NCUA Board Member Todd M. Harper Statement on the Share Insurance Fund's Third Quarter Performance
Insuring the share deposits of members and safeguarding the
We, however, must remain on guard going forward. The truth is: During 2020, we have experienced a dramatic rise in assets, falling loan demand, compressed interest rates, decreased earnings, and subdued consumer confidence. And, with many moving parts, there is continued uncertainty about how the economic effects of the pandemic will unfold over the long term. We must all prepare for increased member delinquencies, loan defaults, consumer and business bankruptcies and even credit union failures.
In that regard, we have a number of higher-risk credit unions that we are already closely supervising, so it seems very likely that we may see higher than average failures over the next two years. What is more, we also know that growth in credit union assets seems likely to continue to exceed the ability of the
Because the equity ratio seems likely to continue to drop and decline, it is really not a question of whether we will charge an insurance premium, but a question of when. If we are honest with ourselves, we do not know when. It could occur next year, the following year, or sometime thereafter. Credit unions need to brace themselves for that eventual reality.
With that in mind, I would like to turn to slide 6. This slide notes that the weighted-average yield on the portfolio was just 1.51 percent at the end of September. Eugene, I have two questions. First, what was the yield at the start of the year? Second, where might the yield bottom out in the coming quarters given the drop in interest rates?
I know that we have had a large inflow of shares into the system, for which credit unions with more than
Finally, I would like to reiterate to everyone following today's proceedings about the parameters when the NCUA Board may act and must act to charge a premium. Eugene, when must the NCUA Board charge a
As I noted at September's briefing on the
Additionally, I remain concerned about the current law's pro-cyclicality. Although the Federal Credit Union Act requires Board action when the equity ratio falls below or is projected to fall below 1.2 percent within the next six months, charging premiums for share insurance during the midst of an economic downturn is less than optimal. We need to take steps to allow for the accumulation of greater reserves in good times to cover losses in bad times.
With more advance funding of the
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