
increased given relatively high and
rising loan delinquency and charge-offs.
Consumer financial stress
continues to flow through credit
unionsâ loan performance data.
The delinquency rate for total loans
and leases rose to 0.84 percent in the
second quarter of 2024, nearing the
level last observed in December 2014.
Meanwhile, the rolling 12- month
net charge-off rate climbed to 0.79
percent, marking the highest rate
since mid- 2012, when consumers were
recovering from the Great Recession.
Despite the deterioration in loan
performance and earnings, net worth
levels indicate the credit union system
generally remains resilient and liquidity
appears to have stabilized during 2024.
We, however, continue to see the
effects of consumer financial stress
across the system and at specific
institutions as demonstrated in the
industryâs overall CAMELS composite
ratings.
Approximately one in five federally
insured credit unions has a composite
CAMELS code rating of 3, 4, or 5.
Especially concerning is the increasing
number of complex credit unions with 500
million dollars or more in assets falling
into the troubled categoryâCAMELS code 4
or 5 ratingsâduring the second quarter.
The number of troubled complex
credit unions, those with 500 million
dollars or more in assets, tripled
in the second quarter of 2024 alone,
and the amount of assets at these
institutions grew by more than fivefold.
At the end of the second quarter, CAMELS
code 3, 4, and 5 credit unions held
10.01 percent of the industryâs assets.
It has been nearly a decade since
the N C U A last experienced this
proportion of insured shares at risk.
The decline in CAMELS ratings is a
contributing factor to the increase
in the reserves held in the Share
Insurance Fund, which increased nearly
14 percent from 209 million dollars
at the start of 2024 to 231.7 million
dollars at the end of the third quarter.
External Factors Affecting
the Credit Union System
The current economic environment has
posed continuing challenges for some
consumers and many credit unions.
Although inflation has retreated,
the general price level is
higher than a few years ago.
Higher prices, along with
elevated interest rates, have
strained household budgets.
Loan performance has accordingly weakened.
Interest rates have also started
to decrease and are expected to
decline further in the year ahead.
In the near term, however, the
elevated interest rate environment
may deteriorate loan performance
further as adjustable-rate loans
reprice at higher interest rates.
Further, the resumption of reporting
delinquent federal student loans
to credit bureaus will likely lower
credit scores for many borrowers.
These loans were not reported
between September 30, 2023,
and September 30, 2024.
Likewise, commercial real estate
lending, particularly within the
office sector, continues to show
signs of stress because of the
prevalence of hybrid work environments.
While the credit union system has modest
exposure to commercial real estate, the
N C U A continues to monitor twenty-six
individual credit unions with material
exposure to this type of lending.
Share Insurance Fund Performance
Backed by the full faith and credit of
the United States, the National Credit
Union Share Insurance Fund provides
insurance coverage for individual accounts
up to 250,000 dollars at federally
insured credit unions.2 As of June 30,
2024, the Share Insurance Fund insured
1.76 trillion dollars in shares
and deposits and 91.2 percent of
total shares and deposits in the
credit union system.
In comparison, uninsured shares and
deposits equaled nearly 169.4 billion
dollars, or 8.8 percent of total shares
and deposits, as of June 30, 2024.
The Share Insurance Fund
continues to perform well, with
no premiums expected at this time.
As of June 30, 2024, the Share Insurance
Fund reported a year-to-date net income of
154.3 million dollars, a net position
of 21.3 billion dollars, and an
equity ratio of 1.28 percent, which is
below the 1.33 percent normal operating
level set by the N C U A Board.3 Because
of the stress in the credit union
system resulting from liquidity and
interest rate risks, the N C U A has
increased the Share Insurance Fundâs
liquidity position in recent years.
As of June 30, 2024, the Share
Insurance Fundâs overnight investment
balance was 5.7 billion dollars.
The N C U A Board will continue to
closely monitor credit union and Share
Insurance Fund performance and make
needed adjustments to further consumer
confidence within the credit union system.
State of the Central Liquidity Facility
A credit unionâs ability to effectively
deal with liquidity risk in all economic
environments, especially during times of
systemic stress and reduced liquidity,
underscores the importance of the N
C U Aâs Central Liquidity Facility
(CLF) to individual credit unions
and the broader credit union system.
The CLF currently has 431 credit
union members of varying asset sizes,
representing 9.3 percent of all
institutions within the credit union
system.4 These credit unions have
access to approximately 21.7 billion
dollars in contingent liquidity
funding from this federally backed
source.
