As Prepared for Delivery on July 18, 2022
Thank you very much for that warm introduction, and I’m happy to welcome everyone today. What a pleasure to be here with you in Glasgow – not only because I’m always happy to visit Scotland, but also because this weather is a welcome respite from the summer heat where I live in North Carolina. I recognize it’s not always like this here; I’ve heard it said that “There are two season in Scotland: June and winter,” so maybe we’re lucky to be here now rather than later in the year.
And I’m particularly pleased to be speaking with you today because of the topic I’m addressing: financial inclusion. Those of you I’ve worked with in the past know that financial inclusion is a longstanding interest of mine. Moreover, I know it’s a commitment shared by everyone in the credit union industry. Which means, for the sake of brevity, I can save a lot of time in not having to persuade you of its importance.
That shared commitment to financial inclusion is particularly important today, given the current state of the global economic climate, which, I believe we can all agree, is perhaps best described at the moment as “precarious.”
While the larger global economy bounced back quickly from the initial shock of the COVID-19 pandemic in 2020, we are still wrestling with a number of challenges, some stemming from the pandemic; some that pre-dated the pandemic; and some that have emerged since. So to take a few of the most visible examples, we could point to:
- Supply chain disruptions creating scarcity and unpredictability in the global marketplace;
- Growing inflation across the board, which is particularly worrisome in energy, food, and housing prices;
- Rising levels of income and wealth inequality both within and between nations;
- Serious global political and economic challenges, as illustrated by such events as the ongoing war in Ukraine and the very concerning unrest in Sri Lanka; and
- The very real threat of a recession in the U.S. and other large economies.
I don’t believe I need to recount those challenges in great detail, because you’re already aware of them. The hard reality is that your industry, your members, and probably your own households are confronting those challenges every day. And should the economic picture darken, those challenges will grow only more acute, and many vulnerable, under-served communities will fall further behind. So if there were ever a time to redouble our efforts at financial inclusion, it’s now.
However, rather than dwell on the negative, I prefer to discuss what we should be doing to boost and fortify financial inclusion in response to this potentially foreboding economic environment. I say “we,” but I should emphasize that I am a regulator. I’m not a credit union president or the head of a trade association, and I don’t see my role as being a cheerleader for the industry. As a regulator responsible for overseeing the safety and soundness of federally insured U.S. credit unions, I seek to be supportive of the industry where appropriate, while striving to encourage credit unions to live up to their mission.
And financial inclusion, which I have described as the “civil rights issue of our generation,” is central to that historic mission.
So please consider these remarks as a progress report on financial inclusion, with my thoughts on how to extend that progress. While much of my focus will be on financial inclusion in the United States, because that’s where my experience and expertise lies, many of the lessons will be more broadly applicable.
Progress at Financial Inclusion
I’ll start with defining my terms. When I talk about financial inclusion, I’m urging financial services industry leaders to do what we can do, within the realm of our influence, to increase financial access for vulnerable and under-served communities. And in practical terms, that means, at least at the minimum:
- Reducing the number of the unbanked, those who lack access to safe, affordable, reliable financial services; and
- Encouraging greater financial literacy and capability to empower people to face financial challenges by making better decisions about their money and their credit.
On the first of these goals, reducing the unbanked proportion of our population, the United States can point to real progress. According to a survey of household finances by the Federal Deposit Insurance Corp., a U.S. banking regulator, just 5.4 percent of American households lacked access to a checking or savings account at a bank or credit union as of 2019. It’s the lowest proportion of unbanked households since the FDIC began tracking these numbers in 2009.
We should bear in mind that’s based on survey results from 2019, so there may have been some slippage owing to the pandemic. Still, the fundamental trend is in the right direction. Addressing the un-banked and under-banked is an important goal because more American households with banking and credit union accounts mean more Americans with a tie to the financial mainstream, and with a chance to climb the economic ladder. It means access to affordable credit; federally insured accounts; and a chance to build wealth, all of which are essential to financial inclusion.
So while the trend-line is, in many respects, reassuring, it’s not lost on me that there are also areas where we are losing ground, with far too many people falling behind and far too many under-served communities. Even in the United States, with one of the world’s largest and most advanced economies, we struggle with those challenges. And of course, those challenges are even more acute in many other nations around the globe. For those of us who work in financial services, this is a challenge we should all be intensely focused on addressing.
