ALEXANDRIA, Va.–What will the eventual fallout be for credit unions from the coronavirus pandemic and the near shutdown of the U.S. economy? No one knows, said NCUA’s chairman, which is why the agency is seeking to be as flexible as it can in providing guidance and enforcing its rules.
Saying it’s a “highly fluid situation,” NCUA has been working to respond to credit unions’ questions, interpret a raft of new legislation that affects CUs, and prepare for a potential hit to the NCUSIF, all while doing so with no one working out of its Duke Street headquarters in Northern Virginia, according to Chairman Rodney Hood.
Hood spoke to CUToday.info on the first day of the 2020’s second quarter, which some are predicting will show the worst quarterly economic performance in the U.S. since the Great Depression.
CUs Won’t Be ‘Punished’
“I’ve have heard the predictions, but I’m not going to have it invoke fear,” said Hood. “My role is to ensure safety and soundness so credit unions can ensure their members with confidence their deposits are safe. Dire as it may be, when I talk to credit unions, and I talk to 10 or 12 per day, on how we can be of assistance, at the end of the day the questions have all come down to how can we continue to meet the needs of members.”
Hood said he and the agency have fielded specific questions from credit unions around making small-dollar loans and how those will later be viewed during their exams.
“I assured them that this is a turbulent time and they will not be punished for being flexible and accommodating,” said Hood.
Hood said credit union leaders with whom he has spoken have thanked the agency for stating it will not make exams a priority over letting credit unions serve their members.
As the second quarter gets under way, Hood said NCUA has focused on getting information to credit unions in real time and is constantly updating the FAQs on the COVID-19 page on its website at NCUA.gov. The chairman said he is encouraging “unfiltered” concerns and feedback from credit unions via email to covid19questions@ncua.gov.
“This is a highly fluid situation and there is tremendous uncertainty,” said Hood. “We are being as flexible as we can in response.”
What Lies Ahead
That uncertainty extends to what lies ahead. There is little doubt credit unions are going to take a bottom-line hit during the second quarter, but to what degree remains uncertain. Hood said like everyone else he is watching the overall economic indicators as well as other reports.
“We believe the credit union system has the skills and the acumen to get through this, just as they got through 2008,” said Hood, referring to the years following the housing crash and Great Recession. “We have a dedicated team looking at real time information. We are talking to the Fed. We have the resources and tools.”
Hood, who is a voting member of the Financial Stability Oversight Council, said he met with Treasury Secretary Steven Mnuchin last week during which NCUA’s ability to respond was discussed. The recently passed CARES Act includes a significant increase in the borrowing authority of the agency’s Central Liquidity Facility. Will the agency need to tap that borrowing authority?
“This continues to evolve and it’s hard to predict,” answered Hood. “We have only gone through the first six weeks of this. We have a good team in place. We see the numbers now and will change accordingly.”
Hood noted funds aren’t just available from the Central Liquidity Facility, but from the dozen corporate credit unions, as well. And the corporates and a number of the largest natural-person credit unions also have access to the Fed’s discount window, with the Fed making it clear liquidity is “limitless.”
“There are a number of ways to shore up liquidity,” said Hood.
Hood, who was a member of the NCUA board during the housing crash and Great Recession, said that experience is the reason he keeps “harping” on the issue of liquidity.
“The lesson from 2008 is the important role liquidity plays,” he said. “We’ve been able to dust off the playbook to see the lessons from the past.”
Support for CARES Act
Hood expressed support for a number of provisions in the $2-trillion CARES Act, although again it remains too early to draw any conclusions on what its ultimate effect will be.
The CARES Act does permit NCUA to increase NCUSIF deposit coverage on non-interest-bearing accounts beyond the current $250,000 cap, a matter Hood said he looks forward to discussing—via telephone—with his two fellow board members.
The Act also includes the Paycheck Protection Program, which provides funds for financial institutions to lend out to small businesses to help cover payrolls so they may avoid laying people off. But in addition to being lenders, credit unions are also eligible to participate in the program themselves and to receive funds to cover their own payrolls. How many credit unions might actually participate remains unknown—NAFCU told CUToday.info in the days after passage of the bill it had heard from three CUs inquiring about covering their own payrolls—and it’s believed if any CUs do participate they will be smaller asset institutions.
“That’s going to be a decision for each small credit unions,” said Hood. “I hope credit unions will avail themselves of the help available and will continue to exist.”
As CUToday.info reported here, that help also includes $800,000 in grants and $4 million in loans recently announced by NCUA.
Hood said he is hopeful credit unions will use the loans and grants for a number of purposes, including purchasing the technology necessary to make teleworking a reality, which is lacking at some smaller CUs, and to bring equipment up to date and make it more secure. “It should be used to help with operations and with innovation,” he said.
Lessons in Teleworking
It isn’t just credit unions at which everyone is now teleworking remotely; everyone at NCUA, including Hood, is also operating from their homes. Hood noted many of its examiners were already accustomed to remote work, but just like the situation many credit unions face, the wholly remote workforce is a first for the federal agency. NCUA has approximately 1,100 employees.
Hood noted the agency held its first-ever closed board meeting recently after cancelling its open meeting in April, and it may have to hold the open meeting it has scheduled for April completely via teleconference, which would also be a first.
Hood added he values personal interaction and it “pains” him not to be able meet with people at the agency’s headquarters or at various CU events.
“But we are getting the job done, and we may resort to teleworking more in the future,” he said.
NCUA Chairman Rodney Hood meeting with credit unions.
Teleworking does bring with it new threats. As CUToday.info reported here, people across the country working from home are the target of new attacks by cybercriminals on their home routers, which often aren’t as secure as the routers used by their respective companies. Hood said cybersecurity is an issue that’s concerned him since he rejoined the NCUA board, and he has tasked Johnny Davis, named in mid-2019 as a special advisor to the NCUA chairman for cybersecurity, to put together a Risk Alert on the issue that will soon be distributed to credit unions.
The Lessons Learned
Since the coronavirus pandemic struck and shut down much of the U.S. economy, Hood said NCUA has learned many of the same lessons as the credit unions it regulates, and that is any organization can talk all it wants about its disaster recovery plan and the backing up of data, but it’s still a new world when it comes time to implement it.
Hood said credit unions, for instance, have told him that they had not envisioned in some cases having to divide employees into different groups and then have them come to work at different times.
‘No One Has Lost Money’
On several occasions while speaking with CUToday.info, the NCUA chairman stressed the strength of the credit union system and the insurance fund as the coronavirus pandemic was unfolding. The fund closed 2019 with total assets of $16.7 billion, 95% of which is held in U.S. Treasuries and cash. Credit unions themselves closed the year with an industry average net worth ratio of 11.3%.
“I have a clear statutory responsibility to assure the safety and soundness of the NCUSIF,” said Hood. “But I also believe I have a moral obligation to our people, and to the staffs of credit unions and to members. It’s about more than safety and soundness. The NCUSIF is still robust. We have the ability and the balance sheet to respond and we are going to be vigilant in protecting members. No one has lost any (insured) money in a credit union since (creation of the NCUSIF in 1970) and that will continue.”