Good afternoon! I’m delighted to be here today, especially since this is my first visit to Idaho in several years. Like most of us, my travel schedule was rather severely restricted over the last year and a half -- so it’s an absolute pleasure to finally be able to revisit places and people I haven’t seen in far too long. I think we all welcome the gradual return to normalcy after what’s been a very challenging 18 months. So my thanks to the NWCUA team for making this event possible, and for the generous invitation to discuss some of the issues we’re focused on at the NCUA.
Over the last several months, as I’ve given a number of these talks to credit union groups, I find my thoughts tend to gather around a central theme: “resilience.” Since the early days of the pandemic, when we found ourselves in an environment of almost unprecedented risk and uncertainty, this idea has become my mantra – because I believe a sense of resilience is essential to ensure the continued safety and soundness of the credit union industry.
From that perspective, I’ve encouraged credit union leaders to look back at these last 18 months as a sort of “stress test” or “trial by adversity” that revealed both strengths and weaknesses in our system. And then, to take those lessons and apply them to your business models, so we can fortify the areas of strength and address the areas of weakness.
This is certainly what we did at the NCUA. When the pandemic struck last spring, one of our first decisions, as with many other workplaces, was to shift our staff to an off-site work posture. We knew our technological capabilities made it possible, but we were unsure what the ultimate effect would be. Would we be able to maintain the same levels of productivity, efficiency, and communication that we have in an office environment?
The answer was resoundingly positive. There were certainly challenges in having most of our staff work from home, but we managed to continue performing at a very high level. In fact, we even managed to achieve some additional efficiencies and cost savings: you might have seen the news a few weeks ago that last year the NCUA cut our NCUSIF and operating expenses by more than $65 million (opens new window). That’s an achievement of my chairmanship, along with a number of regulatory reforms we enacted, that I’m particularly proud of, and it represents progress that I hope we can continue.
Turning to the industry, I know your institutions certainly showed tremendous resilience in your own responses to the pandemic challenge. We need only look at the most recent performance numbers for evidence:
In the second quarter of this year, federally insured credit unions showed net income growth of $11.9 billion, up 126.8 percent over the same period last year. Insured shares and deposits were up $196 billion, which is a 14.2 percent increase over last year’s second quarter, to a total of $1.58 trillion. Other metrics, like loan growth and delinquency rates, were also positive. We don’t yet have the numbers for the third quarter just ended, but I anticipate they’ll continue to reflect strong performance indicating a recovery in progress.
Likewise, we’re seeing positive indicators in the broader economy, with a solid jobs report last month, strong consumer spending, a vastly improved GDP outlook, and other reassuring signs.
There continue to be some potential issues we need to monitor. For example, we know some smaller credit unions and minority depository institutions may need some additional support. Last year’s stressors left many of these institutions more vulnerable, and so closures of financial institutions, with the attendant systemic risks, are always a possibility.
Should that occur, we’ll need to respond with prudence. My preference is always to save institutions rather than merging them, but we will respond in the most appropriate way to ensure the safety and soundness of the larger system — again, that’s a key lesson in resilience.
Upcoming regulatory priorities
In January, I passed the NCUA board chairmanship to my colleague Todd Harper, I’ve been asked how that changes my role on the board. And to be honest, the answer is: not that much, as far as I’m concerned. I still have the same priorities I had when I was serving as chairman.
So in terms of what credit unions should expect going forward, regulatory reform remains at the top of my list. Over the last year, we took numerous steps to provide relief to help your institutions weather the pandemic storm, and we will continue to look to other forms of relief that may be needed.
For instance, in the months to come I’ll be focusing on regulatory priorities like:
- Streamlining the process to encourage more charters of federally insured credit unions. I’m concerned by the lack of new entrants to the market, which is key to ensuring both competition and full financial inclusion to under-served communities, and there are steps we can take to address that shortfall.
- I’m concerned by the shortage of affordable housing, especially for younger and first-time homebuyers. Earlier this year Chairman Harper appointed me to represent the NCUA on the board of NeighborWorks America, a Congressionally chartered non-profit organization dedicated to increasing access to affordable housing in communities across the nation. So that’s an issue I’ll be focused on working with credit unions to see how we can address that deficit.
- I’ve been intensely focused on the challenge of financial technology – we need a constructive regulatory framework to help credit unions better understand how to integrate fintech into their business models. I’m particularly interested in how we can deploy these tools to help the under-served, the marginalized, the unbanked, those without access to financial services. That’s another area where I encourage credit unions to experiment, and we’ll be working to ensure that you’re not penalized in the examination process for putting these tools to work for your members.
