KOLOA, Kauai—Credit union volunteers gathered here were given an update on the federal and state credit union systems from NCUA Chairman Todd Harper and NASCUS President and CEO Brian Knight, respectively.
First, here are some of the issues addressed by Harper in remarks to Rochdale's Volunteer Leadership Institute.
Succession Planning
Speaking to the issue of planning for the future, and quoting the namesake of the school he attended as a child, Benjamin Franklin Elementary School, Harper said, “If you fail to plan, you plan to fail.”
Credit unions that fail to plan, according to Harper all end up in the same place: a merger.
Harper urged credit union board members to pay attention to the rule the agency proposed in 2022 that would require boards at federal credit unions to establish and adhere to processes for succession planning.
“…Succession planning is not merely a policy issue, it’s a needed ingredient for the continued viability of the credit union industry,” said Harper. “One major reason many mergers are occurring is an absence of succession planning. In fact, it’s cited as one of the top reasons for mergers by consolidating credit unions. Succession planning, therefore, is vital to the long-term success of any institution, especially small credit unions that are fundamental to the industry.”
Federal Credit Union Act’s 90th Anniversary
With the FCU Act turning 90 in June, Harper reflected on how his grandfather and father had both helped to charter credit unions.
“So, my family, like so many others around the country over the last nine decades, has benefited directly from the vision and statutory mission of federal credit unions to meet the credit and savings needs of members, especially those of modest means,” Harper said, before sharing the history of NCUA with his audience.
To commemorate the anniversary, Harper said NCUA will undertake a number of activities throughout the year, including visits to credit unions and other institutions of historical significance, as well as events highlighting the system’s ongoing efforts to support under-resourced communities and members of modest means.
Legislative Requests
Harper said congressional action is needed to amend the Federal Credit Union Act to provide NCUA with greater flexibility for administering the Share Insurance Fund, including removing the fund’s current 1.5% equity ratio ceiling from the statutory definition of “normal operating level.”
Harper said the cap limits the agency’s ability to establish a higher normal operating level for the Share Insurance Fund. In addition, Congress should also remove the statutory limitations on assessing Share Insurance Fund premiums when the equity ratio of the Share Insurance Fund is greater than 1.3% and if the premium charged exceeds the amount necessary to restore the equity ratio to 1.3%, Harper said.
“The current system limits the ability of the NCUA Board to build sufficient reserves in the Share Insurance Fund to prepare for times of economic stress and volatility,” he said. “As a result, the NCUA must then charge credit unions a Share Insurance Fund premium when they can least afford it — during an economic downturn.”
Share Insurance Fund Report and Rising Risks
Among the “flashing cautionary lights” Harper said credit unions and the agency need to be watching, are the growingliquidity, interest rate, and credit risks within the credit union system.
He pointed to the growing number of large, complex CUs that now have a composite CAMELS code 3 rating increased by nine credit unions to a total of 51 credit, noting assets represented by that cohort have increased to $131.7 billion, a nearly 45% jump from the previous quarter.
Active Leadership
Harper told the group that “now is the time for active, not passive management, by credit union boards. That starts with rededicating yourselves to advancing your members’ financial well-being and financial security. And, that means keeping members informed, proactively seeking their input, and safeguarding their savings with robust internal fraud controls.
“Boardrooms should never become echo chambers,” he added.
Other Issues
Harper also touched on:
- NCUA’s recently released 2024 supervisory priorities
- Fair lending examinations
- CU policies and procedures governing compliance with flood insurance rules
- Bank Secrecy Act compliance
- Support for small credit unions and minority depository institutions
Knight: A Future-Looking Perspective
NASCUS’ Brian Knight told board members at the meeting they should prepare to “hear a lot” about “the future-looking perspective of the credit union system.”
After providing some history on NASCUS, which was formed in 1965, and the decision in the 1970s to actively get the perspective credit union stakeholders, he said the association now represents regulators from 45 states and Puerto Rico (five states do not have any state charters).
“I think…historically the state system has served as an engine of innovation for the credit union system,” Knight said. “Many of the products and services, powers and authorities, that are commonplace today in the credit union system actually started as innovations at the state level…They were eventually picked up at the federal level by NCUA.
‘Unique Characteristic’
“I think another driver of that innovation at the state level was a unique characteristic of some of our state agencies, which is that many of our state credit union regulators do not just regulate credit unions, they regulate community banks, they regulate securities, they regulate money transitions, they regulate non-depositories, mortgage companies, you name it,” Knight continued. “They are active in the supervisory space in the broader financial services sector.”
Field of Membership
Knight said NCUA has been more progressive in changing field of membership rules than have many states, and that has put pressure on those states to reconsider their long-held interpretation of FOM rules in order to keep their charters attractive and competitive.
On the flip side, he said state regulators have influenced NCUA when it comes to innovation and the ability to make certain investments, including in fintech and in capital reform.
“A credit union can only build regulatory capital through retained earnings and that can be a limitation,” said Knight, adding NASCUS supports capital reform to revise the Federal Credit Union Act and to address a number of related issues.
Additional Issues
Other issues touched on by Knight included:
- Interstate branching and NASCUS’ support for state-chartered credit unions to cross state lines
- State regulators have been looking at streamlining credit union governance, including bylaws
- “We're spending a lot of time talking about open banking concepts and what will that mean for the credit union space”
- NASCUS continues to advocate for a rule requiring one member of the NCUA board to have experience in the state credit union arena
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