Keith Leggett
WASHINGTON—The fight between credit unions and banks won’t go on forever, maybe not even for 20 more years, asserts Keith Leggett.
Leggett, who is often the face—certainly to credit unions—of the American Bankers Association, made that prediction during an interview with CUToday.info. The senior vice president and senior economist at the ABA and author of the Credit Union Watch blog, is retiring Jan. 23 after more than 20 years with the organization.
Leggett discussed his career, the battles between CUs and banks, and some common ground both sides of the financial services sector share.
CUToday.info: The ABA’s issues with credit unions—is this just a red herring to keep an otherwise divided membership focused on a common ‘enemy?’
Leggett: You have to remember that the issues the ABA focuses on are not driven by our staff, but by bankers. It is the bankers that have stated (credit unions) are an issue. What drives bankers crazy is seeing credit unions offering largely the same products as banks, understanding both are competing for the same customers, and knowing that the better rates credit unions offer come from the tax exemption. That fuels this continued antagonism.
One thing we thought might reduce the tension is having the avenue for credit unions to become a mutual savings bank. Unfortunately, what has occurred is (NCUA) seems more interested blocking credit unions from choosing the charter that makes most sense for them.
CUToday.info: If credit unions have such an advantage in the eyes of bankers, why haven’t we seen many banks convert to credit unions?
Leggett: We have seen two mutual saving banks convert to credit unions—ESL FCU in New York State, and Thrivent, which originally began as a credit union.
But the problem with banks converting to credit unions is that the vast majority of banks are stock entities. So if a bank were to convert to a credit union the first thing it has to do is pay off the stockholders. Then you have an institution that basically has no capital—and I don’t think NCUA would be thrilled with bringing over institutions with huge amounts of legacy assets on books and at the same time no capital.
CUToday.info: Do you see banks and credit unions fighting for the next 100 years?
Leggett: No. We will probably end up with convergence. In 2008, when the Treasury issued its blueprint, part of the blueprint argues for all depository institutions to be subject to the same regulator. What you may find is an independent credit union regulator may ultimately disappear. Then, when you have a common regulator, they say have one common charter and the same tax treatment. This won’t happen overnight. Within the next decade you will see some discussion of this.
CUToday.info: You have watched credit unions evolve from a weak lobby in Washington to a power player.
Leggett: Clearly the high point for credit union lobbyists was 1998 and the Credit Union Membership Access Act. Credit unions were able to overturn a Supreme Court decision. Today, CUNA has become a powerful lobbying force, and they are up among the trade associations in terms of PAC expenditures. That is one of the biggest changes I have seen take place within credit unions. Credit unions have become a big money player with regard to political campaigns.
CUToday.info: Despite becoming a big political player, what have credit union lobbyists accomplished since 1998?
Leggett: You have to realize that when it comes to Capitol Hill, you have banks and credit unions on different sides and members of Congress don’t want to vote on something that benefits one side and harms the other. So they decide to do nothing. My view of the last decade is that a stalemate exists between banks and credit unions.
We will soon see (Rep.) Ed Royce (R-CA) introduce the Member Business Loan bill again. I liken that to Ground Hog Day, where you are waking up to Sonny and Cher playing on the radio and reliving the same day over and over again—and getting the same result.
CUToday.info: In your career at ABA you have seen a lot take place within the financial services industry. What stands out to you?
Leggett: One of the biggest things I have witnessed is financial convergence. We used to have really distinct and separate financial services industries, but now a great deal of lines are crossed. During my first several years at the ABA I watched convergence begin, with insurance companies getting into banking, for example.
I have also watched how technology has played a much bigger role in the financial sector. I don’t think we saw the real cost savings from technology at first. We were investing more in ATMs only to find the machines led consumers to bank more. In the ’90s and 2000s people still visited the branch the same number of times, but then they also went to the ATM.
I think where we will finally see the real cost savings from technology is with mobile banking, which will cause people to visit the branch less. Mobile is the game changer. This is really a generational paradigm shift, as millennials are more likely to never go into a bank branch, while Boomers are still wedded to the branch. I know I am still not even comfortable depositing a check into an ATM. My wife finally got me to do it—but I am still not comfortable with doing that.
