In a recent conversation with a newly chosen CEO on creditunions.com, the following was a comment on what she believed was necessary for her effectiveness:
JV: In a leadership role, it’s crucial to surround yourself with individuals who are comfortable telling you the truth. People naturally want to please the boss and tell them how great they are and might hesitate to disagree or deliver unpleasant information. It’s important to create a safe space where people feel comfortable voicing their opinions and assisting in decision-making.
Everyone has a little bit of an ego. It’s nice to hear that praise, but that can make it too easy to believe everything is going well, so you must actively seek out different perspectives.
Now that I’m in this role, I realize the importance of this kind of transparency. I knew it before, I’ve supervised hundreds of employees and billions of dollars in business, but now that I’m in the CEO role, I can see it even more clearly.
NCUA’s budget and Operating Decisions
Credit unions have both formal and informal ways to present their views to the NCUA board. One process was the recent 2024-25 budget hearing and subsequent comments submitted.
But will this process make a difference? Or is it just political theater in which suggestions are requested, but then the Agency proceeds to do what it intended in the first place.
Eleven comment letters were sent to NCUA and posted on its website. These five short excerpts reflect aspects of “truth” that these commentators believe should be considered at December’s budget approval meeting.
We urge the agency to provide a more comprehensive and detailed explanation of the growing expenditures for the agency’s Modern Examination & Risk Identification Tool (MERIT). While we appreciate that a platform like MERIT is ever evolving and that its core building blocks will require ongoing maintenance and upgrades, we believe credit unions are rightly justified in demanding greater transparency regarding costs. The agency spent more than $54 million on MERIT’s development, with an additional $3 million budgeted in 2024 and 2025. It is fair to question the return on investment for both credit unions and the agency absent a more detailed explanation of program costs.
The second largest expense in the agency’s proposed 2024-2025 budget is Contracted Services.. . the actual cost for contracted services in 2024 is much higher and is estimated to be $70.1 million, but that cost is offset by the prior year’s unspent funds. If these unspent funds were not available, the total cost of these services would increase by $28.7 million, a 70% increase compared to 2023, an amount which is reflected in the proposed 2025 budget.
The NCUA’s operating budget in 2010 was $201 million as compared to $382.1 million in this proposed operating budget. While the proposed 2024 operating budget is an 11% increase compared to 2023, it adds up to an overall 90% budget increase within the last fourteen years, far exceeding inflation rates over the same period. These year-over-year increases reveal an alarming pattern; a large and ongoing increase in credit union funding for ever-expanding NCUA spending.
OCUL is concerned with the NCUA’s strategic choice to invest credit union funds for further staff expansion. . . the NCUA Board reported a mid-year surplus of $3.5 million that was subsequently used to hire additional staff; specifically, the NCUA sought to hire two (2) new Credit Union Resource Expansion (CURE) positions and four (4) new cybersecurity positions, with a projected cost of $1.6 million. Not only is the NCUA Board requesting to hire 28 positions, including 11 entirely new positions, and 13 additional consumer compliance specialists, which is an increase in examination time for consumer financial protection reviews equivalent to 11 examiners, this Budget now has to account for positions in 2023 that were hired with a budget surplus.
Illinois state-chartered credit unions are subject to the Illinois Community Reinvestment Act (IL CRA) which will add a significant compliance burden and associated costs, in addition to significant examination fees. Credit unions are the original consumer advocates and already do the work to ensure its members, regardless of financial condition, have access to financial products and services at a fair price. The NCUA’s desire to add complexity to its existing consumer compliance examination is unnecessary, especially considering Illinois credit unions and many across the country are already facing additional scrutiny by its primary state regulator.
The value credit unions deliver is disproportionately obvious among those who really need help. . . Today, the nation’s credit unions remain mission-focused: promoting financial wellbeing, delivering outstanding value, and providing helpful advice, especially to those of modest means.
The just-released Federal Reserve Survey of Consumer Finances, for example, shows that net worth in the consumer sector rose by a record 34 percent in the three years ending 2022. As a group, bank customer households now reflect mean net worth of $1.3 million and median net worth of $220,000; totals that are respectively 140 percent and 23 percent higher than the comparable measures within credit union member households.
The credit union industry is strong and well-capitalized. As of June 30, 2023, the industry’s net worth ratio was closing in on 11 percent and had risen over 40 basis points from a year prior. CAMELS rated 4 and 5 credit unions represented just 0.3 percent of total industry assets, a figure that is roughly half its pre-pandemic level. Thanks to strong loan growth in 2022 and rising investment yields, credit union net interest margins are up 40 basis points versus a year ago.
Will NCUA Listen and Align?
These are critical issues for Agency review. There were also two important points of context: the member mission of credit unions and the sound state of the industry.
Another observer made these comments about the underlying condition for a more responsive budget:
To change the budget, you must CHANGE the game – change the targets, the challenges must be new and raise the bar for the work.
If a group has no intentions to change the world, restart a fire, or set vision for something new, then there will not be anything new.
To change the budget, you need to inspire–put the spirit of “need better”, “deserve better” and “expect better” to ensure all segments of our industry do better.
To craft a better budget – the key is a willingness to rally the industry to want one, as the foundation for a better future and execution from top to bottom.
Only when NCUA is properly aligned with their audience, mission and futures will all the players be working for a shared mission.
Is there leadership that will pick up the torch for others to follow-within NCUA or credit unions- on this ever-expanding use of credit union funds?