The Importance of the Cooperative Finance Model
And this is where I believe the cooperative finance model, as represented by credit unions and other member-driven, not-for-profit financial services providers, have a distinct advantage over many other service models. That advantage rests in the fact that these cooperative entities have a localized, community-based orientation — which makes them particularly well suited to meeting the needs of the under-served.
Speaking as someone who has worked in and around the financial services industry –mostly in the private sector banking arena, with a few stints in government service with U.S. regulatory agencies – I find myself increasingly concerned with the question of scale. That is, as many large financial players have grown larger and achieved impressive levels or market dominance in today’s interconnected, globalized world, I’m concerned that the financial industry runs the risk of losing its grounding in service to the community.
I’m not here to make the case against big banks, hedge funds, or any other large players in the financial system. I have nothing against them -- in fact, I’ve worked for some of them. Those entities play an important role in financial services, and they have definite advantages in terms of efficiency, innovation, and reach that can’t be denied.
I do believe however that “bigger is not necessarily better.” And that is particularly true when we talk about the nexus between financial services and the need for financial inclusion. And part of the problem is one of trust – many large financial services providers simply do not enjoy the trust that they need to reach under-served populations.
Many of you may be familiar with the “Trust Barometer,” the annual survey by Edelman and Associates, a leading marketing firm headquartered in New York, that gauges public attitudes, on a global basis, toward society’s leading institutions. Edelman’s 2022 “Trust Barometer” finds that we’ve entered a “cycle of distrust” in the aftermath of the pandemic, with many people lacking confidence in our society’s leaders, particularly in the government and media. This is not a partisan political survey – it’s simply a measure of the general public sentiment in a time of great turbulence.
We could cite various reasons for that decline in trust, which is not entirely new. But one of those reasons, I believe, is this problem of scale and centralization. As more institutions have become more globalized and interconnected, trust in those institutions has declined. The question is, how do we break that cycle and rebuild public trust? I would say that’s one of the more compelling challenges of our time, and something I spend a great deal of time thinking about.
Now, for our purposes here, that’s about as far as I want to go in looking at the broad sweeping challenges facing global society. I’m not looking here to “solve all the world’s problems,” as they say. But I do think we need to consider that broader dynamic of scale and declining trust, and then consider what we can do within the realm in which we have influence – within the realm of financial services – to counter those concerning trends we see in the world around us.
And that starts with rediscovering what we can achieve at the local level, through grassroots, bottom-up solutions that respond to the needs of people and the communities in which they live.
Which brings us back to financial inclusion, and the very important role that credit unions can play in helping to bring more people into the financial mainstream and to drive greater prosperity and flourishing around the world. Because when it comes to meeting the needs of the under-served, providing quality financial services to people of modest means at a reasonable cost, and serving as a financial anchor for local communities, the cooperative finance model is difficult to beat.
I recognize that I’m preaching to the choir here, but let’s consider the global impact of cooperative credit institutions. We’re talking about a system of more than 86,000 institutions in 118 countries serving 375 million households worldwide, with an estimated $2.7 trillion (U.S. Dollars) in savings. So even though the individual institutions may be smaller and more local, the cooperative finance model is, in fact, providing access to quality financial services to a significant number of members worldwide. I believe there are tremendous opportunities to continue to grow those numbers.
Just as importantly, I can’t help but to notice that the cooperative finance industry has managed, to its great credit, to maintain a relatively high level of trust at a time when faith in other institutions is low. In fact, most survey results I’ve seen, at least in the United States, reveal that credit union members report a higher level of confidence that their financial institution is working on their behalf. Perhaps that’s why U.S. credit unions have added more than 7 million new members in just over the last two years. Perhaps you’re seeing similar trends in your own nations. My advice to you is straightforward: Cherish that trust because it is an invaluable asset -- and do everything you can to protect and nurture that trust through a superior member experience, service to the community, and integrity.
Fortifying Cooperative Finance for the Future
That said, we do have some work to do to ensure that the cooperative finance model is poised to survive in the long-term – because the survival of any financial services model in a competitive system is not guaranteed.
If that sounds alarmist, I would point out that we’ve seen it happen in other parts of the financial sector: In the aftermath of the 2008 financial collapse, a great many smaller community banks were lost to closures, mergers, or absorption by larger players. I think that was a tremendous loss to our financial ecosystem, because like any ecosystem, a healthy, robust financial system needs diversity.
