As Prepared for Delivery on May 25, 2023
Thank you very much for that kind introduction. It’s my great pleasure to be back with you in person as my last visit to the Women in Housing and Finance Symposium was in 2020 when we were still in the throes of the COVID-19 emergency. Due to the pandemic, that was a remote virtual presentation, and I can’t even begin to tell you how glad I am we don’t have to do that anymore. I do a great deal of public speaking, and while our technological tools are a great convenience, there’s simply no substitute for being able to meet in person.
In fact, by my count, this is my third visit to your group. Prior to 2020, I spoke here during my first term on the NCUA Board as Vice Chairman in 2008, when we were going through a global financial crisis, the likes of which none of us had seen in our lifetimes. Well, we survived 2008 and the 2020 pandemic, but now today, we’re seeing notable turbulence unfold in the banking sector. So, I’m starting to see a pattern emerge here. I’d much prefer to be able to join you and talk about how great everything is going, but apparently, that’s not the case.
But perhaps I can offer some of my own perspective on the current situation, based on my past experience in working for nearly three decades with Wall Street firms and two stints in public service at NCUA. In virtually all of my speaking engagements in the last couple of months, the banking crisis, and its potential impact on both the financial services system and the larger economy, is one of the issues I’m asked about most. And I can understand the concern, especially among those of us who were around during the 2008 crisis – that’s a fresh memory, and none of us wants to see a repeat of that situation.
So, to begin with, nothing I’ve seen suggests we are facing another crisis of the magnitude and scope we experienced 15 years ago. As I noted, during the 2008 crisis, I was serving my first term on the NCUA Board, and the conditions we saw then were much more alarming than what we see today.
What we saw play out 15-years ago was a crisis in credit, crisis in collateral, and a crisis in capital. What we’ve seen recently with the banking debacle was a crisis in confidence as evidenced by the swift outflow of deposits, among other factors, including poor management.
Moreover, the response from the Federal Reserve, bank regulators, and the industry appears to have served to contain the crisis. So, in terms of the broader banking system, I’m confident we’ll be able to contain this situation before it becomes some kind of systemic sequel to the 2008 disaster. But with that said, I am concerned by the effects this current crisis could have on smaller and regional institutions.
We all know what happened in the credit union and community banking sector after the 2008 crisis, with so many local branches closing. Some failed, and others were acquired by or merged with larger institutions. Most of these smaller institutions bore little or no responsibility for the crisis, but they paid a heavy price, as did the local communities they served. And we’re still paying that price, with many communities now underserved and lacking options for affordable financial services.
That trend continues to this day, with smaller institutions under a continuous threat. From my perspective as a regulator of the nation’s 4,760 federally insured credit unions, representing more than 135 million members, I can say the cooperative finance sector has been performing well. Assets approximate $2.2 trillion, Loans outstanding approximate $1.5 trillion, and our capital ratio is sound at 10.75 percent, some 375 basis points above our statutory requirement of 7 percent. In addition, we have a healthy national credit union share insurance fund to insure deposits. To date, no member has ever lost a penny in an insured NCUA account.
But in spite of our solid metrics, credit unions continue to face tremendous competitive pressures.
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, along with MDIs and CDFIs, which is why I believe we need to be talking about ways to shore up and protect smaller financial services providers.
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 banks. 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 at all hostile toward large financial institutions – after all, I’ve worked for some of those institutions in my own career. And as I know we have a number of people here today who are representatives of those institutions, I wanted to clarify that point for the sake of harmony and goodwill.
So, the question is, how do we best ensure that smaller and mid-size financial providers, whether banks or credit unions, can flourish in this challenging environment?
First, from a policymaking standpoint, it is 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 to maintain their position within the financial services ecosystem. You all know, from my previous comments, 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 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.
We’re also encouraging credit unions, and I think this lesson extends to smaller banks as well, 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 a strategic imperative now. 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.
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.
For example, just last month, the NCUA granted a charter to the Generations Credit Union in New York City, a newly established credit union sponsored by the United Church of Christ to provide basic financial services to the church’s employees and members. The Episcopal Church of New York just created a new credit union with funding from Trinity Episcopal Wall Street — the parish of Alexander Hamilton.
Or 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.
Or look at Iowa, where GreenState Credit Union launched an initiative called “10 Over 10” to boost homeownership opportunities among minority populations. GreenState had about $10 billion in assets when the initiative launched, and so they made a pledge that they’d direct 10 percent of their total assets, $1 billion, to home loans for people of color over the next 10 years. So far, they’ve committed about $300 million toward that goal, so they’re almost a third of the way there.
In all of these cases, and so many others, we see small institutions bringing creative and innovative solutions to address local needs, which is so vital for our financial inclusion efforts. My examples draw from the credit union world, but certainly we could point to small community banks that are doing similar great work.
I know that the Women in Housing and Finance places a high priority on financial inclusion, particularly through the great work that you all are doing through your WHF Foundation, where you’re doing outstanding work on sustainability and financial inclusion. So, I hope that, as we move forward through this current crisis, you’ll join me in focusing on the importance of smaller financial service providers to our financial inclusion efforts, and we can work together to fortify these vital institutions for the future.
With that, I promised myself that I would limit my remarks to a few opening thoughts so that we could spend more of our time addressing your questions in a more free-flowing discussion. So, I’ll hand it over to our moderator, and once again, thank you very much for hosting me today.