As Prepared for Delivery on Tuesday, February 28, 2023
Thank you. So good to be here. I know they have us on a tight schedule here, so I promise this will be the most riveting three-hour speech you’ve ever heard.
On a serious note, when this conference started last February, everyone was talking about what occurred four days earlier – Russia’s invasion of Ukraine. The Ukrainian Ambassador addressed this conference. Well, it’s one year later, and the media inevitably moves on to new things, I want to say our full support is still with Ukraine and the ten Ukrainian American credit unions in a fight that’s a long way from over.
Turning to the economy, it’s the strangest situation of my lifetime. The Fed has been hiking rates for a year now, and yet we still have a healthy job market, still have economic growth, but still have inflation well above the Fed’s target. I don’t envy the job of the Federal Reserve nor the other global central banks trying to contain inflation. Taming inflation usually brings collateral damage. But let’s say there is a recession in the next two years:
I can say that both the credit union system, and your NCUA insurance, are in pretty good shape.
NCUA’s insurance fund is at 1.30 percent of insured assets, having recovered from the dip caused by pandemic stimulus. Plus, the fund is entirely invested in US Treasury bonds, which tend to increase in value during economic downturns.
Credit unions have healthy amounts of capital, with an average net worth ratio of 10.6 percent. This compares to 11.4 percent just before the 2008 financial crisis. Regarding liquidity concerns, if you haven’t already, talk to your leagues or CUNA about making sure you have access to our Central Liquidity Facility, especially since Congress didn’t extend the provision that allowed corporates to act as agents for a subset of their credit unions.
Last point, on the possibility of recession, and you’re probably already thinking it: Be careful out there with car loans. They comprise nearly a third of credit union loans, and we know the next economic battle often doesn’t look like the last battle. The next recession may not resemble the mortgage crisis of 15 years ago. This time around, I see the average new car price is almost $50k, how high the rates are on auto loans, and how inflation makes it even harder to make payments. Sub-prime auto loans are already showing distress, and the economy has endured significant job losses. And I’ll leave it at that, since you know your members best.
That brings me to my next point, which is just to praise the many credit unions that excel at helping members with financial literacy. Part of the issue is that America has the world’s best consumer machine. We are the undisputed world champs at finding ways to get you to spend money, and it’s even easier than when I was a kid. Now folks wake up and look at their phone and “Ohhh, last night I bought 10 pairs of shoes and signed up for Disney+, twice.” Our society isn’t the best at getting people to save and invest. This is where credit unions come in, with financial literacy and savings programs that improve their members’ financial wellness.
My description of financial wellness is that it’s a phenomenal product that is available for purchase on the open market via saving and investing. As you all know, financial wellness isn’t just about a retirement that may be decades away. It’s piece of mind, that makes every day better. It’s knowing you can lose a job and not lose your home. It’s being able to leave a job you hate and pursue one you love. Financial wellness can save relationships. Financial wellness is a great product that we only buy if we value it more than all the cool ways to spend money. Credit unions help people achieve financial wellness. Which means credit unions are helping people sleep better tonight. Financial issues can be a dry topic, but it’s not about the money itself – it’s about living your best life.
On Sunday, I spoke with the defense credit unions. Given how young so many of their members are, and the number of them they help with financial literacy, I think it’s fair to say that their efforts, and yours, are enough to actually improve the GDP of the United States.
Now I’d like to focus on my priorities, but first, a shout-out to NCUA staff for their help on these, and in particular to my fellow NCUA Board Members, Todd Harper and Rodney Hood. As much as I think I’ve had good ideas, Mr. Harper and Mr. Hood certainly have great initiatives that I’m pleased to support. I believe America’s 135 million credit union members would be pleased with the way this Board works together in a respectful and professional manner to protect your money in the Share Insurance Fund and ensure safety and soundness across the system. We’re public servants, and you’re the public, so we know who we work for. As my colleague Rodney Hood says, we want regulation that’s effective, not excessive. I know that the only people who think compliance is easy are those that don’t have to do it.
