NCUA Says Share Insurance Fund Is in Good Shape

Agency board discusses Share Insurance Fund, Central Liquidity Facility, subordinated debt maturity at September meeting.

The NCUA’s Share Insurance Fund is in solid shape, with the agency’s equity ratio standing at 1.26% at the end of June, agency CFO Eugene Schied told the NCUA board Thursday at its monthly meeting.

And Schied said the equity ratio is expected to climb to 1.30% by the end of the year.

That is still below the agency’s normal operating level, which is set at 1.33%. At one point during the pandemic the equity ratio had dipped close to 1.20%, which would have required the agency to adopt a restoration plan that could have required charging federally insured credit unions a premium.

“The improved health of the Share Insurance Fund validates the NCUA Board’s wisdom in delaying the imposition of preemptive premiums on the industry earlier in the pandemic when we teetered dangerously close to the 1.20 percent statutory minimum for developing a plan to recapitalize the Share Insurance Fund,” board Chairman Todd Harper said.

Harper did add, however, that some credit unions, including those with at least $1 billion in assets, could have liquidity problems as a result of increasing interest rates.

Board Vice Chairman Kyle Hauptman agreed.

“We are not out of the woods yet,” Hauptman said. “It’s been 40 years since we’ve seen inflation at the levels they are today, and most of us have never experienced it as adults.”

Central Liquidity Facility

During Thursday’s meeting, NCUA board members also called on Congress to make permanent the pandemic-related changes it had made to the agency’s Central Liquidity Facility. The House-passed version of the FY23 defense authorization includes that provision, but the Senate bill, which the full Senate has not yet considered, does not.

“The CLF is the only practical source of emergency liquidity for the over 3,600 credit unions under $250 million,” Hauptman said.

Board member Rodney Hood called on the board to make public more detailed information about how the equity ratio and normal operating levels are set.

Subordinated Debt Maturity

The board also approved a proposed rule that would replace the maximum maturity of subordinated debt notes with a requirement that any credit union seeking to issue such notes with maturities longer than 20 years demonstrate how these instruments would continue to be considered debt beyond those 20 years.

Harper explained that under the Treasury Department’s Emergency Capital Investment Program, funds can be held up to 30 years, noting the current NCUA subordinated debt rule generally limits maturity levels to 20 years.

“To fix this maturity mismatch, this proposed rule would align the NCUA’s subordinated debt rule with the Treasury Department’s ECIP rule,” he said.

Credit Union Member Expulsion

Additionally, the board approved a proposed rule that would make it easier for credit unions to expel a member. 

Under the Federal Credit Union Act, a member may only be expelled following a two-thirds vote of members attending a special meeting or due to non-participation in the credit union. 

In March Congress passed legislation that would allow a federal credit union to expel a member for cause by a two-thirds vote of a quorum of the financial institution’s board. 

“Industry trade groups sought this statutory change to provide credit unions with greater flexibility in expelling members in certain extreme circumstances, such as to adequately address threats of violent or aggressive behaviors of certain members,” Harper said. 

Hood added the rule makes it clear that expulsion of a member should “be rare and reserved for the most extremely egregious behavior.”