CUToday.info: How has your role at the ABA evolved?
Leggett: I recall the first issue I worked on was the Mexican peso crisis, in late 1994 and into 1995—watching the peso go through severe devaluation. Then I worked on a number of issues associated with the merger of the Bank Insurance Fund and the savings association insurance fund. I also looked into the currency crisis in the Pacific Rim in 1997, which led to the Russian bond default in 1998. In other words, I was very much involved in these macro forces taking place within the banking industry.
But early on in my career at the ABA I began working on the credit union issue. The ABA wanted an economist to be able to look at and understand spreadsheets and income statements of credit unions and be able to evaluate what was happening within the CU industry.
Over time I felt it was important to understand NCUA regulations and got more involved in that. Ultimately, the ABA decided we would brand topics and issues with subject matter experts, and made the decision I would be branded the credit union subject matter expert. The ABA wanted bankers to associate a face with an issue, and know who to contact on staff should they have a question on a specific issue. That occurred around 2000.
CUToday.info: Did you like the change?
Leggett: I enjoyed it. I developed more of an expertise in an area and started writing on credit union issues in a column in ABA’s Bankers News. I began my blog in about 2009. I have gotten notes from credit union CEOs over the years and have enjoyed the correspondences. We clearly understand there are points we disagree on, but there are also point on which we agree.
CUToday.info: What are those?
Leggett: The whole issue of regulatory burden for banks and credit unions. Compliance burden is growing all the time. When you look at some of the regulation coming out of the CFPB, both banks and credit unions have interest to be on the same page to reduce the burden.
Another common area is dealing with patent trolls. Both banks and credit unions have been subject to demand letters. My opinion is these patent trolls have been trying to extort money from community banks and credit unions because they know these institutions likely do not have the resources to engage in costly litigation, and just settle.
With all the data breaches, there is mutual concern with cybersecurity and holding merchants accountable.
These are just some examples of the various ways credit unions and banks should work together as one industry.
CUToday.info: But of all the issues to partner on, is regulatory burden the most important?
Leggett: There is a general frustration that the regulatory pendulum has swung too far, while understanding things were too lax around 2005 to 2007. But (regulators and Washington) have gone too far, making it more difficult today for credit unions and banks to conduct their business.
The last six years have been a tough period of time for everyone. The financial crisis took its toll. Dealing with the aftermath, and the regulation that has risen from it has been stressful—for me, for bankers, and for credit unions, I imagine. It has not been fun, I can tell you that much.
CUToday.info: Especially for small credit unions?
Leggett: The small credit union faces a slow death, and the same holds true for the smaller community banks. I am not saying some won’t survive, but what you will have are institutions that won’t be able to meet their customers’ needs going forward, and when customers view their needs are not being met, they go elsewhere.
Dodd-Frank was meant to increase scrutiny on the shadow baking sector, but what seems to have taken place is that the easiest targets are the regulated institutions. And, you have people on Capitol Hill who think if they touch anything related to Dodd-Frank they are undermining the Act. Every piece of legislation somewhere down the line needs to be tweaked because there are always unintended consequences.
CUToday.info: Why did you decide to retire now?
Keith Leggett: On January 23, I will retire after being with the ABA for 20 years, one month and four days. It’s just the right time to leave. I have been here for over 20 years and it’s time to pass the torch.
CUToday.info: What’s ahead for you?
Leggett: I will retire to Sunset Beach, N.C., with my wife. We both play golf. I will spend more time playing golf, trying to get to where I regularly shoot in the 80s. I plan to expand my role be on the Board of Trustees for my undergraduate institution, Mars Hill University. I will continue writing about credit unions on my blog, watching what is going on in the industry, especially at NCUA.
CUToday.info: Will you go easier on credit unions in your blog once you retire?
Leggett: I am not sure. Some people expect retirement will free me up to write more. Actually, being at the ABA has acted to modulate me.
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