As Prepared for Delivery on February 25, 2020
Thank you very much for the kind introduction.
It’s been over a decade since I last addressed you from the CUNA Governmental Affairs Conference stage. And I must say, we have witnessed some remarkable changes in that short time.
The last time I was here as Vice Chairman of the NCUA, we were facing a global economic crisis, and the most significant recession our nation had faced in decades. I think all of us who were around back then can recall the uncertainty we were dealing with. And we had little sense of what we might expect for the credit union industry, not to mention for the U.S. economy as a whole.
Against the backdrop of that memory, look at where we are today: The lowest unemployment rate in decades; steadily improving consumer confidence; and a brighter wage outlook for working families. It’s an astonishing testament to the resilience of the American economy and the American worker, and the American spirit of entrepreneurship.
Furthermore, the last decade has been particularly exceptional for the credit union industry. Today there are approximately 5,200 federally insured credit unions, providing services to more than 119 million member-owners, nearly one-third of American households. And these institutions are now sitting at more than $1.53 trillion in assets. The credit union industry is strong and getting stronger.
That record of success is particularly impressive, given the decline in trust that many financial service providers faced in the aftermath of the last crisis.
But credit unions largely avoided that reputational hit. In November, the Gallup organization published some poll results on “financial well-being” (opens new window) (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) that compared public attitudes toward banks and credit unions.
The results of that survey were instructive because it validates a truism for virtually any industry: those that put their customers — or in credit unions’ case, put their members first — and make a genuine commitment to providing a top-flight service experience are more likely to endure and to grow. Meanwhile, those that take shortcuts and lose sight of their mission may make gains in the short term, but it will not last in the long-term.
So the credit union industry should take some encouragement from those results – encouragement, but not complacency. Because we should look at those results and ask ourselves:
- First, how can credit unions continue to expand access to affordable, quality financial services to more members, while ensuring the industry’s ongoing safety and soundness?
- Second, what are the challenges the industry is facing?
- And finally, and what can the NCUA do to support credit unions in the pursuit of those goals and best prepare them for the changes that lie ahead?
Since becoming NCUA Chairman ten months ago, I have tried to be both innovative and forward thinking. To make good on that effort, I’d like to consider these questions more closely and talk about what the industry can do, and what the NCUA can do, to address the challenges credit unions face — and the opportunities available to them — in the coming years.
Our Solemn Duty to the Fund
I need to address one of the recent challenges of significant importance to many of you here today — NCUA’s portfolio of taxi medallion loans.
For nearly six years, the taxi medallion crisis has placed enormous financial and emotional strain on taxi medallion holders and their families.
The NCUA has been working to resolve the collapse of several federally insured credit unions that supported the taxi industry for nearly a century. These efforts included protecting member deposits, ensuring that former members could continue to use a credit union for their financial needs, and working with borrowers on an individual basis to keep drivers in their vehicles and to provide relief where we could. This included restructuring loans to reduce payments and interest rates, resulting in more than 600 loans refinanced or modified.
I’ve said previously that behind every taxi medallion loan is a family. I firmly believe that this sale will help holders and their families because it will provide them with greater certainty over the management of their loans.
I understand this decision may not be popular or satisfy everyone. But to quote Aristotle, “There is only one way to avoid criticism: do nothing, say nothing, and be nothing. Additionally, the collapse of the taxi medallion market, and the failure of several credit unions that supported the taxi industry has already cost the Share Insurance Fund approximately $750 million dollars.
On January 22, I received a letter expressing concern about the Liquidating Agent’s plans to sell these assets. In the letter, it publicly asserted that disposing of the assets in a sale to a single buyer would yield lower asset values. However, this assertion was made without knowing the portfolio’s size, characteristics, or condition of the assets. Instead, it suggested NCUA should hold the assets until some future date and allow credit unions to purchase the distressed assets.
The NCUA evaluated a variety of options, including holding and servicing the loans and of asset sales structures including structured sales and securitization, but after careful consideration, investor outreach, and consultation with an independent financial advisor, determined a singular bulk sale would be the best vehicle to resolve these specific cases and yields the best feasible recovery. While the agency preferred a bulk sale offer, we also advised interested bidders that we would take subset bids on a portion of the portfolio. The sum of the subset bids submitted were not greater than the bids for the overall portfolio.
In the case of this sale, the NCUA worked through a thorough process of vetting bidders to make sure we only considered bids from reputable and experienced firms dedicated to working in a good-faith manner with borrowers. In consultation with our financial advisor, NCUA reached out to 23 qualified firms with experience in handling distressed commercial assets, and six of those submitted bids. After an extensive review, the NCUA allowed two firms go through to the final due diligence bid round and received two independent offers. Some firms were turned away because we were not confident the firms would treat borrowers in a fair way.
