Hood outlines CU performance, outlook; seeks CLF changes

(Nov. 13, 2020)Despite the financial impact of the coronavirus crisis, federally insured credit unions performed well and remain well capitalized – although there are still challenges ahead, NCUA Board Chairman Hood told Senate and House committees this week.

Hood also made a legislative request: that the authority in the Coronavirus Aid, Relief, and Economic Security (CARES) Act given to NCUA to respond to the pandemic – particularly that providing expanded flexibility and borrowing authority to the agency’s Central Liquidity Facility (CLF) – should be extended to the length of the pandemic. The authority under the CARES Act is now set to expire at year’s end.

In reporting on the state of credit unions, Hood said they were well capitalized at the start of the pandemic, with high levels of net worth and ample liquidity. He noted that federally insured credit unions (FICUs) increased their net worth by $11.6 billion, or 6.8%, over the year ending June 2020, to $182.9 billion. He said asset growth led to a decline In the aggregate net worth ratio – net worth as a percentage of assets – from 11.27% to 10.46%. “Still, the credit union system remains well capitalized through June 2020,” Hood said.

But he also reported that the effects of the economic downturn will affect credit union performance through year’s end and into 2021. “System-wide delinquency rates, which remained low through the second quarter, could begin to rise as forbearance programs end, particularly given the current high level of unemployment. Interest rates across the maturity spectrum have fallen to historically low levels,” he said. “A prolonged period of low interest rates also poses risks, particularly to credit unions that rely primarily on investment income.”

NCUA is actively monitoring economic conditions and assessing these and other risks to credit unions and their members, he said.

In seeking extended authority for the CLF, Hood noted a number of changes the CARES Act made for the CLF when the law was enacted last March (including higher borrowing authority, relaxed membership for corporate CUs, more clarity about what borrowed funds can be used for). He indicated credit unions have responded well to the changes, with new memberships adding $989.8 million in additional capital stock (since April), borrowing authority increased by $21.7 billion to $32.2 billion, and 80% of all federally insured credit unions (4,145 in total) now having access to the facility.

Securing the extension of the authorities, Hood said, would “provide regulatory certainty to credit unions. Having a reinforced CLF will also ensure the credit union system can continue to support its members and communities should the need for emergency liquidity arise.”

NASCUS commented in favor of changes to the CLF in a comment letter on an interim final rule the association filed in June, implementing provisions of the CARES Act.

NCUA Chairman Rodney E. Hood’s Written Testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs

NASCUS Comments on Interim Final Rule: CLF (RIN 3133-AF18)