As Prepared for Delivery on March 3, 2021
I am honored to address you today. I want to credit Jim Nussle, his staff, and CUNA for making this virtual conference happen.
These are challenging times. My wife, Kelly, and I would like to share our condolences with those who are suffering or have lost loved ones throughout the pandemic. Having just welcomed our first child last month, we’d also like to extend sympathies to those who feel isolated in quarantine or cannot receive support from their families and communities. I am hopeful that we’ll be meeting next year, in-person, to talk about the outstanding work that credit unions did during a very difficult, very strange time.
As for today, these are my first public remarks as an NCUA Board Member, and I want to talk about a couple of priorities, the first of which is clearly managing the fallout from the pandemic.
Obviously, this job is quite a bit different than I expected it to be when the White House first contacted me in November of 2019. Back then, I thought I’d join the NCUA Board at a time of a strong economy, and we’d be preparing the credit union system for the inevitable rainy day.
Well, that rainy day arrived in a big way, just days after the last GAC.
My colleague Rodney Hood spoke on Wednesday, March 4. Do you remember that following Wednesday, March 11? It felt like everything changed that day. We learned that Tom Hanks and his wife, Rita Wilson, had COVID, the NBA announced it was shutting down all games, and Disney said it was closing its parks that next weekend. That Sunday, the Federal Open Market Committee implemented emergency rate cuts, the first since the financial crisis nearly a decade ago. Those five days are sometimes called “from Hanks to Banks.”
I am proud to report good news. As we enter the second calendar year of this pandemic, credit unions remain in a strong position. Collectively, our nation’s federally insured credit unions have ample liquidity, reflected in a 76 percent loan-to-savings ratio. They also have surplus funds equal to 31 percent of assets, with 60 percent of those surplus funds in liquid assets.
Asset quality is high, with the credit union delinquency ratio sitting at 0.54 percent in September 2020, according to the NCUA’s Call Report data. That means delinquencies are at their lowest level in over thirty years. The system’s capital ratio has stabilized at 10.4 percent – well above prompt corrective action’s “well-capitalized” level of 7 percent.
Fortunately, the past has proven credit unions are resilient. In the aftermath of the Great Recession, The Wall Street Journal (opens new window) reported that over four times as many banks failed than consumer credit unions from 2008 to 2010. The credit union model works, and it’s why I’d like to see more of them across our country.
This brings me to my second priority, which is streamlining the regulatory burden, especially the process for starting a new credit union.
Pandemic’s Only Silver Lining?
Can we really make substantial changes? Well, I think we agree that the only silver lining to the current crisis is that we’ve had to experiment with new ways of doing things. Some of those changes will probably stick around even after the pandemic. For example, many states made it easier to do telemedicine by video-chat. The list goes on: Shopping habits, working from home.
The NCUA moved to virtual exams and saved a lot of our time and your money. Do all these experiments work perfectly? No, but that’s what experiments are. Some work, some don’t — like how sports and concerts are definitely better with people in the audience, and in-person conferences still serve a purpose. But some changes are worth continuing even after life goes back to normal, like how we’ll be looking at how to use virtual exams going forward.
But I’m trying to make a broader point, which is that, “old ways of doing things should be reexamined.” You all know that, but in government, we are usually a monopoly provider of our services, not subject to the market forces that demand constant improvement. You all know you can’t treat every problem. We shouldn’t need a pandemic to make us look for better processes. But one area I’d like to focus on at the NCUA is why it is so hard to start a new credit union.
There are a ton of benefits to making it easier for de novo credit unions, even for existing credit unions. For one, we may find ways to streamline the regulatory burden for existing, well-run credit unions.
There has got to be an easier path for de novo credit unions. I’m from Maine, and I was pleased to hear about a new credit union chartered in my home state just last year— until I learned it took nine years to accomplish. Nine. Things may move a bit slowly in Maine, sure, but not that slowly. Self-reliant, accountable people who want to work cooperatively with others to charter a new credit union that they will own, deserve a clear path to make that a reality.
All of our talk about inclusion, diversity, and the underserved? Fixing the de novo process is a way to actually help the underserved, not just talk about it. The NCUA is already aware of CUSOs, vendors, and other credit unions that want to help. So, I’ll be talking to those who recently started a credit union and those who want to start one, with the goal of working with NCUA staff on a new, easier path.
Making it easier to start a credit union means having more financial services options in places that have few, and for everyone else, it means more competition for your business.
And how about consumer financial protection? The best consumer protection has always been vigorous competition, allowing American businesses to do what they do best: innovating to find ways to give consumers a better choice, a better product at a lower price. Thus, it’s impossible to protect consumers without first examining if the NCUA’s regulations inhibit credit unions from better serving their members. Credit unions can’t deal with every issue by just snapping their fingers and hiring more people, and it would be unfair and counterproductive if the NCUA dealt with problems that way. There are problems we can solve simply by increasing transparency and implementing private-sector-style feedback mechanisms that make our lives better on a daily basis.
And while we’re talking about regulatory reform in 2021, I’d be remiss if I didn’t mention blockchain technology and digital assets like cryptocurrencies. Credit unions have always been innovators, and we know that if it serves members better, credit unions will want to do it. To that end, the NCUA may want to look at the actions of another regulator, the OCC. That agency recently provided guidance around the custody of digital assets and the use of stablecoins for payments. Stablecoins, as you may know, are cryptocurrencies designed to minimize price volatility, and the OCC’s guidance moves the U.S. closer to the real-time payment systems already used in other countries. Now, not everything the OCC did may apply to the NCUA, but I look forward to working with Chairman Harper to see what we can take from the OCC’s experience to let you all innovate as you’ve always done.
In conclusion, if we can do those two broad goals: give you what you need to manage the fallout from the pandemic and streamline the regulatory process that inhibits the creation of new credit unions and hurts your ability to help the underserved, then we have a bright future ahead of us, and I’ll feel like I’ve made an impact at the NCUA.
My promise to you is this: I’ll always remember that the money in the credit union system, including funding for the NCUA, belongs to you, the individual member-owners. We all share a responsibility and an interest in spending our time, money, and resources as efficiently as possible. Our incentives, you might say, should be aligned.
Ultimately, I envision credit unions not hurriedly complying with requirements to get us off their backs but rather fulfilling their regulatory duties holistically and with pride, knowing that it’ll pay off. That they’re achieving milestones designed so that they might thrive and not checking boxes for the sake of it.
This country is great because of its remarkable diversity. A credit union in Juno, Alaska, serves a community far different than that of Pensacola, Florida. It’s our job as regulators to make sure they both get the job done safely, but how they do it, based upon their communities' unique needs, is a decision best left up to them.
I look forward to continuing the legacy of protecting our nation’s credit unions and their member-owners so that the American dream may endure and thrive. I appreciate the opportunity to address you today and I hope to see you next year in-person at this same conference. Thanks again, and let’s get to work.