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NCUA Board Member Rodney E. Hood Statement on the Proposed Interpretative Ruling and Policy Statement, Minority Depository Institution Preservation Program

June 2023
NCUA Board Member Rodney E. Hood Statement on the Proposed Interpretative Ruling and Policy Statement, Minority Depository Institution Preservation Program
Rodney E. Hood

NCUA Board Member Rodney E. Hood during a meeting of the NCUA Board.

As Prepared for Delivery on June 22, 2023

The overall trend toward consolidation and growth in financial institutions, and the loss of diversity within the financial services system, has not necessarily been beneficial for consumers or communities. I don’t want to see further contraction in the number of smaller and mid-sized institutions, and that includes MDIs and CDFIs, which is why I believe we need to be talking about ways to shore up and protect smaller financial services providers. We have about 500 MDI credit unions, which I believe is about double the amount of MDI banks, and today’s board action is a positive step.

Now, to be clear, I’m not talking about propping up weak institutions just for the sake of propping them up. After all, I’m a strong believer in the free market system. But a healthy financial ecosystem needs smaller institutions, particularly if our goal is financial inclusion and extending access to financial services more broadly to under-served communities. From that perspective, the trend toward consolidation and ever-larger financial institutions is worrisome because it runs the risk of taking us further from that goal of full financial inclusion.

In talking about large institutions, I should pause here to make something clear: I don’t intend this as a critique of the larger institutions. They serve an important role in the financial ecosystem as well, and thanks to economies of scale, they’re able to do things smaller institutions cannot. I’m not hostile toward large financial institutions — after all, I’ve worked for some of those institutions in my own career.

So, the question is, how do we best ensure that smaller and mid-size financial providers, and especially MDIs and CDFIs, flourish in this challenging environment?

First, from a policymaking standpoint, it’s worth noting that regulators and lawmakers need to be focusing on the moves we can make to shore up small institutions so they can compete effectively and flourish and to help them maintain their position within the financial services ecosystem. You all know, this has been my priority as a regulator and that my outlook is that regulation needs to be effective without being excessive.

Again, I’m not saying we need to protect every small and medium-sized institution at all costs, irrespective of performance. But I do try to be attuned to ways to address the regulatory burden that gives federally insured credit unions in the United States the flexibility they need to compete in a very challenging and dynamic marketplace. Chairman Harper has been a leader here. MDI credit unions, by virtue of serving an underserved population, need to be examined differently because a one-size-fits-all approach doesn’t work. Under his leadership, the NCUA is making the right moves. Again, this is by virtue of serving underserved members often. We need to be looking at things differently. So, we will be in our examination program.

We’re also encouraging credit unions to explore and embrace the world of financial technology. I used to argue that fintech was the future of financial services, but I’ve stopped saying that – because we’ve reached a point where fintech is the present of financial services. I think these new tools can be a great boon for smaller institutions if they’re approached with prudence and care, and they could make a huge impact in terms of helping us to reach under-served communities, particularly younger consumers and the 26 million credit invisible and the nearly 40 percent of households unable to obtain $400 in a family emergency. So, I encourage healthy experimentation with fintech.

I would emphasize that if we truly care about financial inclusion, as we all do, then we must recognize the importance of smaller institutions in our financial ecosystem. In my job overseeing credit unions, I see examples of that importance every day.

I could point to North Little Rock, Arkansas, where the NCUA approved a new charter last year for the People Trust Credit Union. This is a minority-led institution founded by a gentleman who started his career as a barber and later went on to establish a barber college to serve his community. Recognizing the needs of his students and their families, he launched a non-profit loan fund to provide people in the community with loans and build up their credit scores. Then he took the leap of launching a credit union to provide a fuller array of financial services. That’s a remarkable story of someone seeing a need in the community and taking action to create opportunities for others.

MDIs play a critical role in addressing financial inclusion, which, as you have heard me said time and time again, is the civil rights issue of our time.

I do have some additional questions:

  • Can you touch on some of the ways the NCUA is supporting MDIs, including MDI mentoring grants, technical assistance grants, staff hours, and through the ACCESS initiative?
  • How is the allocation of staff hours working up to this point for small credit unions and MDIs?
  • How do we consider MDIs during the merger process?
  • Can we discuss how we are including Native Alaskans and Hawaiians in today’s action?
  • I have a feeling there are many more MDIs out there in the credit union space, many of which do not self-designate. What else can we do to encourage self-designation?

Thank you. I have no further questions.

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