From Recession to Stability and Growth
This year was a transformative year for credit unions. It was a year in which credit unions made the transition from the losses of recession to the stability and growth of recovery. During the year, the industry topped $1 trillion in assets and grew strongly to approach 94 million members.
Looking at third-quarter results, the industry’s performance has been impressive by just about every measure. Return on average assets reached 86 basis points, a more than four-fold increase from the 18 basis points at the end of 2009. Industry net income rose and lending expanded, with low-income designated credit unions leading the lending expansion.
The industry’s delinquency ratio fell from 1.84% to 1.17% and charge-offs dropped from 1.21% to 0.73%. The number and percentage of troubled credit unions have declined, and we’ve seen continued improvements in the performance of the share insurance fund.
In short, all the metrics are going in the right direction.
At the same time, the NCUA is adapting to the changing industry landscape with smart, innovative regulatory reforms that encourage prudent growth and reasonable risk-taking; new tools for consumers; and a solid commitment to building on the progress we have made together.
This progress has resulted in a stronger, safer credit union system. It all works because of better communications.
When I became NCUA board chairman, one of my top priorities was to improve communications both internally and with our stakeholders. To this end, we recently released the public version of the National Supervision Policy Manual, which details NCUA’s internal operations for supervisory staff.
This came on the heels of the six listening sessions I held around the country, at which credit union officials shared their concerns and suggestions. Many of the ideas from these sessions formed the basis for NCUA action, particularly in providing regulatory relief.
A little over a year ago, I announced my regulatory modernization initiative, a framework for keeping the credit union industry safe and sound while relieving credit unions of unnecessary regulatory burdens. The initiative follows the spirit of President Obama’s executive order, which asked independent agencies to examine their regulations, eliminate outdated or insufficient rules and create more effective regulatory programs better suited to the post-recession environment.
We made real progress on the initiative in 2012. Some highlights include the low-income credit union initiative. It’s now easier for qualified credit unions to receive and take advantage of the low-income designation, such as expanded member business lending, access to supplemental capital and eligibility for Community Development Revolving Loan Fund grants and low-interest loans. More than 2,200 credit unions now have the designation.
In addition, this year, to keep more people in their homes, NCUA finalized a new rule on troubled debt restructuring and loan workouts that gives credit unions more flexibility to modify loans without having to immediately classify them as delinquent.
In September, the NCUA Board issued a proposed rule to update the definition of a “small entity” to include federally insured credit unions with assets below $30 million. Increasing this threshold from the current $10 million will require us to consider the impact of new rules on an additional 1,600 credit unions and will remove these additional small credit unions from the scope of the NCUA’s final interest rate risk management rule and risk-based net worth requirements.
In 2012, the NCUA completed a significant step in resolving the corporate credit union crisis. Western Bridge and U.S. Central Bridge were both shuttered, after new corporates were successfully re-capitalized to replace failed ones. This took place without disrupting services to either credit unions or consumers throughout the transition process.
At the same time, we stepped up our efforts to hold accountable those responsible for the crisis. The failure of five corporate credit unions resulted from billions of dollars’ worth of mortgage-backed securities sold by large investment firms proving to be far less creditworthy than claimed. These Wall Street firms essentially ran a bait-and-switch operation. Initially, 82% of these securities had a AAA rating; 74% are rated as junk today.
As liquidating agent, the NCUA has the statutory obligation to seek recoveries from the parties responsible for these catastrophic losses. We moved deliberately to demand accountability. To date, we have recovered more than $170 million in settlements with three firms–Citigroup, Deutsche Bank and HSBC–and we have filed suit against seven others, Barclay’s, Credit Suisse, Goldman Sachs, J.P. Morgan Securities, RBS Securities and UBS Securities. Net proceeds from our litigation efforts will help reduce the overall corporate stabilization assessment amount for credit unions in the future.
Rest assured, the NCUA will continue to pursue the interests of all credit unions in this effort.
The credit union industry has accomplished much in the past year. In 2013, there will be more work to do and fresh challenges to meet. Given how far we’ve come, I look at the year ahead with confidence. Our goals at the NCUA are to continue to communicate, to provide smart, reasonable regulation and to promote greater strength and stability in the credit union industry.