Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC

Samantha: This is Samantha Shares.

This episode is the actual audio
from the N C U A May Board meeting.

But first a few words from our sponsor.

Hey everyone.

This is mark Treichel.

And this is a different type of podcast.

It is going to be an audio of the
entire into a board meeting from 2024.

There was only one agenda item.

The insurance fund.

Briefing.

And there is also an
interesting discussion.

Between the two board members that were
present again, chairman Todd Harper missed

this meeting due to back surgery and is
going to be out, until further notice,

that'd beginning of this discussion.

Kyle Helpmann talks about his displeasure
on how the overdraft data gathering

project at NCUA has been going.

The fact that he.

He has been ignored in the process.

, and then, , board member, democratic
board member, Tanya Otsuka goes

on to explain her, take on it.

And then they pivot into the insurance
fund , which shows a camel code threes.

Insured dollars went up.

I'll have more on those topics,
, next week, but I wanted to put

up the entire audio of the board
meeting about 35 minutes long and

a good discussion on overdrafts.

A good discussion on camel codes.

And I will be cross posting this on.

Both.

By podcasts.

Have a great Memorial day and.

Give, thanks to those who served.

Speaker: Good morning,
everyone and welcome.

I call this meeting of the board to order.

In addition to those joining us in the
boardroom today, I want to note that

for the record today's meeting is open.

To the public through
a live webcast as well.

For anyone watching online, if you'd
like to view the closed captioning

of the meeting, please click on the
little CC icon located in the lower

left corner of the WebEx window.

You may also change the layout
to one of your choosing by

clicking the layout option on the
top right side of your screen.

Our recommended viewing option for
this meeting is the stack view.

Before we begin the formal agenda,
we have a couple things to mention.

This Most importantly, we all
wish Chairman Harper well on

his recovery from back surgery.

We look forward to his return
to regular duties in July.

There are only two board members
participating in today's meeting.

This has happened before
for various reasons, and I'm

sure it will happen again.

While out on medical leave,
Chairman Harper, like the rest

of us, did get some good news.

NCUA Tide for number nine is the
best places to work in the federal

government for mid sized agencies,
and I believe there's like 30 of them.

This is based on the Federal Employee
Viewpoint Survey produced by the

Partnership for Public Service
with Boston Consulting Group.

In particular, NCUA's Office of the CFO,
who is presenting today at the board

meeting, place number five in the best
places to work subcomponents department

and there are a lot more of those So
well done to Eugene and your team.

All I want to say is you're number
five you get one more spot to go

Eugene got his name in the Washington
Post Uh, about that ranking after the

Silicon Valley Bank collapse 2023, Eugene
Sheed and his team assessed how a similar

exposure could impact federal credit
unions and how they would ensure money

was available if a credit union did fail.

It was an exercise they say they
handled easily because the team

had reorganized themselves to share
workloads better after the pandemic.

She listened to their suggestions
and put more emphasis on shortcuts

and automations to ease the workload.

There's no magic innovation.

He said it was just going
through having discussions.

Uh, but to me, that is good
management and, um, leaders of these

agencies, just like politicians,
sometimes get too much credit.

And credit.

And so you gotta take the
wins while you're there.

Uh, chairman Harper, even
though he is recovering, uh,

he is the leader of the agency.

So this was good news for
him, uh, while he was out.

So congratulations to you guys and, uh,
we hope to see Todd, uh, uh, fairly soon.

I know he's recovering well.

Board member SKO would
like to say a few things.

Speaker 3: Yes, thank, thanks.

Vice Chair Hopman.

Um, I wanna echo Vice Chair
Attman's, uh, points on that.

We're sending chair Harper all, you know,
all the well wishes as he recovers, and

we're looking forward to his return.

And I also wanna.

I'd like to share my congratulations,
um, for the NCUA's receipt of the

award as one of the top ten best
mint sized government agencies to

work for, and the Office of the Chief
Economist for fifth best sub component,

which is really an accomplishment.

