NASCUS Comments on NCUA 2022-2026 Draft Strategic Plan

January 24, 2022

Melane Conyers-Ausbrooks
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314

Re: NASCUS Comments on NCUA 2022-2026 Draft Strategic Plan (Docket No. NCUA-2021-0100)

Dear Secretary Conyers-Ausbrooks:

The National Association of State Credit Union Supervisors (“NASCUS”)[1] submits this letter in response to the National Credit Union Administration’s (“NCUA”) request for comments on Docket No. NCUA-2021-0100, 2022-2026 Draft Strategic Plan.[2] NASCUS welcomes the NCUA Board’s transparency with respect to the agency’s strategic planning.

Risks Confronting the Credit Union System

The 2022-2026 Draft Strategic Plan (“Draft Plan”) provides a wide-ranging overview of both near-term and longer-term risks confronting the credit union system. Ongoing pandemic-related disruptions, interest rate risk, concentration risk, demographic challenges, and emerging technologies are among the risks examined in the Draft Plan. NASCUS agrees the risks identified by NCUA will present assorted challenges to the credit union system over the Draft Strategic Plan’s planning horizon and beyond. However, several issues noted in the Draft Plan’s risk analysis warrant additional comment.

Industry Consolidation

NASCUS shares NCUA’s concerns regarding the implications of continued system consolidation. Nevertheless, when contemplating a supervisory response to system consolidation, it is important to distinguish between appropriate regulatory and supervisory efforts to create a viable environment for credit unions and supervisory initiatives to hinder voluntary market consolidation. Although the pace of system consolidation deserves attention, a measure of voluntary and strategic consolidation can strengthen the system as well.

Excessive regulatory burden can also drive some credit unions to seek a merger. It can also weaken the dual chartering system. As state autonomy is curbed by preemption, the credit union system becomes homogenized, eliminating possible alternatives to merger for overburdened credit unions. Any regulations that are going to be preemptive must be precisely calibrated to avoid inappropriately hindering effective state supervision. Minimizing preemption of state regulatory and supervisory authority could materially mitigate some of the pressures that drive credit union mergers.

Climate Related Financial Risk

NASCUS has been working to develop an understanding of the climate-related risks to the financial services sector. As NCUA notes in the Draft Plan, these risks may derive from climate change related effects on industries as well as shifting consumer preferences. NCUA’s interest in considering climate-related risks in the Draft Plan is understandable.

However, consideration of climate risks should not manifest itself as discouraging service to entire communities and markets. NASCUS has concerns that NCUA comments regarding climate change could easily be misconstrued as suggesting credit unions should de-risk agricultural communities and members. Depriving farming communities of local financial services and discouraging agricultural lending is not sound policy and runs contrary to NCUA’s self-stated second strategic goal of improving the financial well-being of individuals and communities through access to affordable and equitable financial products and services. In many cases, agricultural communities have limited access to financial institutions and fewer commercial and consumer credit choices. Encouraging credit unions to de-risk these communities would only further diminish their already limited options. In addition, for some small farms, the prospect of climate change is precisely the reason they need access to commercial credit to facilitate transition to climate-resistant crops

Strategic Goal 1: Ensure a safe, sound, and viable system of cooperative credit that protects consumers

NASCUS agrees with NCUA that the agency should maintain a financially sound share insurance fund (“SIF”) to protect credit union members from unexpected losses in the credit unions system. However, we remain concerned that too often it appears that the SIF is subsidizing NCUA’s Title I responsibilities rather than Title I activities benefiting the SIF as contemplated by the Federal Credit Union Act.

Noting that credit unions are becoming larger and more complex, NCUA states that “[g]rowth and innovation raise risks to credit union member-owners and the Share Insurance Fund.” In some cases, a credit union’s growth, or increased complexity, might mitigate risk to the insurance fund through more robust compliance, increased enterprise risk management sophistication, and more cybersecurity resources. We recommend NCUA include qualifying language that acknowledges the possibility of reduced risk resulting from growth.

NASCUS supports NCUA’s strategies for achieving Strategic Goal 1, particularly strategies related to accepting feedback from credit union stakeholders and working with state credit union regulatory agencies.

Strategic Goal 2: Improve the financial well-being of individuals and communities through access to affordable and equitable financial products and services

NASCUS supports NCUA’s goals of improving individuals’ financial well-being, expanding consumer access to credit union services, and supporting minority and low-income credit unions. The strategies as presented appear well-calibrated to achieve the stated strategic objectives.

NASCUS reiterates that supporting financial services for agriculturally based communities is consistent with Strategic Goal 2. We also believe that strengthening the dual chartering system will spur innovation, strengthen the credit union system, and benefit members.

Strategic Objective 2.2 is a critically important priority. NASCUS shares the NCUA’s interest in expanding safe and affordable financial services and welcomes the news that the NCUA will streamline its new credit union chartering process. We applaud the inclusion of deliberate strategies to improve this process and foster greater awareness of chartering opportunities. NCUA should also take steps to ensure its processes do not inhibit state chartering of new credit unions. NCUA should bifurcate its charter application and share insurance application process to make it easier for prospective credit union founders to understand the state chartering and NCUA share insurance requirements.

Strategic Goal 3: Maximize organizational performance to enable mission success

The Draft Plan acknowledges the need to maximize agency performance by focusing on staff training and leadership development, committing to diversity, implementing innovative technology, and identifying efficiencies in supervision. These laudable goals are shared by many of the state credit union regulatory agencies. NASCUS encourages NCUA to continue working with state regulators to develop the supervision program of the future and to ensure examiner training is robust and timely.

Thank you for the opportunity to provide comments on NCUA’s 2022-2026 Draft Strategic Plan. State credit unions make up nearly one-third of the credit unions and half of the assets and members in the credit union system. For most state credit unions, NCUA’s supervision relies exclusively on the work of state regulators and their dedicated exam teams. Given NCUA’s substantial reliance on state agencies, it makes sense for NCUA to consult, cooperate, and coordinate with the states as it implements its strategic plan when finalized. NASCUS remains committed to working with NCUA to facilitate its working relationships with the state regulators and the state system. We would be happy to discuss our comments further at your convenience.

Sincerely,

Brian Knight
President & CEO

[1] NASCUS is the professional association of the nation’s 45 state credit union regulatory agencies that charter and supervise 1,975 state credit unions. NASCUS membership includes state regulatory agencies, state chartered and federally chartered credit unions, and other important stakeholders in the state system. State chartered credit unions hold over half of the $2.01 trillion assets in the credit union system and are proud to represent nearly half of the 129 million credit union members.

[2] “Request for Comment Regarding National Credit Union Administration Draft Strategic Plan 2022–2026” 86 Fed. Reg. 67090 (November 24, 2021).