WASHINGTON–NCUA Chairman Rodney Hood, in testimony before Congress this week, is reporting a healthy credit union community and identifying where the agency believes any risks might lie.
Among those risks: a lack of third party vendor authority, which the agency has requested for many years and which has seen pushback from credit unions and their trade groups.
During his comments before the Senate Committee on Banking, Housing and Urban Affairs today, and before the House tomorrow during a hearing on “Oversight of Financial Regulators,” Hood addressed a broad number of issues.
During his prepared remarks, Hood discussed the efforts and initiatives the NCUA has undertaken to meet the goals the agency set out in its 2018–2022 Strategic Plan, including (1) ensuring a safe and sound credit union system; (2) providing a regulatory framework that is transparent, efficient, and improves consumer access; and (3) maximizing organizational performance to enable mission success.
“The NCUA is striving to reduce the regulatory, reporting, and examination burdens facing credit unions without sacrificing the safety and soundness of the credit union system and, in turn, the Share Insurance Fund,” he said.
In terms of the health of CUs, at year-end 2018 Hood updated Congress by noting there were 116-million CU members representing $1.45-trillion in total assets, with a system aggregate net worth ratio of 11.3%.
Hood pointed to the 2018 and 2019 distributions from the NCUSIF and its 1.39% equity ratio as further indicators of strength.
“This higher equity ratio level positions the Share Insurance Fund to cover expected losses and withstand the impact of a moderate recession without needing to assess credit unions a premium to restore the Share Insurance Fund to its statutory minimum level of 1.20%,” he said.
Other issues touched on by Hood during his remarks before Congress, his first as chairman:
“There are broader market risks on the horizon, however, that could threaten financial stability generally, including the safety and soundness of the credit union system. For example, rising debt levels may pose some risks to the economy,” said Hood, citing Brexit as another potential risk.
Cybersecurity and Technology
Cybersecurity threats and other technology-related issues continue to be of key interest and concern to the NCUA, Hood said. “That is why the NCUA again made cybersecurity assessment one of its primary areas of supervisory focus in 2018, and why I will continue to prioritize it as the NCUA’s new chairman. I will make certain that we employ all available resources to ensure data protection for consumers and combat cybersecurity threats. Last year, the NCUA began implementing a new Automated Cybersecurity Examination Tool, or ACET, to improve and standardize supervision related to cybersecurity.”
Hood also touched on another issue in which there has been pushback from credit unions,.
“Fintech and credit union reliance on third-party vendors increases systemic cybersecurity risks across the financial services landscape,” he said. “The credit union system is particularly at risk because the NCUA does not have sufficient legal authority to directly identify and address systemic cybersecurity risk and the potential contagion risk that key fintech service providers can pose.
“Currently, the NCUA may only examine credit union service organizations (CUSOs) and third-party vendors with their permission. We cannot enforce any necessary corrective actions or share the results of a voluntary review with customer credit unions of the third-party vendor," continued Hood. "In recent years, nearly all of the core technology service providers that exclusively serve credit unions declined a voluntary review by the NCUA. Even though CUSOs are required to give the NCUA access to their books and records, without the NCUA’s enforcement authority, the CUSOs are free to reject the NCUA’s recommendations to implement the appropriate corrective actions that would mitigate identified risks. This lack of vendor authority stands in contrast to the powers of the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and most state regulators, a situation identified as a concern by both the Government Accountability Office and the Financial Stability Oversight Council (FSOC).”
In addition to reducing the number of NCUA regional offices, Hood said the agency’s broader reform plan is also designed to (1) increase the agency’s effectiveness in maintaining the safety and soundness of the credit union system and the Share Insurance Fund; (2) increase the efficiency in our examination, data collection, and reporting efforts; (3) decrease regulatory burdens; (4) increase diversity within the NCUA and the broader credit union industry; and (5) empower credit unions to better serve those of modest means and the underserved.
He offered support for each of those points during his testimony, offering updates on modernized exam considerations, increased use of specialists and expanded training for examiners, implemented core proactive enforcement of unsound internal practices by employees, its response to more than 50,000 member complaints, its efforts toward greater transparency around voluntary mergers, efforts to expand diversity, and more.
Hood’s full statement before Congress can be found here.
NASCUS 'Ready To Work' With NCUA
“NASCUS shares Chairman Hood’s concerns about cybersecurity threats, as noted in his written and oral testimonies, said NASCUS President and CEO Lucy Ito. “We together, with state credit union regulators, stand ready to work with NCUA and Congress to ensure any federal cybersecurity standard respects the authority of the states to implement policies necessary to protect consumers in their communities. “We also agree with Chairman Hood that NCUA has made great strides in reducing the regulatory burdens of credit unions, while maintaining the safety and soundness of the Share Insurance Fund," continued Ito. "NASCUS particularly appreciates the timely closing of the Corporate Credit Union Stabilization Fund, for which we have long advocated. The Stabilization Fund’s closing has resulted in unprecedented dividends to credit unions while maintaining a healthy equity level in the National Credit Union Share Insurance Fund. We will continue to engage with NCUA on initiatives, such as capital reform and improved appraisal regulations, that will further reduce burden while preserving the safety and soundness of credit unions.”