CUNA CEO Dan Mica Discusses State of Economy and Credit Unions
Credit Union Times: What have been the high and low points of the last year?
Dan Mica: The economic situation has come on like gangbusters. But at CUNA we've been as active as at any time since Congress passed H.R. 1151. We've been successful at getting a hearing for the Credit Union Regulatory Improvements Act and the House passed by Credit Union Bank and Thrift Regulatory Relief Act. [House Financial Services Committee Chairman Barney] Frank has commended credit unions at a public hearing. So credit unions have been positioned in a way we we've never been before.
Chairman Frank also assured us that the proposal to eliminate our independent regulator was not going anywhere. Also, for the first time our PAC raised $4 million. And CUNA has been there 24/7 for credit unions to make the case on Capitol Hill and through the media.
CU Times: How has the economic downturn affected CUNA?
Mica: Well 2008 was two separate years. During the first half, everything was chugging along and we had 5,000 at our Governmental Affairs Conference and a good attendance at our annual meeting. From July until now, advertising has been down and attendance at our events has been down.
CU Times: What are credit union CEOs telling you about what's on their mind?
Mica: The vast majority is telling me that they did the right thing but are seeing collateral damage. That makes them fearful that some of the remedies that are imposed will hurt credit unions. I worry that we will be punished. It's like when one student throws a spitball and everyone is asked to stay after class. And credit unions are already overregulated. We are trying to separate out credit unions from other financial service providers.
In the new Congress, 10% of the House and close to 10% of the Senate will be new, so we have to educate those folks and continue to re-educate the returning members. For some, the 'union' in credit union confuses people. Some credit unions are of course affiliated with unions, but the movement is not.
CU Times: Are you concerned that some of your allies may love you to death by passing additional regulations?
Mica: We have a strong base of support in both parties. But many will say, 'we love what you do and want you do more of it, and we may require in law that you do more of it.' And we don't want that.
CU Times: Are you concerned that one of the things the new Congress will do is apply the Community Reinvestment Act to credit unions?
Mica: Chairman Frank is adamant that he wants to do something about CRA. He wants to have a broad CRA. He doesn't want to punish credit unions and banks but use CRA to force those who make a living with other people's money to do more to help people who need help. My response is nobody can argue with trying to help people-that's what credit unions are all about.
But more regulations for credit unions would probably do the exact opposite. If there is anyone in Congress who really loves credit unions and tries to push another set of these kinds of regulations, this would probably mean the elimination of even more credit unions that would throw in the towel and say, 'I can't deal with all this regulation.'
CU Times: What's your sense of the likelihood of that happening? Where do you think the Obama administration is?
Mica: I don't see CRA as a major threat, though it may be a bill this year. They will be so involved in other banking issues that that may be a battle royal they may not take on this year. Maybe during the second session of Congress in 2010.
CU Times: You talk about credit unions being overregulated. But when one speaks to people on the Hill and at the NCUA they defend the rules and say they want to protect safety and soundness. How do you strike a balance?
Mica: One of the most important things NCUA can do while we are going through this terrible economic situation is draw a circle around inappropriate practices and see to it that you have appropriate regulation. And then they should go through their thousands of other regulations and see what they can eliminate so you unleash credit unions so they can be a force in the recovery.
Instead of saying 'here's a new set of rules that we are going to pile on in old set of rules,' it would be a breath of fresh air to see NCUA say, 'we're going to take a time out and see if all the rules we have are necessary for safety and soundness and eliminate those that have been a drag on credit unions' ability to compete in the new financial services marketplace.'
CU Times: Isn't that what they do now when they review one-third of the rules and regulations each year?
Mica: I have a sense that that is an annual event and a ritual that they go through. I'd like a highly focused process that tries to reduce redundancy and eliminating overregulation without impacting safety and soundness. I have told credit unions, and you can quote me on this: 'It would be an error, it would be improper, it would be inappropriate for us to wish for, or try to get, a regulator that is a patsy for the industry.'...So we're not looking for a patsy or for someone to roll over, we want them to create a safe and sound environment but a positive environment. The credit unions I hear from now don't feel that the positive factor is there.
CU Times: Do you mean that their encounters with the NCUA are not good experiences?
Mica: Every time they hear that NCUA is having a meeting they are thinking "oh my God, what's the next set of rules that are coming down?' They would prefer that the board meet and look at things that may be creating problems for us and address those problems, instead of adding another layer.
NCUA is in a transition mode. We don't know who is going to be chairman. We don't know who is going to replace [Vice Chairman] Rodney [Hood when his term expires in April]. So in the next six months there is a great deal of anxiety there about what the picture will be that we'll deal with for the next several years.