Under the N C U Aâs regulations,
credit unions with assets of 250
million dollars or more are required
to have access to a contingent federal
liquidity sourceâthe CLF, the Federal
Reserveâs Discount Window, or bothâas
part of their contingency funding plan.
Credit unions with less than 250 million
dollars in assets, while not required
to have a membership with a contingent
federal liquidity source, must identify
external sources as part of their
policies or contingency funding plans.
In December 2022, the CLFâs temporary
statutory enhancements that facilitated
the agent membership of corporate
credit unionsâcredit unions providing
payment and other financial services
to consumer credit unionsâexpired.5 At
that time 3,323 consumer credit unions
with less than 250 million dollars in
assets, or approximately 67 percent
of all credit unions, lost access to
approximately 27.5 billion dollars in
contingent liquidity through the CLF.
To address this issue, the N C U A
Board has repeatedly and unanimously
asked Congress for permanent statutory
authority to allow corporate credit
unions and other agent members of the
CLF to purchase capital stock for a
subset of the credit unions they serve.
These statutory adjustments will
make the CLF a more affordable
option for corporate credit unions
to subscribe to the CLF on behalf of
their smaller credit union members
while also providing greater access
to liquidity for more credit unions.
The Congressional Budget Oice
has scored the CLF reforms
at no cost to the taxpayer.6
Eforts to Protect and Strengthen
the Credit Union System
The N C U A over the last year has
worked to enhance cybersecurity, promote
the prudent adoption of new financial
technologies, enforce consumer financial
protection laws and regulations, support
minority depository institutions,
advance diversity within the agency
and industry, and strengthen the
resiliency of the credit union system.
Enhancing Cybersecurity
Overall, 442 credit unions with more
than 1 billion dollars in assets
hold 77.2 percent of industry assets.
As a result of this concentration, a
cybersecurity vulnerability at a large
credit union may threaten the safety
and soundness of the entire system.
Moreover, cybersecurity threats within the
interconnected financial services industry
remain high and show no signs of abating.
The N C U A, therefore, is fully committed
to enhancing its cybersecurity examination
program and related activities.
Last year, the N C U A deployed
its updated, scalable, and
risk-focused Information Security
Examination (ISE) procedures.
The ISE examination provides examiners
with standardized review steps to
facilitate data collection and analysis.
The N C U A also continues to expand
its partnerships with the Cybersecurity
and Infrastructure Security Agency and
the Federal Bureau of Investigation to
support credit unions, especially as the
number of ransomware incidents increase.
In addition, the N C U Aâs cyber incident
reporting rule that went into effect on
September 1, 2023, requires a federally
insured credit union to report a cyber
incident to the agency as soon as
possible but no later than 72 hours after
the credit union reasonably believes a
reportable cyber incident has occurred.
The N C U A uses this information
to understand potential cyber
threats to the credit union system
and to provide recommendations to
protect credit union and member
information.7 After one year, the
N C U A has received more than
1,000 reportable cyber incidents.
The data also shows that 7 out of
10 reportable cyber incidents are
related to credit union vendors,
further underscoring the need for
Congress to reinstate the N C U Aâs
third-party vendor examination authority,
which is further discussed below.
The N C U A also provides credit
unions the Automated Cybersecurity
Evaluation Toolbox (A C E T).
This tool allows credit
unions of all asset sizes to
conduct cybersecurity maturity
assessments to measure their preparedness.
The ACET maturity assessment is
voluntary for all credit unions.
Enforcing Consumer Financial
Protection Laws and Regulations
An essential part of the N C U
Aâs statutory responsibilities
is to examine credit unions with
10 billion dollars or less in assets
for compliance with consumer financial
protection laws and regulations.
The agencyâs consumer compliance
oversight ensures the credit union
system not only protects credit union
member-owners from unfair practices or
predatory products but also meets the
saving and credit needs of its members,
especially those of modest means.
In 2024, the agency focused its
attention on overdraft programs, fair
lending, automobile lending, Truth
in Lending Act requirements, and
Guaranteed Asset Protection insurance.
The N C U A also prioritized
credit union compliance with the
Flood Disaster Protection Act.
The N C U A has also recently
increased visibility into the
overdraft and non-sufficient funds
fees charged by credit unions.
Beginning with the 2024 first quarter
Call Report, the N C U A has required
federally insured credit unions with
more than 1 billion dollars in assets
to separately disclose their income from
overdraft and non-sufficient funds fees.
