ALEXANDRIA, Va.—The NCUA Board received a quarterly briefing on state of the National Credit Union Share Insurance Fund at its open board meeting Thursday, during which Chairman Todd Harper stressed the agency has concerns about credit union performance in the months ahead.
Despite the NCUSIF receiving another clean audit Thursday, Harper questioned whether the Q1 data is the “calm before the storm,” noting that home equity lines of credit and credit cards are being relied on more by consumers and that members’ household budgets are being stressed.
In addition, CUToday.info has shared numerous reports of consumers saying they are under increased stress.
“Credit unions should prepare for an increase in delinquencies and charge-offs in the months ahead,” Harper said, adding the agency is seeing downgrades in the liquidity, market sensitivity, and management components of the CAMELS rating. “Credit unions should work with households to help them navigate through these challenging economic times. I know that we are starting to see nationwide, total household debt is rising, according to the latest quarterly report on household debt and credit released by the Federal Reserve Bank of New York.
Harper emphasized NCUA will continue to monitor credit union performance through the examination process, offsite monitoring, and tailored supervision of credit unions experiencing problems.
“And the NCUA board will continue to closely watch credit union and Share Insurance Fund performance so that we may take any necessary actions to maintain the system’s stability and ensure the Share Insurance Fund’s strength,” he said.
Harper added that despite looming challenges, particularly shock to consumer confidence from the recent bank failures, the CU system is sound.
“I know that the board also stands united in our resolve to ensure that no one ever loses a penny of insured share deposits at a federally insured credit union,” Harper said.
Liquidity Crunch Continues
Vice Chairman Kyle Hauptman zeroed in on credit unions’ growing liquidity problem, which could worsen if depositors move money quickly.
“Get your liquidity issues solved right now, because there will be a day when it matters,” stressed Hauptman.
Hauptman pointed out the recent health crisis presented a “weird situation” that flooded financial institutions with money and drove delinquencies down.
“Despite persistent economic uncertainties—the Fed raised interest rates 10 times in a row in just over a year—the Share Insurance Fund remains well-capitalized and continues to perform well,” said Hauptman. “This quarter, the Fund reported a net income of $41.9 billion. The Fund’s equity ratio is projected to decline from 1.30% to 1.25% for June 30th. A decline in the projected equity ratio is typical in the first half of the year and does not reflect an increase in credit union failures. Instead, we have seen strong credit union share growth and, thus far, we’ve seen no significant movement of deposits out of credit unions.”
Impacts From CECL
Hauptman turned to the potential impacts of CECL on credit unions. He asked CFO Eugene Scheid to quantify CECL’s impact on the NCUSIF.
“I think there's hasn’t been enough direct experience with the data (yet),” Scheid said. “In the long term CECL should make credit unions financially stronger, which in turn makes the Share Insurance Fund financially stronger.”
Harper said CECL’s positive impact on credit unions’ strength could someday lead the agency to reevaluate the Normal Operating Level.
Board Member Rodney Hood pointed out that despite the “very public” failures in the banking system and the continued economic uncertainty in past several months, he is “pleased to note that the percent of shares coded 4 and 5 as a percent of all shares is historically low at 0.29% of all shares.
“While we should remain vigilant, especially seeing the slight increase in the actual number of CAMELS 3, 4, and 5 credit unions overall, the credit union system remains strong up to this point,” Hood said.