NCUA
AND CREDIT UNIONS:
2000 AND BEYOND Remarks of Dennis Dollar NCUA Board Member CUNA Governmental Affairs Conference Washington Hilton and Towers February 22, 1999 Thank you so
very much. As always, it is a pleasure to attend the CUNA Governmental
Affairs Conference. From my years as a credit union CEO to my present
tenure as a member of the NCUA Board, the GAC is always a highlight of the
year. It is an honor to address you again this year. I would like
for us to take the next few minutes to look at the future of credit unions
together...both from the perspective of the regulator and the
regulated. First, we must
realize that there will always be a "natural tension" between regulator
and regulated. This is not only natural but it is indeed proper... but I
have long maintained that this "natural tension" should be a "healthy
tension." I have had the
unique experience to have seen this regulator/regulated tension from both
sides. As I shared with you in my first address last year: Have sat across from member...kids to school Have met that
member in parking lot...new vehicle But I have also
now had the daunting task of: Voting on appeals of members Have voted on
liquidations and conservatorships It is that
experience on both sides of the table which has taught me my regulatory
philosophy - and it is the regulatory philosophy that I believe should be
NCUA's regulatory philosophy as we, both as the regulator and regulated,
face the new millennium and beyond. Regardless of
the size of your credit union, to you it is more important that NCUA be an
effective regulator than it is to be an excessive
regulator. In fact, the
two terms are mutually exclusive - an excessive regulator who does not
allow those he regulates to have the flexibility to make necessary
business decisions and compete in today's highly competitive marketplace
without unnecessary interference will not be an effective
regulator...neither will those he regulates be as effective in meeting the
needs of their members. And, if a
credit union does not meet the needs of its members, it will ultimately
become a safety and soundness concern for NCUA. One of the
basic concepts behind the new field of membership rules put in place by
the NCUA Board in adherence with HR 1151 is that, in today's competitive
marketplace, the ability to compete has a direct correlation with the
ability to maintain safety and soundness. As a safety and
soundness regulator, we would be remiss if we did not consider the ability
to make the business decisions necessary to compete in today's marketplace
without unnecessary regulatory interference as a major component of safety
and soundness, regardless of the size of your credit union. And, while I am
on the subject of the new field of membership rules, I would like to
briefly address the bankers' most recent lawsuit against NCUA challenging
that rule. Now, ya'll know
my Southern upbringing taught me to always try to be a gentleman, even to
those who disagree with you - but when NCUA has been sued 13 times in the
past five years by banks or bank trade organizations for simply trying to
do our job - even the most well-bred Southerner begins to lose those most
genteel responses. So I'm gonna try to make Mama proud and remember my
manners. But I'm gonna try to address the issue, as we say down South,
"straight up." We drafted our
new rule closely and carefully, under the watchful guidance of our office
of general counsel, with our eye ever toward following the letter and the
spirit of the act - an act named the Credit Union Membership Access
Act. Of the 37 pages
of HR 1151 as it passed the House, the bill which ultimately became the
Credit Union Membership Access Act, everyone should realize that 23 pages
of the bill were new safety and soundness requirements - commonly referred
to as the Prompt Corrective Action sections - that clearly indicate that
Congress intended us to formulate all of our new rules, whether they be on
membership access, member business lending, or supervisory committee
audits with an overriding emphasis on safety and soundness.
You may not
like everything in our new rules, and I know from my mail that many of you
do not. We have been criticized by many credit unions for not having been
liberal enough in our interpretations, while at the same time our banking
critics and many of their spokesmen have said we went way too
far. As a general
rule, I have found that when we as regulators are being shot at from both
sides, we are usually pretty close to being on target. No, we were not
surprised by the ABA decision to file a suit against our new rule. Nor
have we allowed the threat of such a lawsuit to deter us from our
responsibility as regulators throughout the process. We knew we
would be attacked. You always are when you address the tough issues.
