Harper Asks Congress for More Authority to Charge Premium

NCUA Chairman Todd Harper is pushing Congress to allow the agency to assess premiums on credit unions even when the agency’s equity ratio is above 1.30%.

Harper also wants to increase the NCUA’s Share Insurance Fund capacity by removing the 1.50% ceiling on the normal operating level, according to a letter he sent last month to Senate Banking Committee ranking Republican Pat Toomey of Pennsylvania.

A copy of that letter was obtained by CU Times.

Harper had one final recommendation: He said Congress should provide the NCUA board with the option to use risk-based premiums and use total assets as the assessment basis rather than insured shares.

At is April meeting, the NCUA board did not issue its regularly scheduled update of the agency’s equity ratio for the month — an update that could have required the board to take action to shore up the ratio, according to Harper.

The board has set the equity ratio’s Normal Operating level at 1.38%. However, largely because of a huge influx of money from pandemic-related assistance, including Economic Impact Payments, the equity ratio stood at 1.26% in February.

Federal law requires the NCUA board to develop a restoration plan if the equity ratio falls below 1.20%.

In the letter, which was sent in response to a letter Toomey sent the chairman, Harper said that the agency’s equity ratio has been on a downward trend for several years. He said that the closure of the NCUA Temporary Corporate Credit Union Stabilization Fund and the transfer of the assets to the Share Insurance Fund increased the equity ratio and prevented a premium assessment.

Harper has publicly said that he is troubled by the premium process, arguing that under law the agency may only charge a premium during poor economic times, when the equity ratio would be expected to drop and credit unions can least afford it.

“These changes would allow for an increase in insurance reserves during economic expansions to avoid charging premiums in economic downturns,” he told Toomey.

He said the changes would bring the NCUA into alignment with changes Congress made to the FDIC more than a decade ago.

“During 2020, the credit union system experienced a dramatic rise in assets, falling loan demand, compressed interest rates, decreased earnings and subdued consumer confidence,” he wrote. “The system also saw an unprecedented increase in share growth, which caused the NCUSIF’s equity ratio to fall to 1.22% as of June 2020.”

Harper said the agency is preparing a white paper that will provide additional details and suggested legislative language.

Credit union trade groups said they oppose the proposed changes.

“The share insurance fund remains on solid financial footing, and there is no reason the NCUA should charge credit unions a premium or alter how the fund is managed at this time,” NAFCU Chief Economist and Vice President of Research Curt Long said. “Overhauling the fund is simply unnecessary as credit unions’ resources should remain in the hands of their memberships, not siphoned off into the hands of the government.”

“We don’t support these changes,” CUNA Chief Advocacy Officer Ryan Donovan said. “We don’t think they’re necessary.” He said that such changes are not appropriate during a pandemic, adding that there is no long-term threat to the Share Insurance Fund.

“This seems like a particularly peculiar time to do it,” Donovan said.