As Prepared for Delivery on May 12, 2022
Thank you very much– it’s my pleasure to join you again. When we gathered for this meeting last year, we had just arrived at a time when the COVID-19 pandemic was receding, at least gradually. We were at least at the point where we could meet in person, and as vaccines were becoming more widely available we could perceive a light at the end of the tunnel.
Here we are a year later, and the continued progress at dealing with the pandemic is undeniable. We still need to be vigilant, but by every measure, the situation has improved, and it’s not unreasonable to think that six months from now, a year from now, that progress is likely to continue.
We might like to think the winding down of the pandemic would herald a return to stability and normalcy after a couple of very difficult years. However, we still face substantial challenges, notably in the economy.
Two weeks ago, the Commerce Department reported an unexpected 1.4% decline in GDP. And globally, the International Monetary Fund has downgraded its outlook for projected global growth this year, due to supply chain issues and the war in Ukraine.
And of course, the most worrisome number many of us are watching right now is the rate of inflation, which hit 8.5% in March. That’s the highest we’ve seen in four decades and it’s rapidly outpacing wage gains for most workers – and right now, the trend shows no sign of abating soon. That’s justifiably alarming for American households, and this includes your members, who are feeling the stress of rising prices and reduced purchasing power every day when it comes to filling up the car, shopping for groceries, and so forth.
For many Americans, this represents an entirely new environment, because most didn’t live through the 1970s inflation crisis. I’ll admit I’ve been around a while, but even I’m barely old enough to remember it directly.
That’s not to say it’s all bad news: the April employment report released last week, showing 428,00 jobs added, was certainly welcome news. So my great hope is that the inflation and other challenges we’re experiencing are just manageable turbulence on the way to a fuller recovery. But realistically, we need to be prepared for the possibility of an economic contraction that could have an impact on credit union operations.
Against this backdrop, federally insured credit unions have continued to perform well. Most of the quarterly and annual indicators look strong, with solid asset and loan growth, an increase of 7 million new members joining the credit union system in the last two years; and so forth. You all are well aware of those performance numbers and I don’t need to recount them today. But I would say that credit unions’ resilience in the face of these challenges is a testament to the industry’s strong leadership.
However, we do need to be attuned to warning signs for the industry’s future. Closures and consolidations are, of course, a fact of life, but at the same time we want to be sure that we have a pipeline of new credit union charters to bring “fresh blood” into the system, so to speak. Moreover, we need to remain vigilant about protecting smaller credit unions, because they play an important role in the financial services ecosystem providing services to under-served communities. And we need to be attuned to the demographics of credit union membership – namely, are credit unions doing everything they can to appeal to a rising generation of younger members?
These challenges are of paramount importance for the industry’s future. From my perspective as a regulator, I’m seeking to focus on regulatory changes and updates that we can make to encourage credit unions to explore greater innovation, experimentation, and prudent risk-taking. Those qualities need at the center of your strategic plans if the credit union model is to remain competitive in an increasingly crowded marketplace.
So, for example, at the NCUA we’ve been working to increase the number of new credit unions, and we saw some progress on this front last year, with four new charters. I would like that number to be larger, but it’s a step in the right direction. I believe the credit union system would benefit from more “start-up” energy, so to speak, and new charters are critical to achieving that end, so that’s something we’ll continue to encourage. Just last month we published our 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, and it’s something that all three board members are committed to working on, so expect more progress on that front.
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 if this industry is going to compete in today’s marketplace. I expect this to be something we’ll be revisiting in the future, but I’m pleased with the initial progress we’ve made.
I’ve also been quite vocal in urging Congress to clarify and normalize banking laws to allow financial services providers to work with cannabis-related businesses on a firmer footing. Opening up that market so that these entrepreneurs can have access to legitimate financial services will be a win for that emerging industry; a boost to government revenues; and good for credit unions and other financial service providers.
Most financial regulators are working on this issue in one way or another, but unfortunately we’re limited in what we can do without statutory guidance from Congress and the president. So if that’s something you care about, and I know it’s a priority for NAFCU, then I would urge you to contact your Congressional delegation and let them know. This should be a relatively easy issue to manage, on a bipartisan basis, even in today’s starkly divided political environment, but we need that push.
And as you all have heard me discuss before in some detail, I’m intensely focused on how credit unions can work with financial technology providers to improve operations and member services. I’ve spoken with you before about how fintech is the future of financial services, and the NCUA is looking at creating a comprehensive rule to better guide credit unions in integrating fintech solutions with your existing service models – in a way that allows credit unions to take advantage of these innovative technologies while ensuring the safety and soundness of the system.
Those are a few of the top issues I’m focused on, though I could certainly keep going down the list. I promised Dan I’d keep my opening remarks brief so we could get to on questions and concerns you may have, so we can discuss any of these issues in greater detail in the discussion to follow.
But if I can sum up, I mentioned that credit unions should be focused on innovation, experimentation, and prudent risk-taking. But at the same time, I also encourage credit unions to remain committed to their historical mission of member service; service to your communities; and advancing the cooperative finance model.
I don’t believe these goals are in tension or mutually exclusive – we simply need to keep in mind that change and innovation should remain rooted in service, accountability, and the historical commitment to “people helping people” that has guided credit unions for nearly a century. There is no reason that, with a proper balance of innovation and traditional service, credit unions shouldn’t endure as a vital part of the financial services ecosystem for another century and beyond. But that future depends, in large part, on making the right decisions now.
I’ll end with a quote from one of Key West’s most distinguished residents, the great American writer Ernest Hemingway, who once asked, “For what are we born if not to aid one another?” Hemingway wasn’t talking about credit unions or cooperative finance, but he very well could have been, and his words are a pertinent reminder of what credit unions, at their best, are all about.
So I urge you to continue focusing on your cooperative mission – that means not only service to your members, but also looking for ways to work together within the credit union system to provide mutual support and exchange of ideas. And anyway we at the NCUA can help to nurture and facilitate that cooperation, we want to provide that support. Thank you once again, and I’ll turn it over to Dan to guide our discussion.