I don’t want what happened to smaller banks to happen to credit unions. So we need to make the right moves today to ensure that credit unions remain strong and vital within that ecosystem.
Here’s what I mean by that, at least in the United States. First, that means a focus on regulatory reform that both encourages the chartering of more credit unions and that allows credit unions to compete on a more equal footing in the marketplace. I should add to that regulatory moves that nurture and protect small credit unions, which play such an important role in providing needed financial services to under-served and minority communities.
In my service on the NCUA board, first as chairman and now as a board member, I’ve made such regulatory reform my top priority. I’m not talking about the mindless pursuit of deregulation for the sake of deregulation. I’m talking about common-sense regulatory changes that respond to the needs of credit unions competing in today’s marketplace. I’ve always said that we should strive for a regulatory system that is “effective without being excessive” while ensuring the safety and soundness of the overall credit union system.
Second, I encourage credit unions to work with financial technology providers to improve operations and member services. I believe all of us are studying the fintech sector with great interest, because the reality is that fintech can be either a threat or an opportunity for the cooperative finance movement. In my own discussions with fintech leaders and credit union leaders, I urge them to find ways to work together in a mutually compatible manner. But especially when it comes to reaching younger potential members, credit unions are going to need to be able to provide these cutting edge technological tools to compete in the marketplace.
So in my agency, for example, we’re working on developing a comprehensive rule to better guide credit unions in integrating fintech solutions with their existing service models – in a way that they can take advantage of these innovative technologies while ensuring the safety and soundness of the system. And again, these technologies are likely be provide a significant boost to our financial inclusion efforts.
Finally, I always advise U.S. credit unions, if they truly want to fortify the industry for the future, that they need to be developing a future leadership class committed to the industry’s mission. We have before us a large contingent of young workers who are diverse, extensively educated, technologically savvy, and looking to make a difference in the world. They need to be looking at cooperative finance as a career option.
In fact, I’ve been carrying that same message to a number of college campuses and other events where I’ve urged young people to consider this field as a way to make a positive social impact while having a rewarding career. But as a regulator, I’m limited in what I can do on this front – it’s really up to you, the present leaders in the industry, to provide the leadership to recruit, train, and mentor the industry’s future leaders.
I’ll limit myself to those three issues for now, though I’m sure we could talk about many other ideas if time permitted. However, the common them that unites these ideas is that they should all be seen as antidotes to complacency. While the cooperative finance model has delivered a lot of value to your members and your communities over the years, this industry cannot afford to be complacent and to rest on its laurels. The key to survival in today’s marketplace is to embrace the changes that will position the industry to remain competitive for decades into the future.
The U.S. network of credit unions, with more than 5,100 credit unions serving more than 122 million members, is the largest in the world, and if there are lessons I can share from my time working with the industry as a regulator, I’m happy to do so. I encourage our colleagues from around the globe to study the U.S. cooperative finance system and its successes, whether from an operational or a regulatory standpoint.
However, that does not mean I would expect anyone to slavishly follow what is done in the United States. I encourage you to observe and study our system, and then take what is valuable and can be implemented in your own cooperative finance institutions. I encourage U.S.-based credit unions to do the same in looking to our partners around the globe for a two-way flow of information.
Fundamentally, I have always believed the financial industry, at its best, can and should be a creative force that solves problems. One of the things I’ve always appreciated about the industry is that financial services providers can make a real, positive difference in people’s lives, whether it’s helping people to pay for a college education; save for retirement; buy a first home; get a new business off the ground; or invest in their local community. These are the types of goals that should be at the center of our financial inclusion agenda, and they happen to be the types of things that the cooperative finance model is very good at doing.
But we also need to go beyond “solving problems” if we hope to make financial inclusion a reality. I recall a line from the management thinker Peter Drucker, one of our most insightful theorists of innovation and entrepreneurial thinking, who said that “Results are obtained not by solving problems, but by exploiting opportunities.”
Putting financial inclusion at the center of our mission is not an act of charity for the downtrodden – it should be about creating opportunities for all. In the case of cooperative finance entities, that means creating opportunities for your members, and by extension, for your institutions and communities.
I believe that creating such opportunities is at the very heart of the maxim of “putting people first” that guides the credit union mission, and it’s the mindset we should have we embrace if we are to succeed at broadly extending financial inclusion. Thank you very much.