Harper calls for parity in account insurance, greater flexibility in managing agency’s Share Insurance Fund.
As policymakers struggle with whether to increase deposit insurance, Congress must ensure that credit union accounts are insured at the same level as banks, NCUA Chairman Todd Harper told the House Financial Services Committee Tuesday.
“Share and deposit insurance parity ensures that consumers receive the same level of protection against losses regardless of their financial institution’s charter type,” he said.
Harper explained that the NCUA has not taken a position on whether deposit insurance should be increased. He noted, however, that if Congress decides to increase the threshold of accounts that are insured, he would prefer a “targeted” approach. That approach would insure certain accounts, such as business accounts, at a higher level than other accounts. The FDIC also has recommended that Congress take that approach.
The committee held a hearing Tuesday on recent bank failures, which featured the heads of the prudential banking regulators. Members grilled several of the witnesses over recent events, including the demise of Silicon Valley Bank. Harper was asked few questions, since no credit union was among those financial institutions that had failed.
Share Insurance Fund
In written and oral testimony, Harper said that because an expansion in insurance coverage would increase resolution costs, the NCUA is requesting more flexibility in administering the agency’s Share Insurance Fund.
That flexibility, he added, would be more in line with the FDIC’s administrative powers, and should include granting the NCUA board the power to establish a higher normal operating level and modifying the current limitation on assessing premiums.
Harper stated further that if the level of insurance is increased, Congress should amend the Federal Credit Union Act to remove the 1.50% ceiling from the definition of “normal operating level.” He said the current ceiling limits the ability of the board to establish a higher normal operating level.
He also asked Congress to remove the limitation on assessing a Share Insurance Fund premium when the equity ratio is greater than 1.30%.
“These amendments would also better enable the NCUA Board to proactively manage the Share Insurance Fund by building reserves during economic upturns so that sufficient money is available during economic downturns,” he testified. “A more counter-cyclical approach would better ensure that credit unions will not need to impair their 1% contributed capital deposit or pay premiums during times of economic stress, when they can least afford it.”
CLF and Third-Party Vendor Oversight
Harper additionally reiterated the NCUA’s request for Congress to restore pandemic-related changes to the agency’s Central Liquidity Facility.
He said that when those provisions ended in December more than 3,000 credit unions with less than $250 million in assets lost access to the CLF.
“With risks rising within the financial system and at individual credit unions, now is not the time to cut a liquidity lifeline,” he added.
Harper also repeated the NCUA board’s request that the agency be given statutory examination authority over third-party vendors and CUSOs, noting that the top five technology service providers serve more than half of all credit unions.
“A failure of one of these third parties could cause hundreds of credit unions and potentially tens of millions of their members to lose access to their funds simultaneously, resulting in a loss of confidence for the credit union industry and the entire financial sector,” he said.
More About the Hearing
Much of the hearing focused on who to blame for the recent bank failures.
“Our country is suffering from an inflation problem—plain and simple,” stated House Financial Services Committee Chairman Rep. Patrick McHenry, R-N.C.
He accused Democrats of advocating “more regulation, more government control, and more spending.”
However, committee ranking Democratic Rep. Maxine Waters of California blamed “Trump-era deregulation” coupled with bank mismanagement for the failures.