I will remind you what happened in a similar situation, which became subject to an Office of Inspector General audit in March 2012 (opens new window). In this report, the decision of management to continue and hold assets was criticized. This audit also notes that, and I quote, “AMAC needed to determine a liquidation strategy which would maximize the value obtained for the properties acquired,” end quote.
Holding these medallion assets beyond a reasonable period could have the NCUA repeat these mistakes of the past. Moreover, a financial advisor team built a comprehensive record as to why we needed to sale these assets in bulk to maximize the value of the assets while treating the borrowers in good faith.
Every dollar not recovered is a dollar lost, or a dollar that must be recovered in the form of premiums directly from federally insured credit unions across the country, many of which serve low- to moderate, rural, and underserved communities — credit unions like yours, perhaps.
That’s money that could have been put to far better and productive purposes, such as improving the financial well-being of your members, building new businesses and investing in your communities.
We have a duty to protect the Share Insurance Fund, and it is a duty I take seriously. I firmly believe this decision balances our duties and responsibilities to minimize potential losses to the fund with borrowers’ needs for certainty, compassion, and flexibility.
Help is on the Way for Rural America
My regulatory philosophy is that regulation should be effective, but not excessive. I believe we should implement policy that allows credit unions to serve their members better, and we should explore ways we can modernize our rulemaking where appropriate.
One of the things I’m most excited about, and which we’ll be discussing in greater detail in the coming weeks: The NCUA is preparing a set of initiatives aimed at improving financial services in under-served, rural communities. As we all know, these communities have experienced a collapse in the availability of banking services over the last couple of decades as a Federal Reserve report (opens new window) (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) detailed in November.
When financial institutions pull out of a rural area, it’s like cutting off the oxygen supply to that community. Small businesses have difficulty securing loans; workers don’t have a place to deposit their paychecks; customers lack local options for addressing their account needs; there’s less investment and growth.
And while many of today’s technological tools help to bridge the gap, it still means that many of the most vulnerable citizens will see a narrowing window of access to affordable services. When communities lose their local financial services providers, it’s often another step along the path toward decline.
I’m from North Carolina, which, even today, is a predominantly rural state, and I’ve seen that dynamic first-hand in too many communities. It doesn’t take too long to find a rural community that maybe only a few decades ago was thriving and prosperous, but they’re hurting today.
So I told my team: give me a set of policy tools that will help credit unions to step into that breach. We’ve already started implementing some of those tools. For example, the NCUA was the first federal financial regulator to provide guidance on working with businesses in the legal hemp industry; we have made changes to commercial appraisal rules; and we plan to take advantage of some of the other tools at our disposal.
For instance, we have the low-income designation for qualified credit unions, which makes credit unions eligible for grants and loans from the Community Development Revolving Loan Fund. Low-income credit unions also have additional authorities that can encourage small business lending and allow access to secondary capital.
Looking beyond the formal regulatory process, there are other ways in which we’re seeking to extend our influence to help credit unions and their members take advantage of existing opportunities for business financing, especially in rural and underserved areas.
Last spring, we developed a partnership with the Small Business Administration to bring small businesses and credit unions together and to expand awareness about SBA programs. This partnership has great promise to help us to share information on financing and training opportunities to local business leaders, because small enterprises can be the chief drivers of job growth in rural areas. We’ve had discussions with the Department of Agriculture to determine how we might work together to do something similar with their programs.
My goal is to help these underserved, rural communities reconnect with the financial mainstream. I believe credit unions, with their long history of community service, are the vehicle for making that happen.
The NCUA will also conduct a comprehensive review of all the NCUA’s 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.
As part of our comprehensive review, the NCUA is committed to organizing material in a better way so current content is easier to find, saving you and your staff valuable time. We will clearly designate and archive duplicative and outdated guidance to ensure credit unions are not expending resources to meet standards that are no longer relevant. Lastly, after our review is complete, we will revise and update guidance as needed so it is clear and easy to understand, while also ensuring all guidance reflects modern practices and the current environment.
This is the type of “low hanging fruit” that, frankly, every federal agency should be going after. It should certainly help to reduce the burdens of compliance, complexity, and costs that weigh so heavily on both the regulators who enforce the rules, and on those of you who have to follow the rules.
We’ll also be exploring additional ways to make our operations more efficient and effective; revising our supervisory procedures to improve oversight; and making significant steps toward modernizing our information technology infrastructure. Be on the lookout for announcements from the agency about these changes.
Recognizing Industry Challenges
While we are enjoying the successes of a robust credit union system, we should avoid becoming complacent in our thinking. There are significant challenges on the horizon that implore us in the financial industry to look for proactive solutions.