In addition to promoting transparency,
these Call Report changes allow
credit unions to benchmark their
overdraft programs against their peers.
Separate from the agencyâs annual
supervisory priorities for consumer
financial protection, the agency
completes fair lending examinations
at selected institutions.
In the N C U Aâs fair lending examinations
conducted in 2023 and 2024, the agency
identified some patterns or practices of:
Discrimination based on age and marital
status, Illegal race-based redlining,
Indirect lending pricing concerns,
Home Mortgage Disclosure Act violations,
Equal Credit Opportunity Act
notification and government
monitoring information violations,
Servicemembers Civil
Relief Act violations, and
Instances of inadequate fair lending
compliance management systems.
The N C U Aâs fair lending efforts aim
to create a financial system that works
for all Americans, regardless of their
race, ethnicity, age, sex, orientation,
marital status, religion, or disability.
By working to enforce fair lending and
consumer financial protection laws, the N
C U A is ensuring that the American system
of cooperative credit remains faithful to
its mission of âpeople helping people.â
In 2024, the N C U A referred
six credit unions to the U.S.
Department of Justice for illegal
age discrimination, one for age
and marital status discrimination,
and one for race-based redlining.
These referrals have affected over 23,000
consumers, and associated remediation
expenses exceeded 500,000 dollars.
Separately, the U.S Department of
Justice announced in October the first
ever race-based redlining settlement
against a federally insured credit union.
In February of this year, the N C
U A also joined with other Federal
Financial Institution Examination
Council (FFIEC) agencies to issue a
statement of examination principles
related to valuation discrimination and
bias in residential real estate lending.
These principles assess whether credit
unionsâ compliance and risk management
practices are sufficient to identify
and mitigate discrimination or bias in
their residential real estate valuation
practices.
In July, the N C U A again collaborated
with the other FFIEC agencies
to issue Interagency Guidance on
Reconsiderations of Value (ROV) of
residential real estate valuations.
The guidance offers examples
of ROV policies and procedures
that a financial institution may
implement to help identify, address,
and mitigate discrimination risk.
Also in July, the N C U A, the other
FFIEC agencies, and the Federal Housing
Finance Agency issued the Automated
Valuation Model (AVM) final rule
as required by the Dodd-Frank Wall
Street Reform and Consumer Protection Act.
The rule implements quality control
standards, including a non-discrimination
standard, for A V Mâs used by mortgage
originators and secondary market issuers.
Supporting Minority
Depository Institutions
Minority depository institutions
(MDIs) offer safe, fair, and affordable
financial services and products to
minority individuals and communities
that the financial services system
has historically underserved.
At the end of the second quarter of 2024,
there were 490 MDI credit unionsâmore
than one in ten federally insured
credit unionsâcollectively serving more
than 6.6 million members and holding
assets of more than 90 billion dollars.
MDI credit unions tend to be smaller
institutions with approximately 183
million dollars in average assets.
Yet, their financial performance measures,
including return on average assets, net
worth ratio, and net interest margins,
are frequently comparable to and often
exceed those of other credit unions.
In 2022, the N C U A launched the Small
Credit Union and MDI Support Program to
provide these institutions with help on a
range of operational and financial topics.
For 2024, the N C U A allocated 4,600
staff hours across its three regions to
support MDIs through this initiative.
Further, MDI credit unions with a
low-income designation are eligible
for Community Development Revolving
Loan Fund grants and loans.
In the 2024 grant round, 39 MDIs
received nearly 1.4 million dollars
in technical assistance grants.
These grants assist MDIs in remaining
competitive by helping them expand access
to fair and affordable products, offer
new and innovative financial products
and services tailored to the needs of
their members and communities, build
greater internal capacity, and bolster
cybersecurity systems and practices.
Congress authorized all MDIs to be
eligible for Revolving Loan Fund grants
and loans during the 2023 grant round.
However, that authorization was not
extended in the 2024 appropriation,
removing access to the Revolving
Loan Fund for nearly 100 MDIs.
The N C U A accordingly requests
lawmakers reinstate eligibility
for all MDI credit unions.
Promoting Financial Technology
The financial technology industry is
rapidly evolving with developments
to enhance products and services.
To address these developments
the N C U A has recently:
Established a public-facing financial
technology and digital asset webpage;
Updated the share insurance FAQs to
clarify that digital assets do not
qualify for share insurance coverage;
Established office hours to
engage credit unions and financial
technology companies; and
Updated the Credit Union Profile to
collect information about credit unionsâ
use of financial technology companies.
