ALEXANDRIA, Va.–During NCUA’s first-ever virtual meeting, members of the agency’s board expressed their concerns over meeting liquidity needs of credit unions—especially in 2021—and expressed support for an increase in the MBL cap, while two of its members repeated their call to give the agency examination authority over third-party vendors.
Prior to addressing the items on the official agenda of the monthly meeting, held online rather than at the agency’s headquarters due to the coronavirus, all three board members offered comments on the current environment, what might lie ahead, and changes and legislation they would like to see.
After praising NCUA staff—all of whom are working from home–for their efforts, Chairman Rodney Hood said it would be wise to prepare for a “worst-case scenario,” and said the agency is focused on providing the ability to credit unions to meet the financial needs of members.
Hood said he has been in regular discussions with credit union leaders about how the pandemic is affecting their operations. The chairman directed those who have questions of NCUA to use the email COVID19questions@NCUA.gov.
Harper Urges Additional Steps
NCUA Board Member Todd Harper, who like Hood is marking his one-year anniversary on the board, said NCUA staff are “financial first-responders who have risen to the challenge.”
Harper said he has spent his time speaking to credit unions, other regulators and industry experts about how best to respond to the coronavirus pandemic, and like his fellow board members especially focused on issues related to liquidity.
Harper said it is critical to provide credit unions with access to extra liquidity, and added he believes many of the moves made so far may be too short in length.
“It appears liquidity demands will hit their highest point next year,” said Harper, who wants the CLF’s expanded authority to access liquidity extended to year-end 2021 rather than 2020, or to “not sunset at all.”
Harper further said he strongly supports the exemptions put in place on the member business loan (MBL) cap, and also noted the strong demand for funds from NCUA’s Community Development Revolving Loan Fund. Harper proposed an additional $10 million in funding for the CDRLF, which he said would help smaller CUs adjust their operations, build capital, and adjust to stay-at home orders.
In addition, Harper said because underserved communities are being especially hard hit, NCUA should ask Congress to allow all CUs to add underserved communities to their fields of membership.
“Finally, credit unions now have less time to conduct the due-diligence needed to respond to problems with vendors,” said Harper. “Now is time to allow NCUA to supervise third-party vendors. Doing so will close a regulatory blind spot.”
McWatters Outlines 7 Steps for Legislative Action
McWatters noted he has consistently stressed his concerns around the need for liquidity and capital, saying the “fate of a financial institution” depends on both. At the height of a financial crisis or when cash flow is under stress, said McWatters, “Nothing matters more than the ability of a financial institution to pay its debts and other obligations.”
McWatters said he is concerned credit unions will experience liquidity shortfalls as members take advantage of loan forbearances and don’t make payments on other debt. There is also risk presented by some credit union servicers that may not be able to fulfill their contracts, he added.
“As it is all but impossible to predict with certainty the economic consequences…of the pandemic-related fallout, it is important we continue to thoughtfully and thoroughly monitor the ongoing needs for liquidity and for credit unions to develop viable contingency plans on short notice,” said McWatters.
Saying he is not being an “alarmist,” McWatters urged the agency and credit unions to prepare for the growing financial crisis. “In my view this should be the agency’s top priority,” said McWatters. “We owe it to taxpayers and the 120-million credit union members.”
Seven Suggestions
McWatters outlined seven suggestions for legislative actions he would like to see:
- Creation of a permanent, separate and robust standby liquidity facility for NCUA to deploy as needed, or a need for the CLF to do the same
- Capital reform
- An increase to or the elimination of the MBL cap
- The ability of all CUs to participate as borrowers in the Paycheck Protection Program under the CARES Act
- The ability of single common bond and community chartered CUs, not just multiple common bond CUs, to add underserved and unserved areas to their FOMs
- An expansion of funding for the CDRLF by an additional $10 million or more to support LICUs and small CUs
- Authority for NCUA to examine third-party vendors