Of course, we must also recognize the substantial challenges that credit unions face. One of these, as always, is the possibility of a financial downturn. As I noted, the economy continues to show a good deal of strength, but we all know how quickly that can shift in a dynamic global marketplace. Credit unions need to be aware of the risks that are out there — interest rate risk, credit risk, liquidity risk — and be prepared with the plans in place to manage those risks.
Likewise, cybersecurity and data privacy will continue to be a top priority for our agency, and it needs to be a top priority for every one of your institutions. The NCUA provides a lot of informational resources and guidance on our website, and I encourage you to take advantage of those. But remember: the most effective cybersecurity defense is going to be the processes and systems you have in place to protect your institutions because you’re on the front line.
But as you well know, technology is more than a security threat. It’s also an opportunity, in the form of financial technology.
We can go down the list: mobile banking, digital payments, artificial intelligence, data aggregation, and whatever may come next. We know these trends are going to change the way you engage with your members, the way you analyze lending risk, and the way you market and deliver your products and services. You’re certainly not alone in facing these challenges. These technological changes are creating challenges for regulators, as well. So, we all need to be prepared.
What I want to emphasize when I talk about these challenges is that we should not approach them as things to be feared or avoided. Instead, we should view them as opportunities to serve your members, your employees, and your communities even more effectively.
Innovations in financial technology will change how the financial services industry functions in a number of ways, some of which we haven’t even foreseen yet. And if you’re not considering how fintech is going to change how you communicate and interact with your members, you’re already behind the curve.
I began my remarks today with a look back to where we were 10 years ago, and how far we’ve come in that time. So it’s appropriate to conclude by asking, where will credit unions be in another 10 years’ time?
My own expectation is that this industry is poised for continued success, if you continue to hold to the values that have guided the industry through its history.
Despite the challenges and obstacles, we may see on the horizon, this is an immensely promising time for the financial services industry. And I believe credit unions are extremely well-positioned to continue building upon the industry’s strong tradition of excellent service to your members and your communities.
I’m optimistic about the future, and I’m confident about the direction in which the credit union industry is headed. I hope that you all share that optimism and confidence.
Let’s be sure that we’re holding to the highest levels of accountability and transparency to meet our obligations to those we serve.
Let’s never lose sight of our commitment to those who matter most: the more than 119 million credit union members who rely on your services and the communities you call home.
And let’s continue to do everything we can to grow those numbers, and to extend access to quality, affordable financial services to more under-served and marginalized Americans who right now are living precariously outside the system.
You know, credit unions have a history they can be proud of, particularly given that this is still a relatively young industry, being just over a century old.
Last year, we celebrated the 85th anniversary of President Franklin Roosevelt’s signing of the Federal Credit Union Act. That law set the stage for the industry’s expansion as a locally owned and operated source of cooperative consumer credit in communities nationwide. With a stroke of his pen, President Roosevelt made it possible for so many people across the country to pool their resources and organize credit unions. Loans could be provided to members based on the consideration of their character, as well as their ability to repay, helping to further democratize banking and credit.
Through times of conflict and times of relative calm, through economic booms and busts, through societal and technological changes, credit unions have carried on that tradition in serving their members and communities. They have kept the promise of people helping people.
Many of the people here today played a role in making that possible. I want to recognize and give our thanks and appreciation to some of the NCUA staff in attendance.
- Executive Director Mark Treichel
- Deputy Executive Director Rendell Jones
- Examinations and Insurance Director Larry Fazio
Overseeing the credit union system to ensure safety and soundness is the NCUA’s critically important mission. It’s an honor and a privilege to work with so many dedicated professionals, the men and women of NCUA who are so deeply committed to those values and that mission. Every day, our people are responsible for ensuring that credit unions are living up to the values embedded in their original conception.
We thank you for your commitment and service.
And now this year, we’ll mark the 50th anniversary of the NCUA’s becoming an independent financial regulatory agency – another step forward illustrating how far this industry has come in a short time.
You should all be proud of the system’s history. But as Thomas Jefferson once noted, “I like the dreams of the future, better than the history of the past.” So while honoring the past, we should always keep our focus on this industry’s future.
My job requires me to spend a lot of time traveling and visiting with credit union leaders, employees, and members.
One thing that I see in common in all the credit unions I visit is that strong sense of hope, a deep commitment –not for profit, not for charity— but to service, and a strong focus on the future. All of that is in keeping with the historic credit union tradition and ethos of “people helping people.” That’s a tradition I look forward to working to advance in partnership with all of you.
May God bless our nation’s credit union system. And may God continue to bless the United States of America.
Thank you very much.