As Prepared for Delivery on November 17, 2020
Thank you very much for the kind introduction, and I greatly appreciate the invitation to take part in today’s discussion.
This isn’t my first visit with Women in Housing and Finance. I spoke to your organization previously during my earlier tenure on the NCUA Board. Back at that time, we were preparing to face a particularly difficult financial crisis and recession, and our country was facing some difficult times.
Well, speaking of difficult times: here we are coming up on the end of 2020, and I think it’s safe to say that most of us will be happy to put this year in the rearview mirror. With the COVID-19 pandemic; the attendant economic contraction; widespread public protests against injustice; and a contentious political season – it’s been a challenging year for our nation.
But since we’re nearing the end of that challenging year, it’s worthwhile to reflect on what we’ve learned from this series of challenges. And I believe that if there’s one lesson we take from 2020, it’s the importance of resiliency – the ability to adapt to change and recover from setbacks and adversity.
What we learned this year is that resiliency is more than management-speak or a buzzword. It’s an absolutely essential quality that we need to have if we’re going to navigate an environment of uncertainty and risk. It requires an ability to face a difficult reality and approach it with confidence and optimism.
Now, given the scope of the challenges we’ve faced this year, it might seem like our supplies of confidence and optimism have been nearly exhausted.
But when I look at the credit union industry that my agency oversees, as well as at the larger financial services industry, I see a case study in resiliency, agility, and adaptability.
This year, our nation and others around the globe faced an unprecedented public health challenge, accompanied by a devastating economic shock that led to the highest jobless rates in decades. Against that backdrop, the financial services industry adapted. Institutions kept credit flowing to borrowers and adapted their service models to respond to the changing conditions. And I believe that made a difference in helping to ensure that the economic damage from the pandemic was at least contained.
Now, I know we’re not out of the woods yet, and we still face some mighty challenges to get back to fully recovered economy. Moreover, the COVID-19 virus continues to pose a significant risk, even if we understand the virus better than we did a few months ago and treatments are improving. We still have a ways to go.
But if you look at some of the numbers we’ve had reported in recent weeks, they paint a promising picture:
- An estimated 33 percent growth rate (opens new window) in GDP in the third quarter, based on stronger consumer spending and business investment;
- A better than expected jobs report last month, with unemployment dropping to 6.9 percent – still higher than we want, but heading in the right direction; and
- We’re seeing strong performance in the housing market, among other areas.
We spend a lot of time looking at the indicators, and these and other indicators strike me as promising signs for the future.
So I do believe that, in keeping with our theme of resiliency, we should be optimistic—while looking forward toward what we can do to keep that positive movement heading in the right direction.
Regulatory Reform and Flexibility
One of our primary objectives at the NCUA under my chairmanship has been regulatory reform. I’ve always said we need a regulatory regime that’s effective without being excessive. To that end, we’ve worked to reduce outdated and unnecessary regulatory burdens, while always focusing on the safety and soundness of the federally insured credit unions that we oversee.
That is why the NCUA is conducting a comprehensive review of all its guidance letters and legal opinions to determine if they are still relevant in today’s regulatory climate. We can make a significant dent in our regulatory burden by removing outdated or duplicative guidance. I consider that the “low-hanging fruit” of regulatory reform and those sorts of reviews need to be standard operating procedure going forward.
Reducing regulatory burden is especially necessary when it comes to helping credit unions navigate the current environment of economic difficulty. One of the first things our agency did when the pandemic struck, and as the economic stress mounted, was to look for ways to continue providing regulatory relief so credit unions could focus on providing credit and affordable financial services to their members.
So for instance, we’ve been working on getting credit unions exempted from the proposed CECL accounting change. Industry leaders have told me how it would bring greater complexity, higher costs. and a significantly heavier compliance burden, while bringing little additional benefit to their institutions. I recently spoke with a credit union that is grappling with the arduous impact of CECL implementation. They already purchased a CECL software module. In addition, they had to hire a salaried data analyst to implement the software and ensure data integrity.
In response, I’ve urged an exemption from CECL requirements for credit unions, and the NCUA Board recently approved regulatory amendments to mitigate the adverse consequences of the capital adjustments resulting from CECL. We’re looking for a middle ground here that will protect credit unions while ensuring that they adhere to all reasonable standards, and I think we’ll get there.
We’ve also urging credit unions to join the Central Liquidity Facility (CLF), a mixed-ownership government corporation that exists within the NCUA and serves as a liquidity lender to credit unions experiencing unusual or unexpected liquidity shortfalls. As of September 30, 2020, the CLF’s borrowing capacity currently stood at approximately $30 billion, with 11 agent members covering 3,765 natural person credit union members and 339 direct regular members.
Liquidity, like capital, is a pillar of strength upon which our system rests, so I’ve asked the Senate Banking Committee to make these changes permanent.
These are just a few of the high points, but my great hope is that we can continue this progress on regulatory reform in the year to come. It’s just a critical component of what’s needed to keep driving the recovery.