Um, Eugene and Melissa, and Melissa's
going to be presenting today, later, uh,

this is a testament to your leadership
and your team's dedication to our mission.

Um, and everybody at the agency has
helped make the NCUA a place where people

are proud to come to work every day.

While there's always more work to be
done to improve and grow as an agency,

and we will continue to do that work,
and as so many of you know, that work

for an organization is always ongoing,
um, it is still great to be recognized,

and I congratulate the dedicated staff
of the agency, um, on this achievement.

So thank, thank you everyone.

Thanks, Scott.

Speaker: Okay.

We have one other thing to
mention before we get into the,

uh, agenda with the CFO's office.

Uh, I'd like to mention, uh, the
changes to NCUA's all report.

So I wanted to use this meeting, uh,
to talk about NCUA's recent decision

to require credit billions with
assets over one billion to publicly

publish their revenue from overdraft
fees and fees for insufficient funds.

So no one likes paying these fees.

Uh, I paid them myself.

But anytime you wake up and you
have, and you owe X dollars that day.

But you have less than X available.

There are only a series of bad options.

We are pressuring credit units to limit
what is often the least bad option

for members under financial stress.

The reason for making the comments
today is, uh, we haven't discussed

these changes at a board meeting.

And, uh, we don't have to.

But because every time I go to
an event, I can't go anywhere

without hearing the same questions.

Why are you doing to
this, doing this to us?

Do you realize how
harmful it is to members?

So my answers are, I wish NCUA was not
doing it, especially on such short notice.

And finally, yes, I understand
how harmful it is to consumers,

uh, and to credit unions.

I found out about this burdensome
requirement in January.

In lieu of repeal, I have suggested
several ways to make it less

damaging to both credit unions
and to our transference fund.

For example, the same data could
be collected in a manner where

it's available to NCUA examiners.

But published in aggregates.

We could also listen to those
pleading for adequate time to

prepare and not publish the data.

We could collect it now, but
not publish it until next year.

Especially since it's been harder
than expected by myself and others.

Harder than expected to figure out what
numbers are to use for each category.

Uh, my, all of my ideas were rejected.

Credit unions will now face reputational
risk for data that neither they

nor the MQA knows to be correct.

So, it appears we're another agency
mathematically incentivizing institutions

to avoid serving low income people.

This policy is very clear,
don't serve the underserved.

It's not that most low income people

have a lot of balanced checks, but most
people who have overdraft are low income.

That makes sense.

We're now working against the
Federal Credit Union Act, which

mentions credit unions are to create
credit for those of modest means.

Well, it's not the rich that are
going to worry about overdraft

protection being removed.

It's not those with
secure, high paying jobs.

They're going to suffer from
further reduction in offers

for free checking accounts.

Make no mistake, N2A's requirement
is designed to pressure those fees

downwards, since one of the main reasons
credit unions want more time to comply

is to lower those fees and try to raise
revenue from other people and to overall

re evaluate their business model.

We've seen this movie before.

The bill had a provision on debit cards
that contained government price setting, a

provision that mathematically made it less
profitable to serve low income people.

The outcome was as painful
as it was predictable.

Free checking fell away significantly
as new requirements kicked in for direct

deposits, higher minimum balances, etc.

Anyone who can't meet those requirements
has to pay monthly account fees or lose

access to the banking system and become

unbanked.

It doesn't seem odd for anyone to support
regulations that make it infeasible to

serve low income people and then talk
about financial inclusion and lament the

millions of Americans who are unbanked.

Reminds us of a story about the guy
that killed his own parents and asked

for leniency because he's an orphan.

Can we guarantee the SIF is
better off because of this?

Nope.

And yet we're adding a regulatory burden.

Two beneficiaries of this misguided
interference are two interest groups.

One, those who benefit politically, and
two, members of the media who get to

write clickbait articles that are often
devoid of financial or business literacy.

We've already seen this happen.