But we have a
job to do. And know this. Simply because the ABA has gained the "right" to
challenge our actions in court does not mean that their position is any
more "right" than it was before. If credit
unions cannot compete, they cannot remain safe and sound in today's
marketplace. Maybe that is what banks want, but it is not good public
policy. The banking
industry has helped shape this marketplace with its "bigger is better"
merger-mania. Yet, an ABA
spokesman recently criticized NCUA with this incredible statement: "I'm
amazed that any federal regulator of financial institutions in America
today could develop a rule that promotes bigness." For the ABA to
criticize credit unions merely for wanting to grow is much like Mark
McGwire criticizing the rest of the Cardinal lineup for trying to get a
few hits of their own. Folks, even Big Mac realizes he can't drive in all
the runs, all the time. We never
expected the ABA to like our rule. They didn't like the new legislation
Congress passed either. Let's
understand one thing clearly. The ABA has no stake in safe, sound and
viable credit unions. On the other hand, NCUA is charged by law to be just
that - a safety and soundness regulator. It is really not news that we do
not see eye to eye with the ABA on this issue. For that matter, we do not
always see eye to eye with CUNA either. There are many parts of this rule
that your own organization would have preferred to be left out or changed.
But, we have adopted a solid rule that both restricts and empowers credit unions in accordance with the Credit Union Membership Access Act. The Congress built the statutory
frame, we poured the regulatory foundation. It is up to
you, the nation's credit unions, to build the structure within that frame,
on that foundation. This new rule will allow you to build your choice of
structure that fits that frame and foundation. We do not choose, nor
should we choose, to make the decisions for you as to whether your
structure is small or large, multi-tiered in its service structure or
simply a single-level. We leave to you to build the structure, as long as
it is a safe and sound one...not just for you who live in it now, but for
those yet to move in. I am confident
we will prevail in court with these new rules because they are, in our
opinion, both within the congressional framework and melded with the
cement of safety and soundness considerations. Consumer choice
between financially sound credit unions and financially sound banks in a
competitive marketplace is where this battle should be fought, not in the
courts. The new field
of membership regulation, along with the proposed rules on member business
lending, accounting and auditing standards, and the advance notice of
proposed rulemaking on prompt corrective action are all designed to fully
comply with the letter and spirit of HR 1151, while at the same time
retaining for credit unions the empowerment to make their own business
decisions within the boundaries of safety and soundness. Empowerment to make the necessary business decisions to compete and therefore remain strong is vital for the year 2000 and beyond with a new millennium's emphasis on
free markets, international competition, technological advancements, less
government regulation and efficiency of service. FAA
analogy Again, it is
NCUA's job to ensure safety and soundness of the planes...not to fly
them. You must always
know that, in this analogy, if the plane is not flightworthy...it must be
repaired or grounded. My mailbox
daily carries letters from those who object to needed repairs or forced
groundings...a safety and soundness regulator must be decisive when risk
to that safety and soundness is discovered. But, when there
are no safety and soundness issues, an effective regulator provides the
flexibility to meet the needs of members - within the framework of safety
and soundness. For example, we
hear much emphasis on serving the underserved, and it is a proper
emphasis. In fact, it is a part of the heartbeat of credit unions. It is
your history and your heritage. But, from personal experience as a former
credit union manager, I can attest that many innovative proposals to
extend credit union services to those who are underserved are being voted
down by credit union boards and management teams each year, not because of
an unwillingness on the part of credit unions to provide those services -
but, because of fear that NCUA will write them up for too many high-risk
loans, an excessively high delinquency rate or expense ratios that are
above peer...all of which might come from such an innovative program.
Special
departments, emphases and conferences are commendable to encourage service
to the underserved, and I support those...but I maintain that a regulatory
approach that encourages innovation, not one that penalizes it...that
rewards reasonable risk management, not one that writes it up...that
welcomes solutions to benefit members whose personal situations may fall
"outside the box," not one that determines to draw the box even tighter
next time.......will do more to extend credit union services to the
underserved than any other approach NCUA can take. Before I leave
this podium today, I also want to encourage this audience to provide the
leadership necessary in the credit union community to foil the plans of
the disciples of divisiveness. You will hear
some who say NCUA is spending a disproportionate share of its resources
trying to save small credit unions. With this narrow perspective, they
seek to build a wedge in this successful movement. Others say that
NCUA's rules favor large credit unions over the small. Again, seeking to
build a wedge. Longfellow
wrote, although not about credit unions but certainly applicable here,
"all your strength is in your union, all your danger is in
discord." A regulatory
environment that empowers credit unions to make their own business
decisions, and to map their own growth strategies, without unnecessary
regulatory interference benefits all credit unions - large and small
alike. Know this, and
I say it without equivocation. The only beneficiary of a wedge being
driven between small and large credit unions is the banking
lobby. Do not allow
your competitors to pick your enemies from within your own ranks.
