History of the NCUA
The history of credit unions and the NCUA dates back to the year 1934. This was the year that President Franklin Delano Roosevelt signed the Federal Credit Union Act into law. The law permitted the chartering (i.e. creation) of federal credit unions across the United States. The specific purpose of the Federal Credit Union Act was to increase the availability of credit in the country. The act also created the Bureau of Federal Credit Unions, which supervised and chartered federal credit unions from 1934 until 1970. Over this time period, the number of credit unions grew significantly and resulted in the need for a revisiting of how they are regulated. To provide some perspective, by 1960 there were 9,905 federal credit unions with 6.1 million members, and a total of $2.7 billion in assets. As a result of the updated regulations, the Bureau of Federal Credit Unions was replaced in 1970 by the National Credit Union Administration (NCUA) which was created by the U.S. Congress.
The NCUA in its Current Form
The NCUA is responsible for federally insuring credit unions in order to provide protection to members of the credit unions who are the effective owners of the entities. In addition, the NCUA also charters and regulates all federal credit unions. Specifically, the agency is tasked with identifying, monitoring and reducing the risks to the National Credit Union Share Insurance Fund. This fund was created at the same time as the NCUA and is administrated by the agency. Importantly, prior to 1970, there was no deposit insurance provided to credit union members. Upon creation of the NCUA and the National Credit Union Share Insurance fund, credit union member deposits were also insured for the first time. The initial limit was $20,000.
NCUA Deposit Insurance History
After the initial deposit insurance limit of $20,000 there have been four developments over time which have lead to an increase in the NCUA deposit insurance coverage threshold. The first increase came in 1974 when legislation from the U.S. Congress increased the limit to $40,000. This was followed by an increase to $100,000 in 1979 as part of an updating of the Federal Credit Union Act. This was also the first time that the NCUA’s deposit insurance coverage matched that of the Federal Deposit Insurance Corporation (FDIC). In October 2008, in the depths of the financial crisis, as part of the Troubled Asset Relief Program, the NCUA’s deposit insurance coverage was raised from $100,000 to $250,000, temporarily. The FDIC also had its deposit insurance coverage raised to $250,000 – in both instances the intention was for this increase to be temporary in nature. However, in 2010 as part of the Dodd-Frank laws that were implemented, the $250,000 deposit insurance coverage was made permanent.
Today, the NCUA share insurance fund insures the individual accounts of credit union members for amounts up to $250,000 and also protects members’ IRA and KEOGH retirement accounts for amounts up to $250,000. In addition to this, the insurance fund also provides additional coverage for the trust accounts of individual credit union members. As a final note on the deposit limits, it is noteworthy that the National Credit Union Share Insurance Fund was not capitalized by the U.S. government but by the credit unions at its inception – this should give you an idea of just how large the credit union system had become.
Other Funds Operated by the Agency
In addition to the share insurance fund, the NCUA operates the following three funds:
- NCUA Operating Fund – this fund exists for the purposes of operating the agency.
- Central Liquidity Facility – this is operated by the NCUA and exists to meet the liquidity needs of members in a manner that mirrors how the Federal Reserve discount window provides access to loans for eligible depository institutions. It was created as a “back-up” source of liquidity for credit unions.
- Community Development Revolving Loan Fund – this is a program that provides funding to low-income credit unions to facilitate the extension of services and credit to their members, in addition to improving the operations of the credit unions.
The Agency’s Stated Mission
The agency’s official mission is to “Provide, through regulation and supervision, a safe and sound credit union system, which promotes confidence in the national system of cooperative credit”. In addition to this the NCUA aims to operate while adhering to the following set of values:
- Integrity—Adhere to the highest ethical and professional standards.
- Accountability—Accept responsibilities and meet commitments.
- Transparency—Be open, direct and frequent in communications.
- Inclusion—Foster a workplace culture that values diverse backgrounds, experiences and perspectives.
- Proficiency—Deploy a workforce with a high degree of skill, competence and expertise to maximize performance.
The agency is headquartered in Alexandria, Virginia and has its asset management and assistance center in Austin, Texas in addition to three regional offices.