Based on data collected by the
N C U A, few credit unions use
distributed ledger technology or
offer cryptocurrency services, through
third-party vendors, to their members.
The agency is monitoring the use of these
technologies to ensure proper governance,
risk management, and compliance.
Advancing Diversity, Equity,
Inclusion, and Accessibility
The N C U A is committed to promoting
diversity, equity, inclusion, and
accessibility (DEIA) within the
agency and the credit union system.
The agency advances these principles
through external initiatives, like its
annual DEI Summit, an MDI Symposium, the
statutorily mandated voluntary Credit
Union Diversity Self-Assessment, and
internal efforts such as employee resource
groups (ERGs), outreach to potential
suppliers, and hiring initiatives to
encourage a diverse pool of applicants.
The agencyâs Federal Employee
Viewpoint Survey results show that
the N C U A draws strength from
diverse talents and perspectives.
The agency uses data from the survey,
including the DEIA index, to inform its
data-driven strategies and activities.
In 2024, the index revealed that 79.1
percent of N C U A respondents reported
positive perceptions of agencyâs
practices related to DEIA, compared
with the government-wide DEIA index
average of 72.8 percent and 76.2
percent for medium-sized agencies.
The N C U A also supports workforce
diversity, equity, inclusion, and
belonging through its training,
outreach, and recruitment; special
emphasis programs; and ERGs.
During fiscal year 2024, 42.5 percent
of N C U A employees were members of
an ERG, putting the N C U A well above
the standard membership goal of 10
percent of an organizationâs workforce.
The agency continues building a diverse
talent pipeline to attract, hire,
and retain highly skilled employees.
Since 2017, the N C U A has consistently
exceeded the federal employment goals
for employees with disabilities and
employees with targeted disabilities.
In fiscal year 2024, 17.7 percent
of the agencyâs workforce was made
up of individuals with disabilities,
and 4.4 percent of employees reported
having a targeted disability.14
The N C U A supports accessibility
through its hiring efforts,
reasonable accommodations program,
Disability Solutions Desk, and
Section 508 compliance program.
In the General Services Administrationâs
2023 report to Congress on compliance
with Section 508 of the Rehabilitation
Act of 1973, the N C U A had a
maturity level of Moderate and a
conformance level of Very High.
The N C U A is also building a
diverse supplier network to obtain
innovative solutions and the best
value for its contract actions,
particularly in information technology.
By fiscal year-end 2024, the agency
awarded 42.2 percent of reportable
contract dollars to minority-owned
or women-owned businesses.
To promote DEIA in the broader credit
union industry, the N C U A provides
credit unions a voluntary diversity
self-assessment tool to measure
their progress in applying DEIA
principles.
The N C U A administers the
self-assessment through a third party
and receives and reports aggregate data
in its Office of Minority and Women
Inclusion Annual Report to Congress.
Rulemaking Activities
During the last two quarters, the N C U A
has pursued several rulemaking activities.
In April, for example, the N C U A
Board issued an advance notice of
proposed rulemaking to improve and
update the agencyâs records preservation
program regulation and accompanying
guidelines.
In 2023, the N C U A received
feedback that aspects of Part 749 were
potentially burdensome and unclear.
Based on this feedback, the Board
sought input on whether there was a
need to update Part 749 to ensure that
credit unions continue to properly
preserve records vital to their business
operations, the N C U Aâs supervisory
needs, and the needs of their members.
In July, the N C U A Board
approved a proposed rule on
incentive-based compensation as
required by the Dodd-Frank Act.
Specifically, Section 956 of the
Dodd-Frank Act requires that the
appropriate federal regulators
jointly issue regulations or
guidelines prohibiting incentive-based
compensation arrangements at
covered financial institutions that
encourage inappropriate risks by
providing excessive compensation or that
could lead to material financial loss.
These standards must also
require those covered financial
institutions to disclose information
concerning incentive-based
compensation arrangements to the
appropriate federal regulator.
Also in July, the N C U A Board
approved a proposed rule requiring
federally insured credit union boards
of directors to establish, and update
at least annually, written succession
plans for key positions.
A succession plan would be required
to include a credit unionâs strategy
for recruiting candidates to each of
the key positions and to promote the
credit unionâs safe and sound operation.
The revised proposed rule is based
on a 2022 proposal and includes
several changes based on industry
comments and feedback received.
