On Tuesday, 21 local credit union leaders met at a roundtable with National Credit Union Administration Chairman Rodney Hood at A+ Federal Credit Union in Austin, Texas. The meeting came about as a result of Chairman Hood's request through Cornerstone Credit Union League to meet with Austin credit unions.
This was Hood's first visit in 2020 outside of Washington, DC. He brought his chief of staff and three leaders from the regional NCUA office. In addition to A+FCU, credit unions included University FCU, Greater Texas FCU, Austin Telco FCU, Government Employees FCU, and Amplify CU. Representatives of Cornerstone were there as well.
Credit union leaders meet with National Credit Union Administration Chairman Rodney Hood. Left to right: Eric Kase, CEO of A+FCU; Kendall Garrison, CEO of Amplify CU; Chairman Rodney Hood, NCUA; Dee Crisp, CEO of Government Employees FCU; and Mike Crowl, EVP of UFCU.
"We are grateful for Chairman Hood’s engagement with Texas credit unions," said Cornerstone President/CEO Caroline Willard. "We feel fortunate to have had the chance to talk about the proposed rule on subordinated debt and other capital-related issues that came up at last week’s NCUA board meeting."
The meeting covered a range of topics, including NCUSIF, new and proposed rules, cyber and data security, capital standards, risk-based capital, CECL, financial inclusion, bank acquisitions, fintech, and others.
Hood acknowledged that leagues around the country continue to fight for regulatory relief and serving member-owners. He was especially pleased at Cornerstone's longevity, having originated in 1934, and recently celebrated the signing of the Federal Credit Union Act. He also acknowledged that credit unions can't grow and thrive if regulations are arduous.
Credit unions now have $1.53 trillion in assets and serve more than 100 million members, Hood noted, adding that they need to look after the National Credit Union Share Insurance Fund, which is currently at $16.7 billion.
Appraisals and Modernization
Hood said the NCUA has worked diligently to propose a rule around real estate appraisals, citing the weeks or months it takes currently to have commercial real estate transactions appraised. With his board, he worked to modify the rule to allow for written estimates.
NCUA plans to review all of their rules to ensure they're not outdated for 21st century institutions. Outdated guides on the NCUA's website are also being reviewed and will be removed as necessary. Hood said guidance should be guidance—things that are enforceable must be tied to a specific rule.
Cybersecurity and Data Protection
Cybersecurity keeps Hood up at night, he said, because it could cripple the national economy. He introduced Johnny Davis, senior advisor to the chairman, who will focus on cybersecurity and ensure NCUA is best in class for "operational hygiene." His team plans to do a quarterly webinar series, partner with other federal regulatory agencies, and look at cybersecurity in the examination process via a toolkit.
Data protection and security are becoming increasingly significant, Hood said. He is considering the European Union's model, General Data Protection Regulation (GDPR), and especially after the California law that just went into effect.
"It could create an administrative nightmare," Hood said. "Federal financial regulators need to own this situation, which has created too many different laws across states."
Capital, RBC, and Subordinated Debt
Hood said capital standards in the credit union system are perhaps the strongest they've been in a long time, at 11.39%.
The risk-based capital rule was delayed because of CECL and so they could bring on more holistic tools such as subordinated debt. RBC would have worked for JP Morgan Chase, Hood said, but it doesn’t work for credit unions.
Subordinated debt would allow credit unions access to secondary capital. Hood said he's working with securities lawyers to figure out the market for and regulation of this new option. An additional 285 credit unions would be able to use subordinated debt. NCUA extended the comment period for this proposed rule to 120 days.
Currently, credit unions can only build via retained earnings. NCUA is looking at a leveraged ratio for credit unions that would be unique and user-friendly so credit unions could "calculate net worth on the back of a business card."
CECL and LIBOR
Hood thinks the Current Expected Credit Losses methodology is a solution in search of a problem. He discussed a plan to phase in loan loss reserves over three years instead of during year one. NCUA has legal authority to phase in the changes, but that will require new rulemaking.
Hood addressed the London Inter-Bank Offered Rate (LIBOR) transition and whether it will be negotiated. He said LIBOR will go away by mid-2021 and noted that not many natural-person credit unions are negotiating transactions in LIBOR. He advised credit unions to get ready for the transition and stop originating loans there.
Credit Union and Bank Acquisitions
Hood notes there have been only 30 bank-to-credit union purchases in the past six years, and banks make it sound worse than it is. NCUA, FDIC, and CUNA cite more than 2,000 bank-to-bank purchases in the same period.
"Would some banks prefer a non-regulated entity come in and take that business?" Hood asked. "Credit unions are not overpaying for these transactions; they can only make capital through retained earnings. They are only offering cash since they only have cash to offer."
The NCUA and FDIC must provide imprimatur for transactions to occur, Hood noted. For bank customers to become credit union members, there needs to be core competencies and expertise to ensure a smooth transaction. At last week's NCUA board meeting, Hood came up with proposal that would ensure greater transparency in these transactions.
Financial Inclusion and Fintech
Hood said he is concerned about and interested in financial inclusion to help disabled populations. Rural America is vulnerable, he noted, so financial coaching is critical. The $400 in emergency money that is hard for many Americans these days is even harder to come by in disabled and ethnic populations.
He pointed to the importance of using innovation to not only drive inclusion, but also to improve the regulatory environment. NCUA plans to roll out an innovation lab within the next 18 months, Hood said.
On related issues, Hood said NCUA is looking at a rural initiative, along with USDA, to ensure loan guarantees get taken advantage of, and the loans won't count against the MBL cap. On legal hemp-based business guidance, NCUA is waiting for USDA's final rule.
NCUA has a memorandum of understanding with the SBA, which might result in another low-risk option for credit unions growing their balance sheets.
Hood said NCUA has a new examination system that will be rolled out this year—the first in 40 years—driven by analytics. The system will rest in the cloud and cut down on paper and on-site examination time. It will provide real-time information with trends and graphs. The new system enables NCUA to be a leader among peer regulators and is the biggest capital expenditure in some time.