It goes without saying that none
of the people supportive of these

policies will be out there with their
own money to offer you a better deal

when you're a few bucks short and
desperately want to avoid a 500 leak

fee to the government, which I've paid.

And that's what's going to happen.

Just like in 2010, it's
a mathematical certainty.

Overdraft protection in particular
will become less common.

Overdraft is when a credit union
pays part of your bills for you when

your account doesn't have enough.

Anyone in a banking institution
will tell you the most distraught

customers are not those whose bills
were paid for overdraft and paid a fee.

Uh, as much as they
don't like that 30 fee.

Now, the most distraught customers
are those upset that a bill wasn't

paid due to insufficient funds,
forcing them to pay much higher costs.

Anyone would rather pay a 30, would
rather pay 30 than a 500 government fee.

What about someone in my position
who owed 4, 000 to my state

government and it's a 1, 000 fee?

The next day, if I didn't pay that
day, right, uh, DC is 25 percent

automatically, then they add
interest charges from there, okay?

If I had a 3980 in my account, I would
desperately want that to be paid.

I paid the $30 fee instead
of a thousand bucks.

If my, you know, account was a few
bucks short of 4,000, would I rather

pay $30 overdraft or be forced to pay
the extra thousand to the government?

Remember, I was short
of cash to start with.

The thousand dollars fee didn't help.

Uh, remember years ago I was living in an
expensive city, LA uh, on $27,000 a year

salary while paying my student loans.

Went to go to work one morning
and saw my car was gone.

I called the police.

Turns out it wasn't stolen, it
was towed for late registration.

Back then, I was constantly
juggling payments, trying to avoid

the highest costs of being broke.

The highest costs were, and are,
invariably charged by the same governments

that lecture the private sector.

Governments charge fees and use coercive
tactics that are significantly worse

than anything labeled a junk fee.

And yet, we rarely hear, about
government's fees and actions from self

proclaimed consumer protection advocates.

Anyway, about my car that was towed,
I wound up paying six times total

the registration fee after paying
the government for impound costs,

other charges, but I was lucky.

I had a salary job, at least,
and I could call work and say

I wasn't coming in that day.

Millions of Americans in that
situation would lose a day's pay.

Then there are those whose government had
towed their car or put a boot in it, and

their car's gone, or they can't use it.

And they're late to work,
which is a parole violation.

Of course you would pay 30 to avoid that.

That is the real world reality
that people live in every day.

Anyone whose account is slightly short
of money would rather pay a 30 overdraft

than miss the child support payment
that is the only way they can get

visitation to see their child that year.

That's the real world.

I do agree there are only bad
choices for anyone short of cash.

There may be policies to make life
more affordable and less inflationary.

Uh, one thing Senator Schatz from
Hawaii often says is, uh, he quotes a

study that up to a third of late fees,
credit cards and late fees overdraft,

up to a third of them would go away
if we had faster settlement, meaning

all the money coming your way was
already accessible in your account.

Okay, so faster, but there are ways to
alleviate this issue and I, and I sure

both policies and the private sector
create those, but there is a real world

people live in, and there's only bad
choices when you don't have enough money.

But NCWA's recent policy
and overdrafts and NSC fees.

People will say I'm going to move,
uh, back, and I say, But I'm going

to do something else for you.

They're going to ask you,
Well, what are you doing?

Uh, I'm going to ask you
to bring me that thing.

I'm going to go back and I'm going
to do something else for you.

So I'm going to go back and I'm
going to say, All right, I've got

that thing and I'm going to do this.

I'm going to say, Okay, good.

No regulation or law passed by government
repeals the law laws of economics.

That's it board member.

Oh, it's good Would you
like to make a few remarks?

Speaker 3: Thank you vice chair
Hoffman so, you know, I I also wanted

to speak a little bit about the
the Uh, the overdraft and NSF fees.

Um, so, you know, I think the
NCOA has a responsibility to make

sure that we have a safe and sound
system of cooperative credit.

And we also have a mandate to
ensure that credit unions are

following all applicable laws.