The lack of succession planning continues
to be cited as a driving factor in
credit union mergers, and the revised
proposal aims to moderate some of
those factors leading to such mergers.
The interagency notice of proposed
rulemaking required by the Financial Data
Transparency Act of 2022 was published in
the Federal Register on August 22, 2024.
This joint proposal serves to promote the
interoperability of financial regulatory
data across the financial regulatory
agencies through the establishment
of data standards for identifiers of
legal entities and other information
collections submitted to the agencies.
Once the interagency rule is
finalized, the N C U A will develop
an agency-specific rule to determine
the applicability of the joint
standards to the collections of
information under its purview.
In September, the N C U A Board approved
a final rule to implement the Fair Hiring
in Banking Act, enacted by Congress in the
2022 National Defense Authorization Act.
As required by Congress, the final
rule allows people with convictions
for certain minor or older offenses
to work in the credit union industry
without applying for the N C U A Boardâs
approval.
Section 205(d) of the Federal Credit Union
Act, as amended by the Fair Hiring in
Banking Act, generally prohibits, except
with the prior written consent of the N C
U A Board, a person who has been convicted
of or has a program entry for certain
criminal offenses involving dishonesty
or breach of trust from participating
in the affairs of a credit union.
The final rule addresses the individuals
and types of offenses covered by Section
205(d) and the N C U Aâs procedures
for reviewing a consent application.
This final rule also aligns the N C U
Aâs regulations with those of the Federal
Deposit Insurance Corporation (FDIC).
Also in September, the N C U A Board
approved a final rule which simplifies the
N C U Aâs share insurance regulations by
establishing a âtrust accountsâ category
to provide coverage of funds in both
revocable and irrevocable trusts deposited
at federally insured credit unions in the
accounts of members or those otherwise
eligible to maintain insured accounts.
The rule aligns the insurance coverage
provided to federally insured credit
union membersâ revocable and irrevocable
trust accounts with the coverage provided
to consumers who maintain the same
accounts at federally insured banks.
Hurricane Recovery Eforts
Given the importance of hurricane recovery
efforts to the Chairman and members of
the committee, the N C U A has worked
diligently in recent weeks to respond to
Hurricane Helene and Hurricane Milton.
Hurricane Helene struck the
âbig bendâ area of the Florida
Panhandle as a Category 3 hurricane on
September 26, affecting several states.
Hurricane Milton followed closely
behind as a Category 3 on October 9
near Siesta Key, Florida, primarily
affecting Florida and Georgia.
Credit unions worked quickly
to resume services, where
possible, at affected branches.
Credit unions also undertook unprecedented
efforts to respond to a need for cash when
the telecommunications needed to operate
credit and debit services broke down.
N C U A staff additionally contacted
113 low-income designated credit
unions in the worst-hit areas to
inform them on how to receive emergency
grants and loans from the Community
Development Revolving Loan Fund.
The N C U A also delayed its examination
and supervision activity and provided
extensions for regulatory filing
deadlines so the management of affected
credit unions could focus on restoring
facilities and services to their members.
Legislative Requests
As the current Congress draws to a
close and lawmakers prepare for a
new Congress, the N C U A suggests
certain statutory changes to better
enable the agency to achieve its
mission to protect the system of
cooperative credit and its member-owners
through effective chartering,
supervision, regulation, and insurance.
Restoring Third-Party Vendor Oversight
Credit unions frequently engage
third-party vendors and credit
union service organizations to
improve operational efficiencies
and enhance member services.
The N C U Aâs lack of third-party
vendor oversight remains a significant
regulatory blind spot that has led to
vulnerabilities in the credit union system
and obstacles to effective collaboration
amongst all financial regulatory agencies.
Credit unions holding approximately
90 percent of industry assets use
key services provided by unregulated
third-party service providers, posing
potential risks to financial stability.
Last November, a single third-party
vendorâs cybersecurity incident disrupted
the daily operations of 60 credit unions.
In June, a large credit union with
9.5 billion dollars in assets reported
the personal information of more
than one million current and former
members and employees had been
accessed during a ransomware attack.
The breach initially occurred on May 23,
but the ransomware hackers did not shut
down most of the credit unionâs online
and mobile banking systems until June 29.
These incidents highlight a significant
vulnerability to the 2.3 trillion
dollar credit union industry and have
the capacity to debilitate our nationâs
critical infrastructure if left unchecked.
At a minimum, this lack of visibility
impacts credit union safety and
soundness and the Share Insurance Fund.
