As Prepared for Delivery on September 12, 2022
Thank you very much for that kind introduction and the warm welcome. It’s hard to believe an entire year has already passed since the last Congressional Caucus – it seems like we were just here. But as always, I welcome the opportunity to meet with you all again. I especially appreciate this more relaxed format, because it gives us an opportunity for give and take, so I can hear some of your concerns.
And to look around us, I know we all have a lot of concerns about the uncertainty of today’s environment. We’re facing a precarious economic situation marked by serious inflation; a hard-fought election season that brings uncertainty; a pandemic that, while it’s moderated, remains a challenge; and instability around the globe.
Against that backdrop, I’m not going to put myself into the uncomfortable position of trying to predict what’s going to happen in the coming weeks or months. I keep in mind the observation from the great management thinker Peter Drucker, who said that, “Predicting the future can only get you into trouble. The task is to manage what is there and to work to create what could and should be.”
“Managing what is there and working to create what could and should be”: That’s an admirably concise reminder of what we need to be doing in difficult times. Right now, we know we’re dealing with a tough and uncertain economic scenario. And part of the problem is that we’re seeing so many mixed signals.
The jobs report two weeks ago showing 315,000 jobs added in August was respectable but not as strong as we’d like to see. In terms of recovery, we’re still only about back to where we were two and a half years when the pandemic started.
There are some hopeful signs the inflationary challenge we’ve been struggling with may be abating a bit, which we would all welcome. But that doesn’t change the fact that inflation is still running over 8 percent, the highest in over four decades. That’s rapidly outpacing any wage gains for workers, and everyone is struggling with higher prices for food, fuel and energy, and other essentials. That dynamic has a serious impact on your institutions and your members.
A few weeks ago, the Commerce Department revised the GDP estimate for the second quarter upward, but the economy is still contracting. And many experts are warning of a severe recession, with continued issues in the supply chain and disruptions from the war in Ukraine weighing heavily on the economy.
It’s possible this foreboding situation is transitory, and simply reflects the challenges that accompany a gradual recovery from the almost unprecedented economic shock that we experienced in 2020 when the COVID-19 emergency hit. I certainly hope that’s the case. But we can’t rule out the possibility of a recession that could have a serious impact on credit union operations. So while we hope for the best, we prepare for the worst.
I don’t mean to paint too dark a picture — because the reality is that, when it comes to credit unions, the industry continues to post strong performance numbers. I can point to the quarterly and annual indicators of asset and loan growth that we’ve been seeing, or the fact that credit unions have added more than 7 million new members in the last two and a half years. You’ve seen those numbers and I don’t need to repeat them for you. But suffice it to say that the performance of the credit union industry in a very challenging environment is a reflection of the industry’s resilience and leadership.
However, we do need to be attuned to warning signs for the industry’s future. For example, I’m not generally alarmed when credit unions consolidate or even close, in most cases – those are simply a fact of the financial services ecosystem. But I have been concerned, and my fellow board members share this concern, about the slow pace of adding new institutions in recent years. Do we have a reliable pipeline of new credit union charters bringing “fresh blood” into the system over time? Similarly, are we taking the appropriate steps to protect smaller, more vulnerable credit unions, which play an important role in the financial services ecosystem providing services to under-served communities? And are we doing everything they can to appeal to a rising generation of younger members?
If the credit union industry is to thrive and survive for the future, these are all vital challenges that should be at the forefront of our minds. From my perspective as a regulator, I’m focusing on regulatory changes and updates we can make that will encourage credit unions to explore greater innovation, experimentation, and prudent risk-taking. So what does that mean in practice? Well, a few examples of things I’ve been working on or will be working on:
- As I mentioned, new charters for credit unions are a priority. We made some progress on this front last year, with four new credit unions established. I certainly hope we can build on that number, but it’s a step in the right direction -- the credit union system would benefit from more “start-up” energy, so that’s something we’ll continue to encourage. Earlier this year, the NCUA published the new Charter Application Guide to clarify the process for launching a federally insured credit union, which I hope sparks additional momentum. Vice Chairman Hauptman has been providing outstanding leadership on this issue, as is Chairman Harper, so this is a commitment shared by the entire board, which should bode well for continued progress.
- In addition, we took important steps last fall to expand loan authorities under Credit Union Service Organizations (CUSOs). We want credit unions to be able to take advantage of these tools for collaboration and innovation, which is important for the industry to compete in today’s marketplace. I’m pleased with the initial progress we’ve made, and I hope we can make additional progress on CUSOs in the near future. Any feedback you all can share from your experience working with CUSOs would be helpful.
- I’ve also been advocating for Congress to reform and normalize banking laws for cannabis-related businesses, to allow financial services providers to work with this emerging industry with greater clarity. With the remarkable cultural shift we’ve seen on marijuana and cannabis products over the last decade, it’s past time we reformed banking laws to bring these businesses into the legitimate financial system. At this point, given the realities of the legislative calendar and the coming mid-term elections, I’d be surprised if we saw action on this issue this year, which is disappointing. However, I’ve seen positive indications that policymakers are recognizing the urgency of the issue, so I’m optimistic Congress will move on cannabis banking reform in the near future – if only because they’re going to have to.
- And as I know you’ve heard me discuss before, I’ve been intensely focused on the rising financial technology industry, with the goal of encouraging constructive partnerships between fintech and credit unions to improve credit union operations and member services. Right now, the NCUA is developing a comprehensive rule to better guide credit unions in integrating fintech solutions with your existing service models. We’ll do that in a way that allows credit unions to take advantage of these innovative technologies while ensuring the safety and soundness of the system. The good news is we’re getting very close to bringing on a director for the Office of Innovation and Access, which was established under my chairmanship, and that individual should be in place by the end of this year.
That’s a snapshot of some issues I’m working on, though I could continue with an entirely separate discussion of financial inclusion, the NCUA ACCESS program, and our initiatives to encourage greater diversity, equity, and inclusion. But I’ll limit my overview to these topics for now, and we can touch on other issues in the discussion to follow.
The bottom line for me is that I have another two years on this board, and I aim to use that time to do everything I can to create the conditions under which credit unions can continue to grow and thrive for decades to come. And what that means is an approach to regulation that centers on ensuring the safety and soundness of this system while, as I noted, giving credit unions the flexibility to explore greater innovation, experimentation, and prudent risk-taking. Those values need to be a key part of your strategic plans if the credit union model is to remain competitive in an increasingly crowded marketplace, which is what we all want for the industry’s future.
Thank you once again for having me today, and for the opportunity to share a few opening thoughts, and with that we can move forward with our discussion.