NCUA Chairman Todd M. Harper at a meeting of the NCUA Board.
As Prepared for Delivery on December 17, 2024
Thank you, Ariel, John, and Kelly, for your presentation on the final rule that codifies a succession planning process for key positions at federally insured credit unions. And, thank you to the many others across the agency who worked collaboratively to bring this final rule before the NCUA Board today.
Moreover, I am grateful to the consideration by all three Board offices in the negotiations over this final rule. It’s fair to say that none of us got everything we wanted in this rulemaking, but all of us got something that was important to us. That’s how boards and how compromising to reach consensus work. So, thank you to both of my fellow Board members and their policy advisors.
Why is succession planning so important? It’s because the best way to solve a problem is to prevent it. Some attribute Benjamin Franklin with saying if you fail to plan, you plan to fail. Regardless of whether Franklin said those precise words, I very much agree with the sentiment.
We know that the failure to plan for management and key decision-maker transitions comes with a cost. The potential costs range from an unanticipated merger of a credit union or its failure when key personnel depart. For small, low-income, and minority depository institution credit unions, as well as those that support under-resourced urban and rural communities, this situation happens more than any of us would like.
In my view, it’s better for consumers and the system to have many smaller, diverse credit unions serving a wide variety of purposes, communities, and markets, instead of consolidating credit unions into fewer and larger institutions. More competition leads to greater consumer choice, lower prices, and better services. Moreover, fewer, larger, and increasingly complex credit unions can expose the National Credit Union Share Insurance Fund to greater risks.
This final rule on succession planning establishes a way for the NCUA to address one of the most common causes for unplanned and unforced credit union mergers. It also ensures that smaller institutions remain the cornerstone of our nation’s federally insured credit union system.
Specifically, the final rule requires the board of a federally insured credit union to establish a written succession plan that addresses the specified positions that are vital to the credit union’s continued operation and management. Boards also need to review these plans periodically to ensure they remain current.
The final rule additionally requires newly appointed members of the board to gain a familiarity with those plans within six months after their appointment. Further, for federally insured, state-chartered credit unions in states that have established succession planning requirements, the NCUA will defer to such requirements to the extent no conflict exists between the final rule and the state’s rules.
Some commenters argued the rule will have the unintended consequence of increasing the number of consolidations as smaller credit unions do not have the time and resources to comply with the rule. This in turn could lead to mergers with larger institutions. But, smaller credit unions can develop succession plans by leveraging the templates included in this rulemaking, getting assistance through the Small Credit Union and Minority Depository Institutions Support Program, and completing online training available through the NCUA’s Learning Management System.
From my own experience, I know firsthand the effort needed to develop a succession plan. I once served on the board of a non-profit group with approximately $650,000 in annual revenue — a level of earnings that puts that organization on par with many of the credit union industry’s smaller institutions.
The volunteer board of that non-profit developed a succession plan that included what would happen if the leader departed and adjusted the salary structure over time to a market rate to allow for the recruitment of a new leader when the departure occurred. These efforts helped ensure the future viability of the non-profit when the leader moved onto her next opportunity.
This final rule also aims to be straightforward and manageable. It provides a standardized template to support credit unions with their succession planning processes. It’s also unnecessary to hire expensive consultants or make the exercise overly complex. The NCUA simply expects credit unions to develop a succession plan consistent with their size and complexity. Smaller institutions can have a simple succession plan that addresses a few key leadership positions, while larger institutions would have more extensive plans for a variety of critical roles.
The final rule also narrows the list of required officials covered. That change recognizes the many varied structures and operations of credit unions within the system. So long as the succession plan addresses the required elements under this final rule, credit unions may adjust their plans to reflect their unique operations and structures. With these provisions, credit union management and boards of directors, not the NCUA, are in full control of their credit union’s succession planning.
Some commenters noted that supervisory guidance instead of a rulemaking is a better approach to address this issue. We have chosen instead to adopt a rule because as helpful as supervisory guidance may be, it is just that, guidance. There would be no requirements on what constitutes an acceptable succession plan, and the NCUA would lack the regulatory tools necessary to address deficiencies in a credit union’s succession planning process.
In closing, for the credit union system to achieve its full potential, smaller credit unions must remain viable and at the heart of the movement. However, a survey of NCUA exams in 2023 found that approximately one-in-four credit unions lacked a succession plan or had an inadequate plan in place. A credit union board’s failure to plan for the transition of its management and key decision-makers has far reaching consequences that affect members, local communities, the health of the Share Insurance Fund, and the sustainability of the credit union system.
This succession planning rule will help address one of the most common reasons for unnecessary consolidation within the industry and will better ensure the systems’ long-term viability and promise. Finally, this rule will benefit credit union members and communities, including many of our nation’s poorest and underserved areas, by ensuring the sustainability of their local, community credit union. This prudent and sensible regulation makes sense, and I support it.
That concludes my remarks. I now recognize Vice Chairman Hauptman.