You must not
allow the safe, sound ship of America's credit unions to be sunk by an
iceberg of divisiveness. Those who sow
the seeds of division, whether they come from your own ranks or even from
the highest eschelons of your regulatory body, are not acting in the best
interests of safe, sound credit unions. The standard
that should be applied by NCUA as we evaluate every issue is the same one
I applied as a credit union CEO when we considered an
issue: "How will it
affect the member?' Not how will it
affect small credit unions. Not how it will affect large credit unions.
Not how will it affect the agency. Not how will it affect the insurance
fund. But how will it affect the member. This should be the overriding
standard. For, in today's
marketplace, if you take care of the member - you will take care of credit
unions, small and large - the agency and the insurance
fund. Member service
is paramount to remain a safe, sound institution. But NCUA cannot and
should not regulate that aspect of what you do. You, at your credit union,
must remain committed to service to your members - your entire field of
membership - and reaching out to serve those you are not today serving or
that you may not be serving as fully as you can. What we at NCUA
can and must do is to provide a regulatory environment that empowers you
to do so within the bounds of safety and soundness. Now, you who
have heard me speak before know that I believe the first and most
important member service you can offer is - a safe, sound credit union.
This is your
and our first responsibility and all regulatory empowerment must be built
upon that foundation. Credit unions
have a mission - to meet the financial needs of each credit union's
member-owners, regardless of their status or position in life. Credit
unions serve millions that other financial institutions, including some of
the fiercest critics of credit unions, will not serve. Credit unions
do not believe these millions do not deserve financial service.
Although credit
unions were not created to serve only those of small means, (for if the
purpose of cooperative credit is done well, it attracts the business of
many with means who share its goals but it also grows millions of people
of small means into people of greater means), credit unions are one
element of the financial services industry that does not and should not
ignore the needs of those of small means. It is indeed
part of the heartbeat of the credit union movement. CUNA continues to
demonstrate leadership in this important emphasis with its Project
Differentiation and I commend you for this initiative. You have a breakout
session this afternoon on this community service project, and it is a
proper emphasis for you as a trade organization. I am honored that my
Executive Assistant Kirk Cuevas has been asked to participate on this
panel to talk about the role NCUA can play in creating the right kind of
regulatory environment. "One size does
not fit all" among America's credit unions. They are as different as the
employer groups and communities upon which they are based. But one thing
is the same for all - if they do not serve their members financial needs
well, they will ultimately have safety and soundness concerns. Member
service and safety and soundness go hand-in-hand. Effective, not
excessive regulation ... empowerment ... allowing safe and sound credit
unions to "fly their own planes" This is the
NCUA I see in the year 2000 and beyond. Your credit union's responsibility
is to continue to earn your empowerment through your own emphasis on
member service and safety and soundness. I want to
encourage your communication with NCUA. Story - "I
almost said something when mama fell out!" Don't be the
one who missed the chance to have your voice heard during this historic
time in the history of America's credit unions. You have won a
major victory with the passage of HR1151...and I commend you. Don't lose
it by allowing your empowerment to be diminished by excessive regulation.
We should not allow credit union critics to win restrictions in the
regulatory process that they did not win in Congress to take away the
ability of safe, sound credit unions to make the business decisions
necessary to maintain that safety and soundness, including your own growth
strategies. Congress empowered small and large credit unions alike with HR
1151, even as they imposed certain restrictions and limitations. We must
do the same at NCUA. Yet, even as we
empower credit unions under HR 1151 and its resulting regulations, I must
likewise ask your support for the tough decisions we must make to be an
effective regulator. Those decisions are tough at times and inherently
unpopular. There will
always be a healthy tension between credit unions and NCUA. But always
remember that safety and soundness must be the hallmark of America's
credit unions. There are over
75 million credit unions members who are depending on us both to do what
is right for them. Thank you very much. It has been an honor being with you today. |