If Congress were to restore vendor
authority, the N C U A would implement
this oversight through a risk-based
examination program focusing on
services related to safety and
soundness, information security,
cybersecurity, BSA/AML compliance,
consumer financial protection, and
areas posing significant financial
risk for the Share Insurance Fund and
national economic security.
Having this oversight would reduce
N C U Aâs requests to credit
unions for intervention when
vendors are experiencing problems.
It would also provide credit unions with
access to N C U A examination summaries
to aid in their due diligence of vendors.
This ability is currently available
to commercial banks, not credit
unions, which places the industry
at a competitive disadvantage.
Independent entities like the Government
Accountability Office, the Financial
Stability Oversight Council, and the
N C U Aâs Oice of Inspector General
have all identified this deficiency
as a significant obstacle to the N
C U Aâs financial stability mission.
Reforming the Central Liquidity Facility
As discussed earlier in this testimony,
the N C U A Board unanimously supports
a proposed statutory amendment to allow
corporate credit unions to serve as CLF
agents for their member credit unions.
A bipartisan bill introduced in the
first session of the 118th Congress
would enable corporate credit unions
to purchase CLF capital stock on
behalf of a subset of their members.
Specifically, the legislation
would allow corporate credit unions
to contribute capital to provide
coverage for smaller members with
assets under 250 million dollars.
Enacting this legislation would help
insulate the credit union system from
future liquidity events, like those
that occurred in the first half of 2023.
Providing Flexibility for
Administering the Share Insurance Fund
The N C U A further urges Congress to
amend the Federal Credit Union Act to
eliminate restrictions on the Share
Insurance Fundâs equity ratio and on
the agencyâs ability to levy premiums.
Such changes would improve fund
management and align the N C U Aâs
authority to manage the Share Insurance
Fund with the FDICâs authority in
maintaining its Deposit Insurance Fund.
Specifically, proposed changes should
remove the restrictions on levying Share
Insurance Fund premiums when the fundâs
equity ratio is equal to or greater
than 1.30 percent and when the premium
charged exceeds the amount needed to
restore the equity ratio to 1.30 percent.
A statutory change should also
eliminate the 1.50 percent ceiling
from the current statutory definition
of the ânormal operating levelâ for
the Share Insurance Fund, which limits
the Boardâs ability to increase the
size of the fund above this level.
Together, these amendments would bring
the N C U Aâs statutory authority over
the Share Insurance Fund more in line
with the FDICâs authority as it relates to
administering the Deposit Insurance Fund.
These amendments would also better
enable the N C U A Board to proactively
manage the Share Insurance Fund by
building reserves during economic
upturns so that sufficient money is
available during economic downturns.
A more counter- cyclical approach would
better ensure that credit unions will
not need to impair their one percent
contributed capital deposit or pay
premiums during times of economic
stress, when they can least afford it.
Increase Grant Assistance for the
Community Development Revolving Loan Fund
Grants and loans from the Community
Development Revolving Loan Fund
give eligible credit unions
resources to improve service to
their members and stimulate economic
development in their communities.
Through its stewardship of the Revolving
Loan Fund, the N C U A provides funds
to these credit unions for various
initiatives approved by the agencyâs
Board, including expanding outreach
to underserved populations, improving
digital services and cybersecurity,
enhancing staff training, and
facilitating capacity-building efforts.
Maintaining a long-running trend,
the N C U Aâs ability to fulfill
grant requests continued to be
surpassed in the 2024 grant round.
The agency received 271 applications
requesting more than 8.3 million
dollars but was only able to
fund about 3.5 million dollars
in grants to 135 credit unions.
The N C U A, therefore, requests
Congress increase the Revolving
Loan Fund appropriation to 10
million dollars to keep up with
the growing demand for requests.
The Revolving Loan Fund has a long
and successful track record as an
effective way to provide essential
resources to low-income credit unions.
Conclusion
In sum, the N C U A will continue
to oversee credit union performance
and coordinate with other federal
financial institution regulators, as
appropriate, to ensure the overall
resiliency and stability of our nationâs
financial services system and economy.
Congress can further these efforts
by adopting the legislative
changes suggested above.
Thank you again for the
invitation to testify.
I look forward to working with
the committee to safeguard and
strengthen the credit union system.
This concludes the testimony
If your Credit union could use assistance
with your exam, reach out to Mark Treichel
on LinkedIn, or at mark Treichel dot com.
This is Samantha Shares and
we Thank you for listening.