And I agree that credit unions.

The purpose of credit unions are
to serve those of modest means.

I, I would like to see more credit
unions serve more low income

people, more underserved people,
more people of modest means.

The action that NCOA has taken over
the years with respect to overdraft

fee income Overdraft and fee income is
consistent with those responsibilities.

It's important for the NCUA to
understand the data both at the

institution level and system wide.

We need to make sure that it is
transparent for credit unions,

credit union members, and the public.

Overdraft practices and fees should
already be disclosed to members and

in compliance with applicable laws.

An over reliance on overdraft and
NSF fees adversely affects both

members and their credit unions.

So, institutions that rely more on fee
income can have greater concentration

risk, and that is a significant concern.

NCUA supervisory priorities over
the years have included overdrafts.

Uh, in 2018 and 2019, NCUA examiners
reviewed credit union overdraft

practices, including opt in disclosures
and conducted transaction testing.

To verify that credit unions were
complying with the applicable regulatory

provisions in 2022, examiners requested
information about a credit union's

policies and procedures governing its
overdraft programs in 2023, and CUA

examiners started conducting reviews
of overdraft website advertising,

balance calculation methods,
settlement processes, um, and more,

excuse me, for federal credit unions
with assets of 500 million dollars.

Uh, or more.

And I think that, again, that, that,
you know, focus on both the safety

and soundness side of the, side of
things and the consumer protection

side of things are equally important.

Over the years, I have heard from so
many consumers, including credit union

members, about Overdraft practices and,
and, and fees and, you know, Vice Chair

Hottman did raise a lot of good points
about how when you are struggling to make

ends meet, you may need to overdraft.

But I've also heard from a lot of
consumers about excessive overdrafts,

overdrafting over and over and over
again, pushing their account even further.

into the red.

And so there needs to be some
recognition that, that our agency has

a responsibility to make sure that
those practices are not happening.

With respect to the reporting of
the data on fee income, I think it's

really important not to prejudge.

We can't assume a narrative before
assessing the data in aggregate.

And I think that The public
does have a right to know.

Members have a right to know
what that fee income looks like.

The agency needs to know from a system
wide safety and soundness perspective.

And I know our staff
is, is looking at that.

But I do think it's
important not to prejudge.

I've heard a lot of concerns about What
this means, you know, whether there

is going to be risk for institutions
or not about the perception of their,

their overdraft programs, a lot of
that information is already disclosed.

And again, members, members
should know member owners, right?

This is, this is important
for member owners.

There's also many credit unions who do
not charge overdraft fees and who also

are able to serve low income people.

I think really here.

My focus is on how this is going
to help members, and how this is

going to help us as an agency make
sure that we can keep a safe and

sound system of cooperative credit.

And this is not, there is nothing
that, in this, that will, you know,

we are requiring a ban on overdraft.

But, um, you know, I've also heard
that These changes may have an

impact on what credit unions do.

Each credit union has a very
different overdraft program,

as, as you all know, as I know.

Um, but in the financial services
sector over the past five or so

years, many institutions have
started to get rid of overdraft.

And so the market forces
are already in play as well.

Um, so again, you know, I, I just,
I want to emphasize that I don't

think we should prejudge the data.

Um, I think we should see what the lay of
the land looks like, and I, I look forward

to reviewing it to get a better sense
of what it looks like from a safety and

soundness perspective and from a consumer
protection standpoint, um, and I look

forward to working with my fellow board
members and with members of the public,

um, on whether any additional steps are
necessary, but, um, You know, I think,

I, I think it would be, it's a, it's a
helpful exercise and one that I think our

agency has a responsibility to look into.

So thanks, Vice Chair Hoffman.

Yes, uh, thank you for those

Speaker: remarks, uh, and I, uh,
completely agree on there are some

unsavory practices out there, ordering
of payments, racking up fees, uh,

that didn't have to happen, purposely
structuring your transactions and running

badges so that on a given day you got
more fees incurred than you had to.

