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(From the NCUA) – NCUA Chairman Todd M. Harper, along with other financial regulatory agency principals, testified Monday at a hearing before the U.S. Senate Committee on Banking, Housing, and Urban Affairs.
Chairman Harper provided the Committee with a state of the credit union system and the factors that will affect its performance in 2023. He also discussed the status of the National Credit Union Share Insurance Fund and the Central Liquidity Facility (CLF), the need for the agency to have parity with other federal financial regulators in its ability to supervise third-party vendors, along with the NCUA’s efforts to preserve minority depository institutions and enhance the agency’s consumer financial protection program.
“While the economic fallout of the COVID-19 pandemic along with rising interest rates have influenced credit union performance over the last year, the credit union industry remains on a solid footing,” Chairman Harper said. “As we move into 2023, the NCUA is emphasizing that all credit unions must remain vigilant in managing safety and soundness and consumer financial protection to prepare for rising interest rates, inflationary pressures, liquidity concerns, and cybersecurity threats.”
Harper called on Congress to make the CLF agent-membership provisions permanent to provide regulatory certainty for smaller credit unions and strengthen the system’s ability to respond to future emergencies.
“Without legislative action by year’s end, three out of every four credit unions—including most minority credit unions—will soon lose access to an important liquidity backstop. And, the credit union system’s capacity to address liquidity events will shrink by almost $10 billion. With growing interest rate risk and rising liquidity concerns, now is not the time to decrease access to the system’s liquidity shock absorber,” Harper said.
Harper cautioned that the expiration of the NCUA’s vendor authority creates a blind spot for the NCUA as an increasing number of credit union operations, including lending and compliance management, are migrating to parties outside of the agency’s supervision. He again called on Congress to restore the agency’s ability to oversee third-party vendors and credit union service organizations.
“This statutory change would provide the NCUA parity with other agencies that supervise and regulate federally insured depository institutions,” Harper said. “This examination authority is critical given the system’s increased reliance on third-party vendors and credit union service organizations.”
The Government Accountability Office, the Financial Stability Oversight Council, and the NCUA’s Office of the Inspector General have all recommended that Congress pass legislation to restore NCUA’s vendor authority.