The NCUA’s Role in Credit Unions Failures
One of the important roles of the agency is to place credit unions into conservatorship – this means that the NCUA takes control of the credit union. The NCUA will do this in instances where it is necessary to resolve operational issues which could result in an impact on the credit unions “safety and soundness”. It is a proactive measure taken to protect credit union members. After the NCUA takes control of a credit union there are typically three ways things can progress:
- Eventual return to the status quo – this occurs if the credit union can resolve its operational problems. If the NCUA believes this has occurred it can return the credit union back to the ownership of its members.
- M&A – this occurs if the credit union merges with another credit union, obviously with approval of the NCUA.
- Liquidation – the credit union seizes to exist. In this outcome the credit union is closed.
In 2021 there were a total of 9 credit unions that “failed”. Of this figure, 4 were involuntary liquidations and 5 credit unions entered conservatorship. In the preceding years this was the number of credit unions that liquidated or entered into conservatorship:
- 2020: 3
- 2019: 3
- 2018: 10
- 2017: 12
- 2016: 12
Interestingly, as of this writing no member of a federally insured credit union has ever lost any money from accounts that were insured by the NCUA. This speaks to solidity of the insurance protections.
The agency is overseen by a board of directors that has three members – however this wasn’t always the case. In fact, prior to 1979 the agency was overseen by the NCUA Administrator but as part of the Federal Credit Union Act, congress removed the NCUA administrator and replaced them with a three member board of directors. The President of the United States appoints each member of the NCUA board, and they are confirmed by the U.S. Senate. Further, the President of the United States also designates the Chairman of the NCUA board. In general, no more than two of the three board members can be from the same political party – this helps ensure some bipartisanship. Each of the board members serves a staggered six-year term. As of this writing the three members of the NCUA board of directors are:
- Todd M. Harper
- Chairman of the Board
- Sworn in on April 8, 2019
- Kyle S. Hauptman
- Board Member
- Sworn in on December 14, 2020
- Rodney E. Hood
- Board Member
- Sworn in on April 8, 2019
The agency operates with a good level of transparency and the minutes of board meetings, their agendas and results of votes can be found here.
NCUA Membership Trends
As of this writing there are 4,990 federally insured credit unions. There are 128.6 million members across these credit unions with total deposits of $1.7 trillion.
Over time the number of federally insured credit unions has declined quite steadily. If we look over the past 5 and 10 years, the total number of credit unions has declined by 14% and 30%, respectively. In fact the number of credit unions has declined every year for the past decade. This is due in large part to consolidation among credit unions. For many years (even beyond the past decade) the number of credit unions has been in decline. For example, in 1990 there were 12,891 federally insured credit unions, more than double the current number.
However, when we take a look at the number of credit union members, it tells the opposite story. Over the past 5 and 10 years, the number of credit union members has increased by 20% and 40% respectively. Amazingly, the total number of credit union members has increased every single year over the past decade. We think the total number of members is a much more important data point to monitor in judging the health of the NCUA’s credit unions.
How to start a Credit Union
Every credit union needs to have a charter to exist. A charter is a license to operate and is granted either by the NCUA (for federal credit unions) or by credit union regulators from states. Because credit unions are owned by the members (i.e. cooperative entities) they require a field of membership. What this means is that there needs to be a legal definition of who (people, organizations or other groups) the credit union intends to serve. So in order to start a credit union one needs to determine what the field of membership will be and assess the resources of such a group. The next step would be to submit a written request for preliminary approval of the field of membership to this address:
- National Credit Union Administration, Office of Credit Union Resources and Expansion, 1775 Duke Street, Alexandria, VA 22314
- Or alternatively, send an e-mail to NewFCU@ncua.gov
Other Helpful Information About the NCUA
- When researching a credit union, to determine whether it is insured by the NCUA just look out for the NCUA insurance sign. All federally insured credit unions must prominently display this insurance sign on their website pages and at each station where insured deposits are received.
- Minority Depository Institutions (MDIs) are credit unions which focus on providing their products and services to the needs of minority members and communities. These MDIs under the NCUA guidelines, have a member base where a majority fall into one of the following eligible minority groups: Black American, Asian American, Hispanic American, or Native American.
- The NCUA Consumer Assistance Center helps consumers resolve disputes with credit unions in addition to being a resource for other matters. You can contact the NCUA at 1-800-755-1030.