I 100 percent agree on that.

Um, I do, uh, if the market is changing
and I have heard of that, well, that's

just a reason to say we shouldn't
have to force or pressure people to

if the market's already doing it,
you can't have both opinions at once.

Um, and, but the market will change
and better, like we said, faster

payments, the financial system will
change for the better as it has

for the last, you know, 100 years.

Uh, I do believe that the ones who say
we don't want to charge overdrafts,

they just return more items.

Uh, they just don't pay
them, uh, if you're short.

Um, no one else is going
to pay my bills for me.

Indefinitely, without
some kind of compensation.

So they just return more.

Uh, so those examples that
I gave, uh, would be there.

Plus, if you're going through the
mortgage process, the last thing

you need, right, when you're about
to buy, when you're trying to buy

a home, is a ding on your credit.

Like a late payment, you know.

Uh, so instead of overdraft though, just
do, uh, return your credit card payment.

And now you have a late payment
that can cost you a quarter point.

In D.

C.

that'd be 35, 000 on the average
mortgage, uh, over the life of it.

Um, I appreciate those remarks.

Let's now invite Melissa up here for
the one official item of the day.

Uh, we are going to get a report
on the Share Insurance Fund.

The staff presenting is Melissa
Loudon, Deputy Chief Financial Officer.

Melissa, this is the
first time you've That

Speaker 4: this is the first time I've
presented the share insurance fund

quarterly I've been at the board table
before but I usually have a co presenter.

So it's a little

Speaker: Yeah, you are the rather name
on the marquee, all right, let's do it.

Good morning.

What's up begin whenever you're ready

Speaker 4: Okay, thanks.

Good morning, Vice Chairman
Hoffman and Board Member Oskar.

I'm pleased to present the
2024 First Quarter Statistics

for the Shared Insurance Fund.

Before I begin, I'd like to
mention the NCUA released its

2023 Annual Report, which is
published on our agency's website.

The report was again recognized
with a Certificate of Excellence

in Accountability Reporting.

I want to thank our OCFO team, our
partners in the Office of External Affairs

and Communications, and other staff in
the agency who contributed to making

this an informative report on NCUA's
programs, performance, and finances.

Slide two.

This table shows the funds, revenue, and
expense for the first quarter of 2024.

For the quarter that ended March 31st,
the fund recorded a net income of 68.

1 million.

A few highlights are as follows.

Total income was 133.

7 million for the quarter, mainly from
investment income of Treasury securities.

Investment income increased 6
percent compared to the prior quarter

and increased 47 percent compared
to the first quarter of 2023.

Operating expenses were 59.

7 million for the quarter, primarily
due to the overhead transfer

for agency operating expenses.

The provision for insurance losses
reserve expense increased by 8.

1 million during the quarter.

Slide three.

Thank you.

This table shows the funds balance
sheets as of March 31st, 2024,

compared to the previous quarter.

As of March 31st, total
assets were valued at 21.

6 billion, of which 98 percent
were funds held with the U.

S.

Treasury in cash, overnight investments,
and long term Treasury notes.

A few highlights to take
away from this slide.

are that the fund recognized the
capitalization deposits receivable of 212.

3 million.

In addition, accounts payable and other
liabilities include a refund of 238.

8 million to credit unions
with declining insured shares.

This resulted in a net refund of about 26.

5 million and reflects the
net decline in insured shares

during the second half of 2023.

Cumulative results of
operations increased by 8.

3 million due to 68.

1 million in net income offset by an
unrealized loss on investments of 59.

8 million.

Slide four.

The fund records an insurance
program liability comprised of

general and specific reserves.

This is a contingency to cover
anticipated future losses resulting

from insured credit union failures.

Each quarter, we assess the reserve
needs for potential and actual credit

union failures to make a reasonable
estimate of potential losses.

During the first quarter, the
reserve balance increased by 8.

5 million, primarily due to the
increase in general reserve.

