NCUA Chairman Todd Harper's Statement in the 2023 Annual Report to Congress
Hello, this is Samantha Shares. This episode covers N C U A’s Chairman Todd Harper’s statement in the twenty twenty three agency annual report.
The following is an audio version of that statement. This podcast is educational and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated, whose team has over two hundred and Forty years of National Credit Union Administration experience. We assist our clients with N C U A so they save time and money. If you are worried about a recent, upcoming or in process N C U A examination, reach out to learn how they can assist at Mark Treichel DOT COM. Also check out our other podcast called With Flying Colors where we provide tips on how to achieve success with N C U A.
And now the statement.
Each day, the National Credit Union Administration strives to protect consumers and their deposits in federally insured credit unions, maintain the strength of credit unions and the National Credit Union Share Insurance Fund, and expand consumer access to safe, fair, and affordable financial services in and for under- resourced communities. This twenty-twenty-three Annual Report to Congress highlights our efforts to achieve each of these things.
Required by the Federal Credit Union Act, this report reviews the agency’s performance in twenty-twenty-three and includes the audited financial statements for the National Credit Union Administration’s four funds:
● The National Credit Union Share
Insurance Fund.
● The National Credit Union Administration Operating Fund.
● The Central Liquidity Facility.
● The Community Development Revolving
Loan Fund
Each of these funds received an unmodified
— or “clean” — audit opinion and reported no material weaknesses in twenty-twenty-three. The financial and performance data contained in this report are also reliable, complete, and consistent with applicable Office of Management and Budget circulars.
The National Credit Union Administration’s mission is to protect the system of cooperative credit and its member-owners through effective chartering, supervision, regulation, and insurance. This work, in turn, promotes confidence in the national system of cooperative credit. The National Credit Union Administration also insures members’ share deposits at federally insured credit unions and safeguards the National Credit Union Share Insurance Fund from losses.
The National Credit Union Administration engaged in many important initiatives in twenty-twenty-three. The most significant activities are highlighted in this report and grouped into these broad categories:
● Responding to economic headwinds.
● Advancing financial security, economic
equity, and allyship.
● Maintaining cyber resiliency.
● Investing in our employees.
Accordingly, this twenty-twenty-three Annual Report summarizes the National Credit Union Administration’s activities, projects, and programs in all of these aspects.
Responding to Economic Headwinds
As twenty-twenty-three began, we faced considerable economic headwinds. Interest rate and liquidity risks were rising within the system, and National Credit Union Administration field examiners and policy teams had to meet those challenges head on at the end of March when the collapse of two large regional banks with sizable amounts of uninsured deposits rippled through the financial system. The National Credit Union Administration acted in advance of those shocks to strengthen the resiliency of the industry, and we developed new tools and
Mission
Protecting the system of cooperative credit and its member-owners through effective chartering, supervision, regulation,
and insurance.
dashboards to monitor and mitigate risks to the credit union system going forward.
In responding to these economic shocks, National Credit Union Administration examiners remained risk focused and ready to act expeditiously, when needed,
at credit unions encountering issues with liquidity, interest rate, credit, cybersecurity, and other risks. In doing so, the agency fortified the Share Insurance Fund’s defenses.
The National Credit Union Administration also increased the short-term investments of the Share Insurance Fund to more than five billion dollars in overnight reserves to ensure adequate liquidity in the event of future external economic shocks and credit union losses. Further, the agency assessed the system’s exposure to the growing risks posed by commercial real estate loans and emphasized the importance of liquidity and interest-rate risk management and contingency planning in stakeholder communications. As we proceed in Twenty-twenty-four, the National Credit Union Administration will continue to ensure credit unions conduct liquidity and asset-liability management planning to address current challenges and future uncertainties.
Advancing Financial Security, Economic Equity, and Allyship
Throughout the last year, the National Credit Union Administration continued to advance financial security and economic equity for all Americans while promoting the value of allyship. The agency hosted well-attended and informative events like the Minority Depository Institution (Minority Depository Institution) Symposium in October and the
agency’s fourth Diversity, Equity, and Inclusion Summit in November. Allyship was a key focus of the DEI Summit and for the National Credit Union Administration in twenty-twenty-three.
To highlight the agency’s commitment to allyship, and in response to feedback from Minority Depository Institutions, the National Credit Union Administration modified its policies and implemented new procedures to examine Minority Depository Institutions. Specifically, the National Credit Union Administration is no longer comparing Minority Depository Institution performance against comparably sized non-Minority Depository Institutions during the examination process. Instead, we have adopted an apple-to-apples approach of comparing Minority Depository Institutions to their peers.
