NCUA’s Harper warns of possible premiums as Hood hints at new department
Two members of the National Credit Union Administration board on Tuesday outlined their priorities for the industry, though their visions were markedly different.
Todd Harper, the junior member of the board and its only Democrat, suggested credit unions should prepare for the possibility of new premiums to shore up the National Credit Union Share Insurance Fund as the economic downturn caused by the coronavirus pandemic leads to increased delinquencies, bankruptcies, loan defaults and possible credit union failures.
“In the short term, the NCUA board must be prepared to charge a share insurance fund premium, should events warrant it,” Harper said during the National Association of Federally-Insured Credit Unions’ online Congressional Caucus.
The Federal Credit Union Act requires the board to act when the equity ratio drops below 1.2% — it stood at 1.35% at year-end — and Harper conceded that charging premiums during an economic downturn is “less than optimal.”
He added, "Accordingly, I believe the NCUA should work with Congress after this crisis to modify the share insurance fund’s operations. Doing so would create a countercyclical stance to allow for the accumulation of reserves during good times to cover losses in bad times without falling below the minimum statutory equity ratio.”
In separate remarks earlier in the day, NCUA Chairman Rodney Hood said he is eyeing the creation of a department within the agency that would help improve the industry’s partnerships with fintechs.
Many credit unions, particularly at the smaller end of the asset spectrum, don’t have the infrastructure necessary to launch high-tech online and mobile banking platforms. In a conversation with NAFCU President and CEO Dan Berger, Hood said those technological hurdles could prevent some credit unions from helping bring more underserved consumers into the mainstream financial system.
“While [credit unions] may not have all the bricks and mortar necessary, we can certainly use technology,” Hood said. He added, "Fintech can be the great equalizer."
Hood said prior to the pandemic he was frequently in meetings with Silicon Valley executives discussing how the industry can better partner with fintechs to reach the underserved.
“I would very much like to create an Office of Innovation and Access at NCUA, meaning we’re going to have the tools and learn from industry practitioners” in order to help low-income consumers access real-time data on credit, receive smartphone-based financial education and more, said Hood, whose term expires in 2023.
Credit unions were already partnering with fintechs before the pandemic, noted Hood, and “I want to harness that and leverage it so it can be shared with even more folks.”
Hood suggested that attempts are underway at NCUA to further modernize call reports and said the agency will soon roll out new technology related to its MERIT remote examination system for credit unions. The board is scheduled to discuss the MERIT system when it meets later this week and Harper said because of the pandemic the regulator “took our virtual-exam program from 0 to 60 in a matter of a couple of days.”
The experience with that has helped it build a library of lessons learned so that remote exams can be fine-tuned moving forward, he added.
“We’re still going to need to show up but the more we can do off-site is better for you, it’s better for us and it’s better for our examiners who don’t have to travel so much,” Harper said.
Both board members' remarks also touched on liquidity, with Hood touting the industry’s overall liquidity position, including 7.6% growth in the first quarter alone. Hood’s comments only covered first-quarter industry performance and appeared to have been recorded in late July or early August.
“We have the liquidity tools in place to help us endure any headwinds that would come our way,” he said, pointing to expanded capacity for the agency’s Central Liquidity Facility. He said the agency has also been conducting modified stress testing for some institutions, including taking factors such as unemployment into account to try to pinpoint what interventions might be necessary.
Harper again called on lawmakers to expand temporary powers related to the CLF to the end of next year, but some industry observers have said industry participation is too low to merit doing so.
Both Hood and Harper said the regulator is closely watching industries such as oil and gas, agriculture and hospitality for how changes to those sectors could impact credit unions serving them.
While the unemployment picture has begun to improve somewhat, said Harper, some forecasts have suggested the economy may not return to pre-pandemic levels until the end of 2022, with the unemployment rate taking even longer to recover.
“History has demonstrated that credit union performance is closely correlated to the unemployment rate,” Harper added. “With credit unions already confronting a more difficult environment than they have faced in many years, it comes as no surprise that credit union performance has begun to deteriorate.”