The reserve balance totaled 217.

5 million and is comprised of 7.

3 million for specific reserves and 210.

2 million for general reserves.

Slide 5.

Through the first quarter of 2024.

There were no credit union failures
that incurred losses to the fund.

Slide six.

As of March 31st, 2024,
the fund had over 22.

2 billion at par value invested
in Treasury securities with

maturities until May 2030.

The weighted average life of
securities held by the fund is 2.

2 years.

The weighted average yield of the
securities increased 10 basis points

from the last quarter to 2.43%.

During the first quarter of 20 24, 4
Treasury notes matured for $650 million.

These securities had yields ranging
from 0.2% to 2.26% as of last night.

The portfolio balance invested in
overnights now stands at 5.6 billion

at a rate of 5.37 basis points.

Slide seven.

The equity ratio is updated
on a semiannual basis.

As of December 31st, 2023,
the equity ratio was 1.

30 percent and was calculated
using an insured share base of 1.

7 trillion.

The blue line across the chart
represents the normal operating level.

This was last set and approved by
the board in December 2021, and the

current level remains unchanged at 1.

33%.

Slide 8.

The projected equity ratio
for June 30th, 2024 is 1.

24%, a decrease of 6 basis points
from the current equity ratio.

The projected decline is due primarily
to the forecasted insured share growth.

The projected equity ratio is calculated
on the same basis as the actual

equity ratio and the formula and
calculation are shown on this slide.

Slide 9.

This slide shows the percentages of
insured shares by CAMELS codes from

2019 through the first quarter of 2024.

In the graph, the dark blue represents
CAMELS coded 4 or 5, the gray represents

CAMELS coded 3, and the light blue
represents CAMELS coded 1 or 2.

During the quarter, the percentage
of insured shares at credit unions

Camel's Coded 3, 4, or 5 increased,
while Camel's Coded 1 or 2 decreased.

The table below the graph shows the
number of credit unions by Camel's Codes.

The total number of credit unions
as of March 31st was 4, 578.

This is a decrease of 44 credit
unions from the prior quarter.

Slide 10.

This slide compares credit
unions CAMELS code by asset size.

The CAMEL code 4 or 5 credit unions
are shown on the left hand side and

CAMELS coded 3 credit unions are shown
on the right hand side of the graph.

Looking at the 125 credit unions
Camels coded 4 or 5, most of these

credit unions continue to have
assets of 100 million or less.

For those with assets greater than 100
million, there were two additional credit

unions in the 100 to 500 million range.

For those greater than 500 million,
There was one more credit union

from December 2023 to March 2024.

During the quarter, both assets and
insured shares for credit unions

CAMELS coded 4 or 5 increased.

Considering that 760 credit unions CAMELS
coded 3, 92 percent of these credit

unions have assets less than 500 million.

During the quarter, there was a decrease
in credit unions with assets less than

100, 000, 000 and an increase in credit
unions with assets in the 100, 000, 000

to 500, 000, 000 and greater than 500,
000, 000 ranges for Campbell's Coded III.

During the quarter, both assets and
insured shares for credit unions

Campbell's Coded III increased.

Slide 11.

The supplemental slides provided
with this presentation include

more investment information to
help interested parties better

understand the operations of the fund.

Thank you for your time.

This concludes my presentation and
I'm happy to answer your questions.

Speaker: Thank you, Melissa.

Well done for your first
in any year, or any time.

Uh, so rewind back to 2022, the NCOA
increased its share of investments

in overnight funds with a goal of at
least 4 billion in overnight funds.

Uh, last year at this time, we'd gotten 2.

4 billion in overnight funds,
at that time earning over 5%.

And today, we've got over 5.

5 billion in overnight
funds, earning about 5.

4%.

And looking forward, you know, we
saw the Fed at its latest meeting.

Kept rates steady again at its range of
five and a quarter to five and a half.

The stuff was easier before the
financial crisis when they just picked

one number, right, to talk about.

