Welcome to the third annual NCUA Public Budget Hearing. This is the first public budget hearing that we’re doing under the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, also known as S. 2155. Aside from moving the hearing date up a little bit and publishing the proposed budget in the Federal Register, what we’re doing this year isn’t very different from what we’ve done in the past two years.
When Board Member Metsger was Chairman, he suggested, and I agreed, that we should start up these public budget briefing again, so that credit unions, their members, their leagues and other interested parties could see how their money was being spent.
Each year since, we’ve refined our presentation to make it easier to understand, more transparent, and to include more information. I’m happy to say that some of those improvements were the result of feedback we’ve gotten from you and I’m looking forward to hearing your feedback today from our panelists and in written comments that we will be taking through the end of next week. As a side note, I want to emphasize that we’re always open to your comments and suggestions on the budget or other matters. You can call us or send emails; contact information for senior NCUA leadership is right there on our website.
This year, we’ve posted more than 100 pages of budget information on our website, and we’ve published similar material in the Federal Register. For those of you who just want the highlights, we’ve posted a seven page budget in brief. No other independent financial regulator discloses its proposed budget and provides justification with the detail, care, and scope of NCUA’s budget information. I’m proud of that. I’m happy that we’re doing it and I hope that it continues well into the future. I see it as a part of our commitment to maintaining the public trust.
And I would be remiss if I didn’t take this opportunity to thank Chief Financial Officer Rendell Jones and his entire office for their tireless work on the budget, and for all the offices at the NCUA for working to develop their budgets on this year’s compressed schedule.
Before I turn this over to Board Member Metsger and Chief Financial Officer Rendell Jones, let me talk about a couple of issues. First, one thing we hear over and over is this: why is the NCUA budget going up when the number of credit unions is falling? Now, I’m troubled by this because I hear it from very sophisticated observers of the credit union system and I suspect they already know the answer when they ask the question. But, for the record, I want to take a couple of minutes to address this.
The reason is pretty simple. Rendell will show you a graph that illustrates it and the budget slides show the numbers for you to consider. But let me give away the punch line right now.
The number of credit unions is going down, but the number of larger, more complex credit unions is rising and the system as a whole is expanding. Consolidation is taking small credit unions with relatively simple business plans out of the industry. Over just the one year ending June 30 2018, the number of credit unions with $100 million or less in assets fell by 226. But, the number of credit unions with at least $1 billion in assets rose by 20 to bring the total for that category to more than 300 credit unions. And system-wide, over that same time, assets rose by almost $80 billion to bring the system to $1.4 trillion in assets.
Since the system is getting larger, and the number of credit unions is going down, the remaining credit unions are larger. They’re engaging in more complex transactions and, as they seek to improve member services, they’re pushing the envelope on a number of fronts, in areas like secondary capital, business lending, rising levels of indirect lending, and loosening terms — like lengthening auto loans — on a variety of loan products.
While these trends are giving members access to more and improved services and products, they’re also raising the risks to the Share Insurance Fund. The failure of a large credit union is very different from the failure of even several small credit unions.
Let me put it this way. There is no doubt that larger credit unions engage in more complex activities and are subject to a wider array of economic forces than smaller credit unions. Even further, small and large credit unions alike are faced with an ever-more complex financial world that includes cyber risks, cryptocurrencies, and challenges from non-bank lenders — just to name a few — to which they have to respond and react.
For NCUA that means examinations and reports that require more data and processing systems to develop an accurate picture of a credit union’s financial health. And it means more highly trained specialists to interpret that picture. In sum, these forces require NCUA to acquire and deploy resources to maintain safety and soundness.
So, the bottom line here is that NCUA — with its regulations, internal systems, capital equipment and personnel — needs to keep pace with changes in the credit union system to maintain the safety and soundness of the whole system. And that costs money. How we’re proposing to use that money is what we’re laying out in the budget documents today.
To be most helpful to this process, I think it’s important, when you think about the budget, to look a little deeper, and not stop at canned talking-point lines. You know, I’ve been proud of the way Board Member Metsger and I have been able to work together, starting with him as a Chairman and moving to today. I think we’ve been able to do that because we dropped the talking point approach and tried to go a little deeper.
The credit union system is full of smart, capable people. I know because I see them every day I meet with a league or talk to credit union management. If we can get past the talking-point arguments, these folks might have some really good ideas about how NCUA could improve its efficiency and effectiveness while maintaining safety and soundness. We’re here today to hear from some of them and I’m looking forward to their thoughts and ideas.
Before we hear from them, let me turn this over to Board Member Rick Metsger for his thoughts and then to Rendell Jones, our Chief Financial Officer for his review of the budget.