In support of allyship, National Credit Union Administration efforts through the Small Credit Union and Minority Depository Institution Support Program provided one-on-one attention to resolve credit union issues and identified new opportunities. Through this initiative, the agency dedicated field resources to address operating concerns in areas such as staff training, strategic planning, examinations, recordkeeping, and earnings. Additionally, the twenty-twenty-three Community Development Revolving Loan Fund grant round awarded
three point five million dollars to 146 low-income and Minority Depository Institution credit unions.
The National Credit Union Administration’s rulemaking activities in twenty-twenty-three addressed current issues with an eye toward the future and achieving the statutory mission of the credit union system to meet the credit and savings needs of members, especially those of modest means.3 For instance, the National Credit Union Administration’s financial innovation final rule codified several long-standing supervisory guidance letters on third-party
2 12 U.S.C. 1751
due diligence, indirect lending, and loan participations. The rule also gives credit unions greater flexibility in leveraging fintech partners and products to improve operational performance while managing the associated risks.
Additionally, the National Credit Union Administration Board approved proposed changes to the interpretive ruling and policy statement on the agency’s Minority Depository Institution Preservation Program. The proposal would amend an existing interpretive ruling and policy statement to update the program’s features, clarify the requirements for a credit union to receive and maintain an Minority Depository Institution designation, and reflect the transfer of the Minority Depository Institution Preservation Program administration from the agency’s Office of Minority and Women Inclusion to its Office of Credit Union Resources and Expansion. The proposal would also adopt changes in the merger process to better ensure that a merging Minority Depository Institution credit union maintains its Minority Depository Institution character.
The National Credit Union Administration Board also approved a proposed rule to incorporate the National Credit Union Administration’s Second Chance Interpretive Ruling and Policy Statement, and statutory prohibitions imposed by Section two zero five d of the Federal Credit Union Act, into the agency’s regulations. This proposed rule would allow people convicted of certain minor offenses to work in the credit union industry without applying for the National Credit Union Administration Board’s approval.
And, the charitable donations final rule added “war veterans’ organizations” to the definition of a “qualified charity” that a federal credit union may contribute to using a charitable donation account going forward.
Maintaining Cyber Resiliency
Cybersecurity threats within the financial services industry remained high during twenty-twenty-three, and they are expected to remain so for the foreseeable future. To maintain
vigilance against these threats, the National Credit Union Administration is committed to ensuring consistency, transparency, and accountability in its cybersecurity examination program and related activities.
The National Credit Union Administration deployed its updated, scalable, and risk-focused Information Security Examination (ISE) procedures in twenty-twenty-three. The ISE examination initiative offers flexibility for credit unions while providing examiners with standardized review steps to facilitate advanced data collection and analysis.
Together with the agency’s voluntary Automated Cybersecurity Evaluation Toolbox maturity assessment, the new ISE procedures will assist the National Credit Union Administration in protecting the credit union system from cyberattacks.
In addition, the National Credit Union Administration’s implementation of the cyber incident reporting rule in September proved helpful to the agency, the credit union industry, and its member- owners. In the first thirty days after the rule became effective, the National Credit Union Administration received one hundred forty six
incident reports—more reports than received in total in the previous year. More than sixty percent of these incident reports involved third-party service providers and credit union service organizations.
And, in late twenty-twenty-three, following a ransomware attack on a third-party service provider, the National Credit Union Administration’s cyber incident experts responded to service outages impacting 60 small credit unions with nearly 100,000 members and almost 1 billion dollars in assets nationwide. The National Credit Union Administration’s response to these cyber incidents showed the agency’s ability to break down silos, quickly collaborate, and demonstrate agility, which is particularly noteworthy given the National Credit Union Administration’s lack of third-party vendor supervisory authority.
Investing in Our Employees
In July, the entire National Credit Union Administration team gathered for their first national training conference in nearly a decade. During the week, National Credit Union Administration’s professionals received valuable training, networked with colleagues, and learned that leadership is everyone’s business at the agency.
In further support of employees, the National Credit Union Administration Board approved a consensus budget in November investing in its field examination program to protect credit union members and the system’s safety and soundness as credit unions respond to growing liquidity, interest rate, credit, and cybersecurity
risks. Notably, the National Credit Union Administration will increase the number of examiner positions in the year ahead to better position the agency in addressing industry issues.
The Twenty-twenty-four budget also includes adjustments to the pay and benefits of the agency’s workforce, allowing the National Credit Union Administration to remain
a competitive employer and an attractive destination for talent. Thanks to the work of the Office of Human Resources, the regions, and others, the National Credit Union Administration hired and onboarded scores of new examiners. Consequently, the agency fully staffed its examiner ranks for the first time in years.
Because of the professionalism and dedication of National Credit Union Administration employees, our nation’s credit unions remain safe, stable, and strong; the Share Insurance Fund remains stable; and the consumers who use federally insured credit unions are better protected.