Now, my three personal priorities for my term are:
- Revamping the de novo chartering process.
- Modernizing our transparency & feedback.
- Harnessing the power of blockchain technology and digital assets.
I’ve good news on all three fronts.
On the issue of de novos, we’ve revamped and streamlined the chartering process. We will be rolling out a provisional credit union charter that fixes the chicken & egg problem, whereby a potential credit union wants to get its initial capital from a CDFI but can’t get that capital until we’ve issued them a charter. Still, we wouldn’t issue the charter until that credit union has the capital. I’m proud of these improvements – I think it’s a part of facilitating true financial inclusion. I love seeing announcements about new charters, like a few days ago when the new credit union formed for the ladies of Alpha Kappa Alpha.
On the issue of modernizing NCUA’s transparency and feedback, our post-examination pilot survey was a success. After exams, there was a quick five-question survey, with questions like “Was everything you had to do put in writing?” There was one additional, open-ended question at the end that said, “What other questions should be on this survey?” I was surprised by how many great suggestions we received. These types of quick surveys are common in the private sector and quality government agencies. And it’s not just about what people write on the surveys, it’s also a signal that NCUA cares about feedback and transparency.
Also, on the topic of transparency, if you’re a federal credit union, know you’re encouraged to record your exit meeting at the end of an exam. Some state charters, like California, also allow recording. It’s 2023, so we don’t have to try to remember what was said at a meeting months ago anymore. How many of you, including me, could recite the first ten words I said today? These days, recording is very easy to do, just have someone call into Zoom and use the recording feature. As soon as the meeting ends, Zoom sends you an email with the recording and you forward that to your examiner, so both parties have a copy. We’ve already seen these recordings reduce miscommunication and help new examiners and credit union CEOs. Plus, everyone tends to behave a bit better when things are recorded.
My third priority is harnessing the power of blockchain and digital assets. Credit unions are already doing some good things. Last GAC, I said my true north as regulator is making sure credit unions don’t go the way of Blockbuster Video because their regulator wouldn’t let them compete. It’s still my true north. But it was pointed out to me that some young people didn’t get the Blockbuster Video reference. So, to the generation of kids out there who only know Netflix as a streaming service, we used to have to physically go to a store and rent a movie, then go back again to return it.
But in all seriousness, the crypto and blockchain world this past year reminds me of the late 90s with the internet. It’s the new thing going through its “Gold Rush” stage, which brings with it some shaky business models, overvalued assets, and some flat-out scams. But credit unions have sifted through all that to find partners who help them improve their operations and their finances. Remarkable innovation is happening, like with cheaper and faster payments, and with member identification. And by the way, if you think crypto is often used by criminals, you’re going to freak out when you hear about cash. Next year’s presidential election will almost certainly be the first one where candidates must have a policy on blockchain and digital assets. The same thing happened during the year-2000 election, with internet policy. By the way, if you watch those presidential debates from 2000 on YouTube, they’re a little cringe, the “Our next question…came from the internet.”
I’m particularly proud of the blockchain guidance NCUA put out last May. The guidance was purposely broad principles about this new, potentially very useful blockchain technology. And let me say this as a Republican, my model for the guidance was what I consider perhaps the best piece of economic policymaking in my lifetime, which is the 1997 Clinton-Gore “5 Principles for the Internet.” The first principle was “The private sector should lead.” We know what happened next: America won the internet. While everyone in the world, including Americans, dealt with the economic disruption caused by the internet, America alone captured all the upside – the most jobs, the best companies. America can win the crypto and blockchain industry if we have the same mindset.
A reporter asked me recently “Are you worried there will be problems with this new technology?” I said I know there will be problems. It’s the same with any new technology. Did you guys know there were zero plane crashes… before we had planes?
Well, that’s my time. Thank you all for what you do. And thanks to CUNA for this great event.