By Ray Birch
ALEXANDRIA, Va.—NCUA may consider a new net worth ratio that will mirror the formulas in place at the banking regulators, similar to the community bank leverage ratio, according to the agency’s chairman.
In an interview with CUToday.info, NCUA Chairman Rodney Hood shared his thoughts around net worth, as well as his personal concerns around underserved communities and the need for credit unions to keep Americans away from payday lenders.
Hood, who returns to the agency after last serving a decade ago as a board member, spoke with CUToday.info about his views on regulation, the future of small credit unions and what the agency is doing during the RBC delay—including considering a new net worth ratio for CUs.
CUToday: Talk about your stance on delaying the risk-based capital rule, and also the banker attacks on the decision.
Hood: I get up every day not thinking about what the critics are going to say. I get up thinking about the job I've been instructed to do, and that is ensuring the safety and soundness of the credit union system and share Insurance fund. With that being said, I voted with my fellow board member, Mr. (Mark) McWatters, in favor of the risk-based capital rule delay. I believe credit unions are now firmly well capitalized—our net worth ratio 11.3% collectively, and 7% or above is well capitalized. So we're sitting now over 400 basis points above the capital adequacy standard, and we're very pleased with that.
As I return to the agency, I believe it’s fitting and proper for us to look at risk and capital holistically—meaning that while we have delayed the RBC rule we are not sitting idly. What I want folks to know is when I say we are looking at this area holistically, we'll look at maybe coming in with a new net worth ratio for credit unions to use that will mirror the ratios proposed and passed by the other banking agencies, like a community bank leverage ratio. And we are looking at other tools, such as things around non-member deposits, which you’ll see coming out over the next year several years that will further support capital adequacy in the credit union system. If credit unions weren't sitting on such a robust level of capital, I would not be so quick to look at some of these other tools. But I feel now I have that ability to do so, especially when you think about CECL coming to bear in a few years.
There are other things that are going to be impacting credit unions’ balance sheets, and I think if we look at this holistically we can prepare for these things. You may recall that I charged our staff with looking at subordinated debt or secondary capital—I have charged staff with bringing that matter to the board before the end of the year. We will be looking at innovative tools during the delay.
And about the bankers’ comments. Everybody is going to be commenting on our proposals; that is why we have them out for review. I assure you that the ABA and ICBA letters will be read with the same level of scrutiny that we give to folks within our industry. I believe in hearing different viewpoints and getting the widest range of information as possible to make an informed decision.
CUToday.info: What do you see as your primary charge at NCUA?
Hood: My primary responsibility is ensuring the safety and soundness of our nation’s credit union system and the share insurance fund. It’s a great responsibility, knowing that we now serve about one-third of the American people. We have about 117-million credit union members and assets of over $1.5 trillion.
As I have stated, my regulatory philosophy is that regulation needs to be effective and not excessive. With that being the case, we continue to look for ways we can provide a modern system of regulation and supervision—to give credit unions the ability to grow and remain flexible and innovative—without stifling that ability with too much regulation.
I think it's important that I work with our agency’s staff to evaluate our current rules and determine what can be amended, what can be modified and modernized, or even discarded in some instances. One of the things I'm proud to say is we as a governing board every year look at one-third of the regulations that are on our books—so every three years we've reviewed 100% of our rules.
CUToday.info: What are some other priorities for you and the agency?
Hood: Supervision—I'm proud to say the agency is taking several initiatives in this area. We’re looking to improve risk identification, and are expanding examiner training and guidance as credit unions grow in size, scale and complexity. You’ve probably heard me talk about how we want to help expand opportunities for credit unions to serve their members, especially what I call the underserved or overlooked, in some instances.
It's a priority for me because I recognize the importance of financial inclusion. Credit unions need to have the unique products and services to protect members who are vulnerable to predatory payday lenders.
So, I want to make sure and I'm providing the regulatory roadmap for credit unions to help them serve these members and fill that that void before payday lenders get to them. When I talk about serving the underserved, it pleases me to know that now over half of federally insured credit unions are now low-income designated.
CUToday.info: Do you see any change in the focus from your examiner team?
Hood: I would say examiners are always focusing on risk—meaning the credit unions each examiner is charged with overseeing all have different fields of membership, different risk tolerances, different levels of capital, and therefore different risk levels. With that being said, we just ask our examiners to be mindful of what they're seeing within the institutions they supervise. We publish our exam priorities each January so that our priorities are no surprise to credit unions.
CUToday.info: Can small credit unions remain viable?
Hood: I think small credit unions can be viable. I continue to work with my fellow board members to ensure we are reducing regulatory burden and we're giving credit unions the tools they need to successfully serve their members.
What I mean by that is now over 50% of our credit unions are low-income designated, and one-in-ten of federally insured credit unions have minority depository status. These credit unions are working hard to provide affordable access to credit.
Things we're doing internally are helping small credit unions. We have the Office of Credit Union Resources and Expansion, which is providing small CUs with guidance, webinars and seminars on how to serve their members and promote their products. We provide a program where small credit unions can partner with a large credit union to learn how to better run their business. We offer technical grants and also each year help deliver $2 million in appropriations from the Treasury to help low-income designated credit unions.
CUToday.info: What is your stance on NCUA’s new merger rules that require merging institutions to be very transparent about the deal with their members?
Hood: Overall, regarding mergers, what I want to emphasize is that I don’t want to stand in the way of credit unions making business decisions regarding mergers. But I agree there is a need for greater transparency. And the new rules are just about that. Again, the new rules are about greater transparency and that was needed, but the rules are not about fixing the merger business model. We are letting the market dictate what's best for the credit unions and their members when it comes to mergers.
CUToday.info: Was there any charge giving you by the White House when you got your appointment?
Hood: I was given no charge from the White House, other than the administration really believing in me and in my ability to do a good job. I was on record when I was at NCUA over a decade ago stating the same regulatory philosophy I have today—that regulation must be effective but not excessive. So that may resonate with some of the things that are coming out of the White House.
.info: Has your perspective changed at all from your first term?
Hood: My perspective has not changed. My regulatory philosophy has remained that consistent. I would say if there's anything that's changed as I come back to NCUA as chairman is I'm looking more at innovation and technology. I would say that when I was here a decade ago we were focused on automation. But I am now coming into this role with a heightened awareness of the importance of innovation.
One question I ask is are we using fintechs enough. You've heard me talk about the importance of serving overlooked or underserved communities. So, how can credit unions use fintech technology, especially smaller credit unions, to further serve their members? I would say that's an area that has changed for me.
That means within NCUA it’s important that we, too, have a focus on using technology, such as making our examination process more automated. We will be rolling out a modernized examination and supervisory tool called call MERIT that will replace the AIRES system. You’ll see some modernization of our call report system.
One thing I want to be adamant about is that as we advocate for the industry to do things like make greater use of technology, that at the agency we practice what we preach.