Following are excerpts from two NCUA chairmen on the state of the credit union system.
Both presentations came following severe economic disruption. In one case the events included double digit inflation and unemployment levels, plus the highest short term Fed Funds rate ever-in the mid teens.
In the second, the economy had emerged from a post covid shut down with inflation rising to 9% and a Fed once again tightening.
The two updates were in May before Congressional banking committees, but 40 years apart: 1983 and 2023.
One statement expressed confidence in credit unions, with sufficient agency capabilities and a pragmatic approach for the future. The primary concern was including credit unions in any potential banking regulation.
The second statement suggests inevitable failures, insufficient agency resources and the desire for “parity” with any changes to banking oversight.
The question for readers: Two assessments 40 years apart: Which understanding of NCUA’s relationship with credit unions is most likely to enhance the movement’s future?
We know the answer to the first approach. What will be the outcome of the second?
From May, 1983: Chairman Callahan’s testimony before the Senate Banking Committee:
The overall condition of FCU’s is “quite good” thanks to the grassroots strength of the CU movement and to the freedom CUs have been given to adjust to local market conditions, NCUA Board Chairman told the Senate Banking Committee.
The committee which is conducting oversight hearings into the conditions of the financial system was told by Callahan that “few if any changes should be made in the existing CU operational and regulatory environment.”
Reporting on 1982 financial performance Callahan said that savings at FCUs grew by 17.2% and assets rose by 16%. As a result, CUs increased their share of the overall consumer savings market from 4.25% to 4.5%.
“I’m pleased to report that deregulation really works,” Callahan said. “It’s time to leave the credit union system as it is for a while and observe the results.”
The committee is considering potential changes in the financial industry and Callahan warned against the tendency to apply these changes to CUs. “CUs, he said, “come from a different mold. The biggest threat to the movement is not competition, but homogenization to the financial services industry.”
(Source: Credit Union Magazine, June 1983, pgs 19-20)
Excerpts From: Chairman Harper’s Written Statement to the House Banking Committee, May 16, 2023:
Legislative Requests
The recent failures of Silicon Valley, Signature, and First Republic banks are a reminder of the dangers of concentration risk and the need for effective risk-management policies and practices to manage capital, interest rate risk, and liquidity risk. These fundamentals have remained true throughout all economic and regulatory cycles and have recently been areas of supervisory focus for the NCUA. Credit unions that fail to manage these core issues can and will continue to fail. . .
Accordingly, to better manage such liquidations in the future, the NCUA requests amendments to the Federal Credit Union Act to provide more flexibility to the NCUA Board to manage the Share Insurance Fund, bringing the fund’s operations more in line with those of the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (FDIC). Likewise, as Congress considers amending federal deposit insurance requirements, the NCUA supports maintaining parity between the Share Insurance Fund and the Deposit Insurance Fund. . .
Specifically, the NCUA requests amending the Federal Credit Union Act to remove the 1.50-percent ceiling from the current statutory definition of “normal operating level,” which limits the ability of the Board to establish a higher normal operating level for the Share Insurance Fund. Congress should also remove the limitations on assessing Share Insurance Fund premiums when the equity ratio of the Share Insurance Fund is greater than 1.30 percent and if the premium charged exceeds the amount necessary to restore the equity ratio to 1.30 percent.
Remarkable. I don’t know Harper, or much of him. I never met Ed Callahan but feel as though I know more of him as a former client and a current employee of the company he co-founded. I believe Callahan was confident in the system’s ability to self-regulate and believed in managers’ collective penchant toward stewardship.
Perhaps the expansion of membership access and the ‘conquesting’ we’ve observed in many CEOs and boards the past couple of decades is why the rhetoric has changed. As credit unions increasingly behave more like banks, the regulatory talk-track is going to sound similar as well.
Harper’s statement almost seems like the enabling parent: “We’ll if they’re going to do it, I’d prefer they do it in the house where I can keep eyes on them.” A seeming resignation that CUs will accelerate consolidation independent of NCUA’s actions, as though it is a simple observer of the phenomenon versus understanding and reacting to it.
I am appalled that an NCUA Board Chairman would want to be like FDIC. With the recent bank failures which appear to be from inadequate regulation and supervision, the FDIC is not a model for the future. I have recently reviewed the NCUSIF’s balance sheet and income statements. Other than an investment policy that needs modification, the NCUSIF appears fine. If the Agency provides active on-site and off-site supervision, it should remain strong.
I can not forget 1987-89 when things got bad for all financial institutions and their deposit funds, two of the funds, FDIC and FSLIC, both structured the same and using GAAP were technically bankrupt. The FSLIC doesn’t exist anymore and the FDIC received a lot of help from the US government to stay functioning. The NCUSIF made it through , charged a premium and two years later paid a dividend. Credit unions ownership based structure got them through.