The Promise of Technology
A second critical resiliency lesson we’ve learned this year is the importance of technology. We’ve seen at the NCUA how technology enabled us to continue executing our regulatory mission effectively during the public health emergency. That meant the vast majority of our employees were able to shift to a work-from-home posture, and our examiners were able to continue their oversight work without interruption.
I know financial industry leaders have also maximized technology to continue your operations and member services during this difficult time. And I know that the whole of financial services industry is looking very carefully at how financial technology solutions will help us to build upon that success. We need to continue to encourage that trend.
We’re looking at this carefully on the regulatory side as well. We know that fintech is likely to pose some fresh regulatory and compliance challenges, and we want to be prepared so that we can respond wisely to ensure that these tools are widely available, while providing for the appropriate consumer protections and for the safety and soundness of the industry.
I also encourage you to consider fintech not only as a tool to improve efficiency or customer service, especially as increasing numbers of banking customers enter a digital world, but also as a tool to increase financial inclusion. Fintech tools are a promising avenue to enable us to connect with minority communities, rural communities, and other underserved populations. There are tremendous opportunities here, so let’s continue the great work our industry is doing on that front.
A Commitment to Financial Inclusion
And the final lesson in resiliency we should take from this year—and to my mind, perhaps the most important—is the need for greater financial inclusion. The events of recent months have opened a lot of Americans’ eyes to the inequities in our society, and that’s created an opportunity for conversation and rethinking.
The protests against police abuse clear and obvious evidence of that fact. But we need to go beyond that: we should also consider the fact that the COVID-19 pandemic has had a more serious impact on communities of color, and that minority-owned and women-owned small businesses have suffered more severely in the economic contraction.
We now understand with greater clarity the need for urgent action and solutions, and finding the right solutions that work for all Americans. I’ve been talking a great deal about the need to create conditions where people can gain access to credit and capital; break the cycle of debt and dependency; and achieve financial security and resilience for themselves and their families.
I believe strongly that financial inclusion is the civil rights issue of our time, and I encourage leaders in the financial services industry to take this up as your cause as well.
It’s also something we’re working to advance on the regulatory front. So for example, we’ve taken additional steps to protect minority depository institutions, or MDIs. In light of recent events, we understand with even greater clarity the important role that MDI credit unions play in advancing financial inclusion and the economic well-being of minorities and underserved communities.
As Chairman of the NCUA, I have directed the agency to support the goal of financial inclusion within NCUA and the credit union system. NCUA can report concrete results in this effort:
- In 2019, NCUA expanded access to safe, small dollar loans following approval of the PALS II rule.
- NCUA expanded employment opportunities at credit unions for individuals convicted of minor offenses following approval of the Second Chance interpretive rule.
- In 2020, NCUA provided support to minority depository institutions with a two-day MDI Forum as well as loans and grants through our MDI Preservation Program.
It’s also why we’ve announced a new financial inclusion initiative: ACCESS, which stands for Advancing Communities through Credit, Education, Stability & Support. This initiative will bring together leaders across NCUA to develop policies and programs in support of financial inclusion within the agency and the credit union system. ACCESS will build on the earlier successes I mentioned and expand to address the financial services, financial literacy and employment needs of underserved and diverse communities.
Fundamentally, financial inclusion means expanding access to safe and affordable financial services for unbanked and underserved people and communities as well as broadening employment and business opportunities. This is an area where we can have a big impact, so I look forward to working together with you all to achieve these goals.
One of the things I try to be careful about when communicating my optimism about the future is that I don’t want to come off like I’m downplaying the risks and the potential threats. A key component of resiliency, after all, is having a clear picture of what’s happening before you, as well as the potential risks that might be waiting for you.
But that said, I also want to emphasize that more important lesson of resiliency, which is that in spite of those risks, in spite of your fears or anxieties – you have to keep going and plan for the future. I would say for people in the financial services industry, especially, that’s important – because this is an industry that is fundamentally focused on the future.
I’m reminded of an insight from the economist Robert Shiller: “Finance is not merely about making money. It's about achieving our deep goals and protecting the fruits of our labor. It's about stewardship and, therefore, about achieving the good society.” That is to say, it’s fundamentally about imagining and planning for the future. Whatever area of the financial industry you work in – banking, credit unions, mortgage lending, investing — it’s worth remembering that fundamental insight.
Finally, let’s remember: we’ve been through difficult times before. I began my remarks by pointing back to the last financial crisis and my previous visit with your organization. I remember it well, as it coincided with my previous service on the NCUA board, before I returned to the agency in 2019, and I’m sure most of you on this call remember it, too.
That was also a time of uncertainty, and we didn’t know what to expect for the future. But we got through that crisis, emerging stronger thanks to our resiliency.
And we will do the same with this crisis. In fact, I have a strong sense that we’ve already moved past the most acute phase of today crisis, and even if it’s not easy to see the signs just yet, the recovery, and a time of opportunity, is likely heading our way.
Here today, as we near the end of a historically difficult year and look ahead toward the next, I encourage everyone to turn your focus toward locating that opportunity, and making the most of what’s to come.
Thank you very much.