The big change in the last few months is
that expectations for industry cuts have

So, for those selling money, i.

e.

rent to get out to the U.

S.

Treasury, that brings some good news.

Industry rates are the price of money.

And the share insurance fund
is solely a seller of money.

So, like any seller of
anything, high prices are good.

So, that's the part of the numerator.

In our equity ratio, and while the
Fed seems to be done hiking interest

rates, credit unions continue to deal
with balance sheet challenges to the

last few years of rapid rate hikes.

The percentage of insured shares in
credit unions with Campbell's four

and five, that's our lowest two
ratings, uh, inched higher to 0.

35 percent from 0.

28.

The if we throw in Campbell rating
three and worse, we're go from 7.

8 up to 8.

6.

These do not seem like.

But, uh, historically, they
do usually mean something.

But credit unions have
continued to form well.

Uh, they are resilient.

They have been resilient.

In 2023, there were only three
credit union failures that cost

the SIF money, totaling just 1.

4 million in losses.

And as of this report, there
have been no credit union

failures that cost money in 2024.

But of course, the insurance business
is about unpredictable events.

Share insurance, like any insurance,
is there for the chaotic times.

That often follow years of calm.

So today, we heard from the
CFO's office, they project

the CIFS equity ratio to be 1.

24 when we recalculated in June.

That's the projection, although as we
sit here today, the ratio remains at 1.

30.

So why is it falling?

As my colleague so ably explained, much
of that downward move is to the projected

5 percent growth in insured shares.

So that's the denominator getting bigger,
which is In general, it is a good thing.

We at NCUA like to see steady
growth at credit unions.

That is to say, uh, steady growth
is good as a stand alone variable.

We're aware that the quality
of growth, uh, matters a lot.

Credit union liquidity
continues to be an issue.

I'd like to remind everyone that credit
unions can and should have access to a

range of liquidity sources, including
NCUA's central liquidity facility.

So, the small credit unions out
there that may not have liquidity

options set up, I strongly encourage
those institutions to do so.

You can talk to your examiner,
you can talk to your league, talk

to your corporate credit union.

There are ways to handle a short
term liquidity challenge and

survive to fight another day.

If you could see a liquidity
crisis coming, because if you could

see a liquidity crisis coming,
it wouldn't be called a crisis.

For I conclude my remarks.

I've got one question.

So Melissa, we're pleased that the
fund has taken advantage of high

short term rates, all that money
in overnight's other short term

paper, but obviously the pendulum
swings the other direction someday.

How do we prepare for
possible rate cuts, Butterfed?

Speaker 4: Sure.

Thanks for the question.

Um, the aim of the Funds
Investment Committee is to pursue

safety, liquidity, and yield.

Um, the portfolio is comprised
of readily available overnight

funds and term investments that
mature at regular intervals.

Um, the committee does not try
to time the market, and instead

we rely on a ladder strategy.

Um, in the current quarter, the
committee reinvested all maturities

back into the treasury ladder.

Sure.

These longer maturities create
added earning stability and lock

in higher yields if rates decline.

That concludes my response.

Speaker: Thank you.

I appreciate the comment
about not timing the market.

Far more money has been lost by trying to
time the market than has ever been gained.

That concludes my remarks.

Over to Board Member Oldsco.

Speaker 3: Thank you.

And thanks, Melissa, for the briefing.

Um, so NCO's job is to protect
members shares at credit unions,

and we can't fulfill that
mission of protecting our system.

Of cooperative credit without an
adequately funded share insurance fund.

So I'm encouraged by the strong
performance of the share insurance fund.

We continue to see a trend of fewer
failing credit unions combined with the

higher yields, which have resulted in
substantial net income for the fund.

Year over year, our investment income
has grown by approximately 40 million

dollars in the fourth quarter of 2023.

The fund had its highest
yield in the decade at 2.

33 percent, and this
quarter surpassed that at 2.

43 percent.