CU Times: What's your sense from your discussions about what the Obama administration will mean for credit unions and for the financial services industry?
Mica: A year from now this could all change, but so far, the approach of the administration, such as not taking money from lobbyists and not taking money from corporations and taking small donations from across the country, that's the credit union way. That will do nothing but benefit us and put us on an equal footing. While we play in the same league as banks and others in the financial services, we don't have the kind of money they have and we get our strengths from the grassroots and from our people who are involved all across the country, much like the Obama campaign.
CU Times: Have you met Secretary of Treasury-Designate [Timothy] Geithner yet or other members of the economics team?
Mica: I know a number of his team personally. I served [in the House] with [Health and Human Services Secretary-designate] Tom Daschle. I know [White House Chief of Staff-designate] Rahm Emanuel and served with [Commerce Secretary-designate] Bill Richardson. These guys are friends and a number of the staff members are friends.
You can never call up someone and say 'do something for me because we are friends.' But I think we'll have reasonably good access, maybe better than that, to the people we need to talk to.
And in the House and Senate [Senate Banking Committee Chairman] Chris Dodd is going to play a key role, as is Barney Frank. Most of the legislation we might be interested will originate in the House, and Chairman Frank has indicated his great support for credit unions. Whether you are a friend or foe of Chairman Frank, everyone in this town is recognizing that he is the go-to guy on financial services in this Congress, and [Subcommittee] Chairman [Paul] Kanjorski is an important person for credit unions. So all-in-all, we have excellent relationships there and we look forward to working with them.
CU Times: What are you worried about from the Obama administration?
Mica: I wouldn't put it as a worry for credit unions, but for all businesses in financial services, is that the deficit is so high that the need for revenues is going to be astronomical. I think everyone understands that. We don't want to get lumped into any punitive or otherwise introduced, tax legislation that may be necessary for the national good, if you will.
CU Times: You've talked about the economy, from the micro level in terms of how it affects credit unions, which as president of CUNA you are quite familiar. Talk for a second about the bigger economic picture. What changes would you like to see made on a larger scale?
Mica: On the macro level, and this is strictly Dan Mica, at one point in our history gold was the ultimate investment of choice. But in the last 50-75 years, people veered off into mortgage-backed securities. I believe the fundamentals of our economic system are broken at that level.
The Middle East, Europe and Asia were pouring money into the United States, into investments that were ultimately backed by mortgage-backed securities. Everything they have done to date has been plugging holes where the money has been lost, but they haven't fixed the structure as to where the money should go. If you are an international investor or a major domestic investor, are you going to put your money into anything that goes into mortgage-backed securities? If you're not, then where are you going to put your money? The stock market? For the next six to 12 to 18 months, the stock market is going to go up and down like a yo-yo.
So they're going to have to come up with some kind of structure to make sure there is a place where money is invested where there is confidence and safety.
Step one is solving the housing crisis. Stop the bleeding and get the turnaround going and make mortgages secure again. And in the process, restructure pricing in this whole country. Restructure the prices, restructure wages and salaries and mortgages and the prices of cars and goods and services.
CU Times: Are you talking about going back to wage and price controls like we had during the Nixon administration?
Mica: No. This will happen as a byproduct. Companies will look around and say 'our pay scales are too high, our structure is too complicated, we have too many middlemen.' The way we manufacture our cars causes prices to be too high.
CU Times: What other challenges do you see for the credit union movement, both from a political point of view and in general?
Mica: Certainly our inability to raise outside capital is very difficult. I want to thread the needle for capital reform. Some call it alternative capital, some call it supplemental capital. But when we come out of this [economic crisis] to grow and compete, we are going to have some access to additional capital.
Another major one is member business lending. Those who are doing it report they are reaching their limits and those not doing it say they don't want to because they could hit the limit very quickly and then be cut off.
And the third issue is our not-for-profit tax status.
Another one that's not high on folks' radar screen, and we think we'll prevail on this, is the future of the NCUA as an independent agency. How they handle themselves during this critical time will influence those who are writing a new plan for financial services regulation. There's a group at will make recommendations by January 20 on how to reform the regulatory structure. And this could create the stage for quite a fight if there is an effort to include us under one single financial services regulator.
CU Times: Are you optimistic about the future of credit unions and the economy? Are you worried?
Mica: I am quite optimistic about the future of the credit union system. It will be quite different in five years than what we see right now. There will be a credit union system for as far into the future as I can see. It may evolve into a much smaller, tighter system of larger credit unions, I don't know yet.
There is no doubt in my mind that we are going to continue to grow, but in a different form and different way than they have in the past.