- And you may have seen recently that’s I’ve urged reform of federal banking laws to allow marijuana-related businesses to fully access the banking system. Even though marijuana is approved for legal use in one way or another in 36 states, many of these businesses still have problems accessing financial services, due to the failure of the federal government to act to reform banking laws. Ultimately, full legalization at the federal level is a foregone conclusion – every expert I’ve spoken to on this issue agrees it’s a matter of when, not if. So I’ve urged Congress address the banking statutes so marijuana-related businesses, or MRBs, can enjoy full access to financial services to make deposits; take advantage of commercial lending at reasonable rates; and get full access to electronic payment systems, so they’re not forced to conduct transactions in cash. I’ve also called for an interagency working group of federal regulators to start developing standards so we’ll be prepared to address regulatory needs once Congress acts. It’s past time for action, and I’ll continue pushing to make banking reform for MRBs a priority.
I recognize this is an ambitious list. However, I know we can do all of these things and more, while continuing to ensure the safety and the soundness of the industry.
Continued commitment to financial inclusion
So while we’ve made sure progress at combatting the pandemic and progress at economic recovery, it’s likely that we’ll see some additional challenges. But we also have a lot to be optimistic about, and it’s absolutely appropriate that we should celebrate this progress.
At the same time, we should not allow that progress, and our hope that things are going back to “normal,” to lull us into a sense of complacency. Because we still have a lot of work to do to rebuild after what we went through last year – and we should bear in mind that for too many people in our society, things are still a long way from normal.
We should bear in mind that while a lot of us were able to work from a remote posture and do our jobs effectively, with some relatively minor inconvenience, many of our fellow Americans faced serious challenges, through no fault of their own: job losses, health crises, and other serious disruptions to their lives.
We should bear in mind that many of us never had to miss a paycheck, nor did we endure the full brunt of the economic contraction. But there are a great many people who are still not back to “normal” after what was lost last year, and we need to help them regain their footing in this recovery.
So while the economy is gradually recovering, we still have a lot of work to do to restore what’s been lost. And I want credit unions – with the industry’s long-standing mantra of “people helping people”—to play a key role in that recovery.
One of the great success stories of this last challenging year has been how credit unions stepped up to respond to ensure that your members had ongoing access to financial services, credit and other needs. So the question is, how can we continue that record of success in the recovery? I hold that financial inclusion must be a top priority for credit unions and the financial services industry as a whole. You might have even heard me say that “financial inclusion is the civil rights challenge of our generation.”
In fact, it was owing to that commitment that I led the charge last year to create NCUA’s ACCESS initiative, which stands for “Advancing Communities through Credit, Education, Stability & Support”. This is an agency initiative to develop policies and programs to enhance inclusion within the credit union system, by expanding access to financial services; financial capability training for underserved and diverse communities; and employment opportunities. I encourage you all to keep an eye on that program and the tools it makes available as you make financial inclusion part of your own business strategy.
The need for optimism
In preparing for my visit today, I was looking over the NWCUA’s website and I was stricken by the tagline used to describe this year’s MAXX convention: “Where Northwest credit unions connect with each other to influence the direction of the Credit Union Movement.”
The word that jumped out at me was “movement.” In the regulatory world, we usually talk about the entities we oversee as “institutions” or an “industry.” But what makes credit unions so special is that you are, indeed, part of a movement – one with a strong grounding in service to the needs of your members and your communities -- with a proud history stretching back over a century. It’s what makes this industry different from other financial services providers, and it’s what gives me optimism about what we can accomplish as we take on the challenge of economic recovery.
As we move forward, we should be prudent and realistic about the challenges we face. I’m fond of this quote from Bob Iger, the CEO of Disney, who has said that, “One of the most important qualities of a good leader is optimism, a pragmatic enthusiasm for what can be achieved.”
“Pragmatic enthusiasm.” That’s a great way to sum up how we need our optimism to be grounded in a sense of reality – especially now, because we still have work to do in terms of coping with the pandemic’s ongoing effects, restoring the economy, and preparing for other risks. But if we approach those risks with a true sense of resilience, we’ll find that we can emerge, as we have from the challenges of the last year, much stronger. Thank you very much, and I’ll be happy to take any questions you may have.