Balancing Growth and Change: Letter to the Editor
Heather Anderson's Dec. 6, 2013, column—Credit Unions Are Knocking on Death's Door—was thought provoking and sent a sound and sober message not only to credit unions, but also to trade associations and the NCUA.
Credit unions are decreasing in numbers as competition increases, the economy changes and the technology in handling financial transactions evolves. Those credit unions that will move forward into the future must work each day to meet the demands of their members. This includes providing not only the best service with existing products, but also rolling out new and innovative products and services.
In a recent speech before the leaders of credit union trade associations from across the country, I also challenged the industry to think about the year 2020. What will credit unions look like? What will they need if they are to continue to be relevant players in the financial services arena? What can their organizations do to empower and assist them?
How will a smaller number of larger credit unions stay in step with their members? How will increased regulatory demands affect credit union operations?
If current trends continue, there could be as many as 10 credit unions with more than $10 billion in assets—and thus directly examined by the CFPB—by the year 2020. That is significant, and needs to be part of the industry's planning and NCUA's regulatory thinking.
In 1990, there were five credit unions with more than a billion dollars in assets. In 2013, there were 207. Trends like that are ignored at their own risk.
In this future reality, the NCUA will have to adjust its approaches, as well. That is as necessary for a regulator as it is for a financial institution or a trade association. While it is important to extol the virtues of applying lessons learned, one must not become complacent in a belief that if we simply apply those past lessons we will somehow prevent future problems. As an example, it will do little or nothing to help a credit union avoid cyber-threats.
We can use past experience as a relevant guide to improve and sharpen our tools. But we can never assume for a minute that future challenges will bear any direct resemblance to past problems. We need to stay fresh in our thinking, constantly test assumptions and never stop learning.
The Federalist Papers asks what I think is a critical question: Are we capable of establishing good government through reflection and choice? Or are we destined to make decisions by accident and force? I sincerely hope it is the former path, illuminated by serious, smart thinking and reasonable application of experience and knowledge. It sometimes is tempting, and perhaps easier, to react to the accident that remains uppermost in our minds.
I would suggest that all trade associations strive for balance in all circumstances: past with both present and future; practicality with philosophy; technology with common sense. By definition, and by historical precedent, trade associations are entrusted with a leadership role that carries with it the twin burdens of pressure to constantly innovate as well as to constantly seek consensus. Successfully maintaining balance in all of this is, I believe, the key to fulfilling their promise, and the promise of the members they serve.
The NCUA is continually working to stay abreast of an evolving industry. We have adopted an enhanced examination process that apportions our resources in an effort to mitigate, or prevent entirely, problems that can cripple an otherwise healthy credit union and cost members money. We are also working to put in place new regulations designed to foster a safer, sounder, more realistic capital regime.
There is a balancing act inherent in the relationship between an industry and its regulator. My view is that we should collaborate in an effort to reach a common goal of a healthy, well-run and prosperous credit union industry. However, that does not and cannot translate into a partnership. There is an appropriate, and I think beneficial, arm's length tension that, if properly maintained, will benefit us all in our distinct roles. Common ground and common purpose should be the watchwords, but those should never be confused with an overly close intermingling of the government authority and the industry that it is charged with overseeing.
New products and addressing safety and soundness concerns are why the NCUA is considering derivatives authority, securitization proposals and changes in capital requirements. Everyone has a role to play to ensure the future of the credit union industry.
Both the regulator and industry must be willing to evolve for the right reasons, at the right time and at the right pace. Change is necessary and inevitable. However, change allows us to forge our own futures. In the case of the NCUA and the credit union industry, I am confident that with everyone working together that future will be a bright and prosperous one.
Michael E. Fryzel