NCUA's Hood Discusses 'Emerging Risks' to Credit Unions During Virtual Senate Hearing

With a container of disinfecting wipes placed behind him, Senate Banking Committee majority member Sen. Mike Crapo (R-Idaho) began a virtual hearing on Tuesday to hear live-streamed testimony from financial regulatory leaders to gain insight on the economic crisis caused by the coronavirus.

Other than the occasional statement of, “Can others hear Chairman McWilliams/?” and “You got your mute button on,” the meeting was much less contentious than a typical in-person meeting in chambers.

Along with officials from the Federal Reserve, the Office of the Comptroller and Currency and the FDIC, NCUA Chairman Rodney Hood virtually faced committee members to offer an economic assessment of credit union industry.

“The agency is now assessing emerging risks, including the likelihood of elevated liquidity and credit risk, and the risk exposure to individual credit unions, the system as a whole and the Share Insurance Fund,” Hood said.

According to the NCUA, as of Dec. 31, 2019 the Share Insurance Fund’s calculated equity ratio was 1.35%. This equity ratio was calculated on an insured share base of $1.2 trillion.

Hood’s testimony particularly focused on the issues of credit union liquidity and capital.

“This pandemic is affecting virtually everyone, and the country now faces the specter of an emerging liquidity event that could have widespread and difficult-to-forecast implications,” he said. “The increased flexibility and borrowing authority for the NCUA’s Central Liquidity Fund will make it easier for member credit unions to access the CLF if and when they need to.”

Hood recommended to the committee several statutory changes to help improve liquidity for credit unions:

• Make the Central Liquidity Facility permanent.
• Grant temporary authority to waive lending limits between federally-chartered credit unions.
• Reduce the level at which credit unions are considered well-capitalized, from a net worth of 7% to 6%.
• Raise the Member Business Lending cap to 20%.
• Permanently increase the federal credit union loan maturity limit from 15 years to 30 years.
• Permanently expand credit union reach for underserved areas.

According to a statement released by NAFCU’s Vice President of Legislative Affairs, Brad Thaler, he asked for more legislative relief for credit unions “from the current expected credit loss standard, more funding for the Community Development Financial Institutions Fund and Community Development Revolving Loan Fund, and modernizing outdated governance provisions in the Federal Credit Union Act.”

CUNA President/CEO Jim Nussle wrote in a statement, “Uncertainty has been pervasive since the outset of the COVID-19 pandemic and continues to be one of the greatest challenges facing us now. It is impossible to forecast precisely the duration of the crisis or the depth of its economic and financial impact. For credit unions that need to remain open to serve all their members, and in a position to help those in need, the uncertainty factors into every decision they make.”