NCUA Board: 'Be Confident' in the Credit Union System

The three NCUA board members, all financial veterans of the Great Recession, set aside the first portion of Thursday’s March meeting to share their thoughts and feelings about the collapsed Silicon Valley Bank and Signature Bank as ripple effects continue to roar through the banking industry. Board members wanted try and clearly express what these banking collapses mean and don’t mean for the credit union industry as a whole.

The tenor of the statements given by board members revolved around the fact that the seriousness of solid regulatory guidance, combined with capable credit union leadership and cooperative financial values, result in a credit union industry that is safe, sound and trusted.

Chairman Todd Harper led off the remarks by giving an overview of how well-suited the credit union system is to ride out financial and economic challenges, despite what’s happening on the FDIC side of the financial world.

“As always, the NCUA is committed to protecting credit union members and the safety and soundness of the credit union system. No one has ever lost a single penny of insured share deposits within the credit union system. In fact, more than 91% of all share deposits are currently federally insured,” Harper said.

“Nevertheless, recent events provide a good reminder of the dangers of concentration risk and the need for effective risk-management policies and practices in the areas of capital, interest rate risk, liquidity risk and credit risk. Those fundamentals have remained true throughout all economic and regulatory cycles. And these risks were already highlighted as areas of focus in the NCUA’s supervisory priorities for this year and the last several years.

“In sum, credit unions must remain diligent in managing risk and ensuring their safety and soundness. Consumers can remain confident that their hard-earned deposits at federally insured credit unions are safe, just as they always have been, and that the NCUA will continue to act expeditiously, when needed, to preserve the stability of the credit union system,” Harper said.

Vice Chairman Kyle Hauptman stated the past week’s turmoil reminded him of the days when he was an employee at Lehman Brothers as it fell into bankruptcy in 2008.

“Even though there’s no analogy to the Silicon Valley Bank and credit union system, previous boards and this board have been urging credit unions to ensure they have appropriate sources of emergency liquidity,” Hauptman said.

“At the same time, we have urged Congress to strengthen the Central Liquidity Facility, the CLF, by allowing corporates to act as agents for subsets of members. When interest rates started rising, we published guidance on NCUA’s NEV, Net Economic Value methodology – that guidance clarified that credit union management must have an appropriate plan for managing interest rate risk.

“I’ll also note, a little while back, we encouraged the use of interest rate derivatives for exactly this … situations like this. The events of this past week underscore exactly why we were so concerned about interest rate risk. And this board is very aware that it is fairly unprecedented the rate-hiking cycle we’ve been in. We know it’s not easy to manage, but that is what credit union management is paid to do,” Hauptman said.

He added, “I’m grateful for the hard work by credit unions and NCUA to ensure confidence and a safe and sound system. I know springtime is often annual membership meeting season for a lot of credit unions. No doubt, some members will have questions. I hope you credit unions out there will use this opportunity to educate members not only on your credit union, but the credit union difference.”

Board Member Rodney Hood used his time to remind credit union leaders and the public that what is currently happening in the banking industry is not what happened to cause the Great Recession.

“I’d also like to underscore that the credit union system is safe and sound,” Hood said.

“It did take me back to 15 years ago when I saw what played out with the debacle with what we’ve seen with Silicon Valley Bank and Signature Bank. In fact, I was here during the last Great Recession and I want you all to know, ladies and gentlemen, that this is not a repeat of what we saw in 2008! Yes, that was definitely a credit crisis. What we’re seeing here play out, you also have a bit of a confidence crisis as evident by folks lining up to get their funds. But as the Chairman said and I will reiterate, please be confident that your funds are safe in America’s federally-insured credit unions.

“Please note that not one penny has ever been lost and do know that this board and senior leaders are working to ensure that we keep our system of cooperative credit safe and sound so that our nearly 135 million members will continue to have access to affordable financial services,” Hood said.

He added, “Another area that I’d like to note is that, yes, as we monitor the situation, we are probably going to glean a great deal of insight about what did transpire with Signature and Silicon Valley Bank. But do know that we have the wonderful dedicated team of professionals here to help navigate the troubled days that may lie ahead.

“Be confident that our system is safe. Be confident that your funds are safe. And be confident that the board really wants to ensure that we have a safe, sound and robust credit union system,” Hood said.