Recognizing the 80th Anniversary of the FCUA
“My friends, I want to talk for a few minutes with the people of the United States about banking.” With those words, President Franklin Delano Roosevelt's voice entered America's living rooms for the first of his famous fireside chats.
He described the causes of the “bad banking situation” that America faced, and set in motion a series of initiatives to renew and revitalize America's financial institutions. One of those legislative initiatives was the Federal Credit Union Act, which became law 80 years ago this week.
The law paved the way for creating the NCUA as an independent regulatory body, and laid the groundwork for the credit union system that today serves more than 97 million members and manages more than $1.1 trillion in assets.
As I look out at a credit union system that is operating in an increasingly complex marketplace, I believe the best way to honor the FCUA is to ensure that credit unions survive and thrive well into the future.
Even though the credit union system has weathered 13 recessions in the past 80 years, it is not immune to a crisis.
When I became NCUA chairman in 2009, President Roosevelt's words on the radio could have just as easily come from the White House YouTube channel. We had a “bad banking situation” for our nation and a precarious situation for credit unions.
My role as a financial regulator more closely resembled that of a field surgeon: triage and tough questions. How many credit unions were in imminent danger of failing? Which could be saved? And what was required for that to occur?
When the dust settled, 102 credit unions had failed, costing the system three-quarters of a billion dollars—a tough blow to a system that is capitalized solely by credit unions and not taxpayer dollars.
A significant part of credit unions’ losses were caused by Wall Street securities firms that sold faulty mortgage-backed securities. Shortly after the financial crisis, NCUA became the first financial institutions regulator to sue these firms for selling securities that were largely rated AAA despite numerous misrepresentations about the quality of mortgage loans they contained. So far we’ve recovered $1.75 billion, and we have 15 lawsuits pending to hold all responsible parties accountable.
Today, with stronger regulations and a recovering economy, the credit union system has bounced back. Credit unions have made more loans, increased capital, earned a higher return on assets, and improved other key metrics. But protecting the system is even more challenging today than when Congress created the NCUSIF, because a smaller number of credit unions now manage a greater portion of all insured deposits.
That is one reason why NCUA has proposed modernizing its risk-based capital rule: to ensure that a small group of credit unions taking excessively high risks cannot threaten the entire system.
Had such a rule been in place before the financial crisis, we would have seen many fewer failures and far fewer losses. After all, many of the credit unions that failed during the financial crisis appeared to have sufficient capital – until they collapsed.
Risk-based capital is intended to ensure that complex credit unions hold enough capital to compensate for the risk in their portfolio. This is among the most critical steps NCUA is taking to help the credit union system complete its recovery, thrive well into the future, and honor the intent of the original FCUA.
As a native New Yorker, one of my favorite childhood memories is looking out from the observation deck of the Empire State Building. Today, that building reminds me that even historic icons need to be updated.
Shortly before legislators finalized the FCUA in 1934, workers completed the Empire State Building. And on its 80th birthday, a new generation of workers began renovations to modernize its windows, elevators and climate control systems.
Today, the Empire State Building is every bit the icon that it was 80 years ago, but it is a far more modern, efficient, resilient – and therefore valuable – building.
By honoring the FCUA, and updating the regulations that implement the Act, I believe we will be able to use those same words – modern, efficient, resilient, and valuable – to describe our nation's credit union system.
Debbie Matz is chairman of the NCUA. She can be reached at 703-518-6301 or firstname.lastname@example.org.