WASHINGTON––The Financial Stability Oversight Council (FSOC) is again encouraging Congress to ensure NCUA and other agencies have adequate examination and enforcement powers over third parties, especially when it comes to cybersecurity.
Such third power enforcement authority has long been sought by NCUA, most recently in testimony before the Senate by NCUA Chairman J. Mark McWatters. The credit union trade groups have consistently pushed back against such authority, calling it “costly and unnecessary.” As CUToday.info reported here, in 2015 the GAO also issued a report finding shortcomings in cyber-exams and calling for similar NCUA authority over third-party providers.
In its just-released 2018 annual report, the FSOC states, “Maintaining confidence in the security practices of third-party service providers has become increasingly important, particularly because different financial institutions are often serviced by the same providers. The Council supports efforts to ensure agencies have the authorities necessary to supervise and enhance third-party service provider information security. Some Council member agencies that supervise financial institutions have examination, regulatory and, in some cases, enforcement powers over certain third-party service providers. The Council recommends that Congress pass legislation that ensures that the federal banking agencies, FHFA, and NCUA have adequate examination and enforcement powers to oversee third-party service providers. The Council also recommends that the federal banking regulators continue to work together to coordinate third-party service provider oversight and work with the Conference of State Bank Supervisors (CSBS) to identify additional ways to support information sharing between state and federal regulators.”
How FSOC Views CUs Overall
Separately, in its assessment of the state of credit unions, the FSOC acknowledged the ongoing consolidation taking place, especially among smaller CUs where performance is not as strong, but said financial performance overall has been healthy.
“After exhausting other sources of earnings growth, some credit unions appear to be continuing to reach for yield by lengthening the term of their investments to boost near-term earnings, though it may leave them vulnerable if short-term interest rates rise more quickly than expected,” the FSOC said in its analysis. “As the economy has improved and credit union lending has accelerated, the investment share of the credit union asset portfolio has declined, and the share of assets accounted for by loans has increased. Over the past five years, the share of investments with maturity greater than three years declined from 11.7% in the second quarter of 2013 to 7.3% in the second quarter of 2018. Over the same period, the share of assets accounted for by loans rose 12 percentage points to 70%.
“Finally, although credit unions’ close ties to specific geographies or business organizations offer certain advantages, localized economic distress can present these institutions with certain unique challenges,” the analysis continued. “For example, the drop in the price of oil between 2014 and 2016 led to a sharp decline in investment and increased layoffs in energy companies, creating strains on the credit unions exposed to the sector. Similarly, credit unions exposed to the taxicab industry have experienced stress following increased competition from ridesharing companies…”
The full 140-page report can be found in CUToday.info’s The Vault here.