Board Briefing – Share Insurance Fund Quarterly Report
Today’s
report on the Share Insurance
Fund showed total income of $72.1 million and net loss of $19.3 million for the
quarter ending 6/30/2020. The balance sheet indicated total liabilities and net
position of $17.678 billion, an increase of roughly $965 million from the
previous quarter. The Fund’s reserve balance stands at $184 million as of the
end of the second quarter, with $20.5 million being for specific reserves. The
number of CAMEL Code 4/5 credit unions decreased slightly from the preceding
quarter to 166; CAMEL Code 3 credit unions decreased to 785.
The
Fund’s equity ratio declined from 1.35% at year-end 2019 to 1.22% as of June
30, below the Normal Operating Level of 1.38%. The primary driver of the decline
is strong growth in insured shares (of 12.95%).
As
a result of share growth, many credit unions’ capitalization deposits have
dropped below the statutorily required 1.0% of insured shares. Therefore, these
credit unions will be invoiced to maintain the 1.0% capitalization deposit. These
invoices will amount to $1.5 billion in the aggregate. Invoices will be sent
out later this week and deposits will be due in October.
While
the equity ratio of the NCUSIF is not formally re-estimated until year-end, this
“truing up” will effectively increase the Fund’s equity ratio. In response to a
question from Chairman Hood, staff noted that the equity ratio is expected to
be at 1.32% at the end of 2020, reflecting the anticipated capitalization
deposits, forecasted insured share growth, and equity values. Thus, staff does
not anticipate the need to develop a NCUSIF restoration plan, which is required
if the equity ratio drops below 1.20%.
Board
Member Harper expressed concern given the current equity ratio of the Fund is barely
above the statutory mandated threshold to develop and implement a restoration
plan. Harper also stated that, in the short-term, the NCUA must be prepared to
charge a premium should future events warrant it and credit unions need to be
aware of that reality. In the long-term, Harper indicated the need for the
agency to begin a discussion with Congress about modifying the way in which the
agency manages the NCUSIF.
Board Briefing – Modern Examination and Risk Identification Tool (MERIT)
Update
The Board received an update on MERIT, which is part of
the agency’s Enterprise Solution Modernization (ESM) Program, a multi-year
effort established to manage the modernization effort. The ESM Program includes
three key projects:
- Examination & Supervision Solution (ESS): Replace the existing
legacy examination system and related supporting systems.
- Data Collection & Sharing (DCS): Define capabilities required for a common
platform to securely collect and share financial and non-financial data.
- Enterprise Data Reporting Solution (DRS): Implement business
intelligence tools and establish a data framework to enhance analytics and
provide more robust data reporting.
Staff discussed the benefits
of MERIT, which will be used to manage the examination process, including
secure document transfer within the context of an exam (i.e., AIRES
replacement).
The
roll out of MERIT has been delayed by COVID. There is not a single date for
when MERIT will be implemented for credit unions. Staff stated that credit
unions will be phased into using MERIT following agency staff training. NCUA
will be keep the system apprised of MERIT developments through NCUA.gov as well
as a Letter to Credit Unions, expected in 2021.
Bank Secrecy Act: Customer Identification Program Exemption
The Board authorized an order granting an exemption from
BSA Customer Identification Program (CIP) requirements for certain loans to
facilitate purchases of property and casualty insurance policies (referred to
as Premium Financing Arrangements). This is a joint order together with the
other federal financial regulators. This order expands a related order issued
in September 2018.
Premium Financing
Arrangements are typically same-day finance arrangements, where CIP
requirements can prove a competitive impediment to financial institutions and a
burden to offering such financing with immediacy. In addition, FinCEN has
already exempted this type of financing arrangement from Customer Due Diligence
and Beneficial Owner requirements, concluding that it represents a very low
risk of money laundering or terrorist financing.
Final Rule – Real Estate Appraisals (Part 722)
The
Board finalized a recent interim final
rule that temporarily allows credit unions to defer appraisals and written
estimates of market value for up to 120 days after the closing of a loan. Consistent
with the interim rule, the final rule states that credit unions should make best
efforts to obtain a credible estimate of the value of real property collateral
before closing the loan, and otherwise underwrite loans consistent with safety
and soundness principles.
The
rule is intended to allow credit unions to expeditiously extend liquidity to
creditworthy households and businesses in light of recent strains on the U.S.
economy as a result of the pandemic.
The
flexibility provided by the rule is scheduled to expire at the end of 2020. In
response to a question from Chairman Hood regarding its expiration, staff
stated that the agency will work with the other federal financial regulators as
we approach year end to determine with an extension is appropriate. The rule is
consistent with that provided by the banking regulators.