Our investment strategy of investing
in a 10 year treasury ladder that

distributes our net income evenly and
investments with varying maturities

continues to be prudent and successful.

This will provide balance to the weighted
average life of the fund and ensure more

stable returns in the future, particularly
if, if interest rates fall over time.

Um, however, I still have some
concerns that the chair insurance

fund has been below the normal
operating level since June, 2019.

So my question, one of my
questions is, Melissa, can you, um.

Can you speak to what contributes to
the downward pressure on that equity

ratio and why, why the projected number,
um, can sometimes be different than

the actual ratio we calculate in June?

Speaker 4: Sure.

Yeah.

Thanks for the question.

So the decline between the
year end equity ratio of 1.

30 percent and the June projection of 1.

24.

Thanks.

percent reflects historical trend.

The June equity ratio is typically
lower than the year end equity ratio

because projected insured share growth is
usually more robust earlier in the year.

With steady earnings and few losses to
the fund, the main driver with the equity

ratio calculation will be insured shares.

Um, the June 2024 projection is
based on an estimated 5 percent

um, increase in insured shares.

And all other things equal, if
the actual insured share growth

falls short of 5%, the actual June
30 equity ratio may be higher.

This concludes my response.

Speaker 3: Thank you.

Thank you for that.

And I think I mentioned
this last quarter as well.

But another concern is the
percentage of insured shares held

by the camels code 3 credit unions.

Um, this percentage has more than
triple between 2021 and 2023, more

than doubled from 2022 to 2023.

And the trend continues into this quarter.

Um, So, you know, this percentage of share
is held by, uh, CAMEL 3 credit unions is

almost, has grown almost a full percentage
point, um, in first quarter 2024 alone.

Even though we did see a decrease
in the number of credit unions rated

as a three over the last quarter.

So, you know, there's a bit of
fluctuation going on, but it

still seems like it's a concern.

Um, do you see any implications for
the fund if this trend continues?

Speaker 4: Um, sure.

Thanks for the question.

Uh, To calculate general reserves,
the NCOA uses an econometric reserve

model, and the model uses external
economic predictors and also

individual credit union specific
data, call report data, camel's code

data, to predict the probability of
failure and estimated expected loss.

So, based on the information that we
get from that model, the SIF records

an insurance program liability.

Uh, increasing percentages of insured
shares in CAMELS coded 3, 4, 5, um,

could pose higher risk in the system
and increase SIF reserve needs.

That concludes my response.

Got

Speaker 3: it.

Thank you.

Um, well, there's many signs that
show stability and growth of the

share insurance fund now is the
time as opposed to during a crisis.

Uh, to think about what can go wrong and
how to safeguard against those scenarios.

I think Vice Chair Hoffman shared a
similar sentiment, uh, about preparing

for, for the, the crisis situation
when, when there's good times.

So it's important we, as the
board, continue to balance the

short term and long term needs of
the fund to ensure credit union

members are ultimately protected.

Um, so thanks, Melissa.

to you and the team for your work on this.

Um, and I have no further questions.

Although I did.

One thing, Vice Chair Hoffman,
that you mentioned in our overdraft

discussion was, um, faster settlement.

Um, you know, I know, I agree, I think
faster settlement is really important.

Um, I know there's a lot of credit unions
that are, um, currently trying to, you

know, try to take advantage of FedNow
and some of the, some of the work there.

So, um, you know, I'd love to,
I'd love to talk more about that.

And I, you know, to the extent that credit
unions want to, um, you know, Become

members of FedNow and and use that that
service to increase the settlement times.

I think that's a really great
development So ha you know open

to further discussion on that.

Speaker: Mm

Speaker 3: hmm.

Speaker: I mentioned that For all the
hype and abuse the crypto world gets

and it deserves a lot of it Stable
coins instant settlement 24 hours a day

are one of the main actual legit use
cases that are used all over the world

Remittances people use them constantly.

It's a 24 7 Actual sediment.

It is pretty cool.

Uh, that is the end of our agenda today.

That being no further business