The Road Ahead
Credit union performance overall during twenty-twenty-three was stable and relatively resilient against economic disruptions. Credit union assets, loans outstanding, membership, and insured shares and deposits all rose. The industry’s aggregate net worth increased, and it maintained a healthy loan-to-share ratio.
However, the National Credit Union Administration has seen growing signs of financial strain on credit union balance sheets and in household budgets. The
loan delinquency and net charge-off rate levels both rose in twenty-twenty-three, returning to pre-
pandemic averages. As the lagged effects of elevated interest rates take hold in Twenty-twenty-four, we will also see changes in credit union performance, including slower share deposit growth, higher costs of funds, and lower earnings. Additionally, the National Credit Union Administration has seen growing stress within the system because
of the rise in interest rate and liquidity risks, as reflected in the increasing number of composite CAMELS code 3, 4, and 5 credit unions. Sharp rises in and historically elevated levels of credit card delinquencies
over the last year also demonstrate growing credit risks for the industry.
To protect the Share Insurance Fund against potential losses, the National Credit Union Administration will continue safeguarding members, their credit unions, and the Share Insurance Fund from ongoing liquidity, interest rate, credit, and cybersecurity risks. In addition, the agency will advance efforts to improve consumer financial protection supervision; strengthen
safety and soundness; expand access to safe, fair, and affordable financial products and services; and increase transparency, among
other priorities. The National Credit Union Administration will also, when appropriate, take action to protect credit union members and their deposits.
Further, the risks resulting from the National Credit Union Administration’s lack of vendor authority pose a growing regulatory blind spot for the industry. As such, it is the National Credit Union Administration’s continuing policy to seek this power from Congress. Until then, the agency is working within its current statutory limitations, but it is evident that additional oversight is needed on par with other federal banking regulators. If granted third-party vendor authority, the National Credit Union Administration would implement a risk-based examination program focusing on services that relate to safety and soundness, cybersecurity, Bank Secrecy Act and Anti-Money Laundering Act compliance, consumer financial protection, and areas posing national security and significant financial risk for the Share Insurance Fund.
And, with the National Credit Union Administration Board’s unanimous support of a statutory change to restore the ability of corporate credit unions to
Values
Integrity — Adhere to the highest ethical and professional standards.
Accountability — Accept responsibilities and meet commitments. Transparency — Be open, direct, and frequent in communications.
Inclusion — Foster a workplace culture that values diverse backgrounds, experience, and perspectives.
Proficiency — Deploy a workforce with a high degree of skill, competence, and expertise to maximize performance.
serve as Central Liquidity Facility agents on behalf of a subset of their member credit unions, the National Credit Union Administration will continue to support a statutory adjustment to better protect
the credit union system from future liquidity events like those that occurred in the banking sector during the first half of twenty-twenty-three.
Closing Thoughts
In sum, America’s federally insured credit unions overall remain safe, stable, and well- capitalized. That is thanks in large part
to the work and dedication of the National Credit Union Administration team and my fellow Board members. The challenges on the horizon for the credit union system are many and varied, but the National Credit Union Administration team has demonstrated its flexibility to rise to every challenge in the past. That will continue going forward.
Additionally, I thank fellow Board Member Rodney E. Hood, who left the agency in January Twenty-twenty-four, and welcome Tanya Otsuka to the National Credit Union Administration Board. During two terms at the National Credit Union Administration, Board Member Hood advanced financial innovation and enhanced financial inclusion. Board Member Otsuka will bring her fresh perspective and deep knowledge of the financial services system to the agency’s policymaking by seeking to build a fair and
competitive financial system that works for all and supports the needs of small credit unions. And, Vice Chairman Kyle Hauptman continues to provide valuable insights and support on matters like chartering process reforms, the adoption of innovative financial technologies, and agency accountability.
For the credit union system to reach its full potential, the National Credit Union Administration must stay focused on both its safety and soundness and consumer financial protection missions. To that end, the agency will continue to monitor credit union performance and coordinate with other federal financial institution regulators, as appropriate, to ensure the overall resiliency and stability of our nation’s financial services system and economy.
Finally, we commemorate the ninetieth anniversary of the Federal Credit Union Act in Twenty-twenty-four. In recognition of that landmark statute, the National Credit Union Administration — as the steward, regulator, and insurer of the credit union system — will set a course for the future. In doing so, the agency can ensure the nation’s system of cooperative credit will thrive by continuing to offer consumers access to safe, fair, and affordable credit for the next ninety years and beyond.
This concludes Chairman Harper’s statement.
If your Credit union could use assistance with your exam, reach out to Mark Treichel on LinkedIn, or at mark Treichel dot com. This is Samantha Shares and we Thank you for listening.
