From a systemic perspective, how does the credit union system define success? Or perhaps more appropriately, how should we define success? Credit unions may count higher net worth ratios, increased membership and measure myriad growth categories on balance sheets. A year with no liquidations, conservatorships or few involuntary mergers may be a benchmark for regulators. The system is greater, though, than the sum of these parts.
Looking at the numbers, the credit union system is healthy. Net worth ratios average above statutory and regulatory requirements, assets under supervision and membership continues to rise. However, as Credit Union Journal Publisher Frank Diekmann pointed out in his July 10 editorial, return on assets (ROA) is lagging.
Balance sheets and statistics paint an invaluable picture of crucial elements for the credit union system. However, in the long run, I believe success should be measured not solely by precise calculations, but rather by the system's ability to achieve larger goals.
The state credit union system is gathering for the NASCUS State System Summit this week in Dana Point, Calif. Regulators and credit union leadership will discuss how a sound and stable regulatory environment, preservation of dual chartering and cooperation and dialogue will ensure not only the continued success of the state credit union system, but the entire credit union system.
Sound & Stable Regulatory Environment
Regulators and credit unions have a symbiotic relationship. Through the examination process, regulators maintain a safe and sound system for credit unions to operate. Credit union regulation and examination should strive to mitigate unacceptable risk while allowing credit unions to manage the calculated risk inherent to operating as a financial institution. When this balance is lost, the system suffers. Over-regulation smothers credit union flexibility and innovation. Lax oversight may encourage mismanagement of risk and its obvious consequences.
State regulators continue to work diligently to maintain regulatory balance. For their part, credit unions must continue to support their regulatory agencies. It is short-sighted to believe that the system can be successful without healthy regulatory agencies working to maintain the necessary regulatory balance.
The credit union system faces serious challenges. Regulators continue to stretch annual budgets to meet growing compliance examination obligations, such as Bank Secrecy Act (BSA), anti-money laundering (AML) and Office of Foreign Assets Control (OFAC). Credit unions are striving for growth in an ever-increasingly competitive environment. Data collection, accountability and transparency, reliance on fee income, conversions to non-credit union status, field of membership issues, preemption and the future of small credit unions are just some of the issues the system faces. And tomorrow will bring new challenges. As a system, we need not always agree on all issues; however, we must not allow differences of opinion on solutions to become excuses for lack of dialogue.
On many of our challenges, there is ample room for cooperation. State and federal regulators must work together to avoid regulatory burden and unnecessary preemption that weakens the dual chartering system. Today's "progressive" CU regulation may very well be the future's standard practice.
State and federal credit unions must also work together to strengthen and support each other's charter to ensure meaningful charter choice remains the safety valve for the system. Large credit unions must understand the invaluable role smaller credit unions play, particularly in public policy debates. For their part, small credit unions surely understand the water carried on behalf of the system by the large credit unions.
An area for increased dialogue is the controversy surrounding credit union conversions. Credit unions, associations and even regulators have been shown to be susceptible to the fray. Certainly NASCUS has participated in its share of dialogue about its policy on conversions. NASCUS believes that the process for conversions should be determined by the chartering authority, which in the case of a state-chartered credit union would be the state regulator. (In some states, state charters are prohibited from converting to non credit union status.)
It is understandable that this issue evokes strong emotion. But, the system may be better served by committing to more thoughtful internal dialogue on issues driving conversions and to continue working to improve the credit union charter.
Why Cooperation Matters
Cooperation is also important as the credit union system documents the credit union mission. As a system, both regulators and credit unions have responsibilities in this process. NASCUS state regulators are currently fulfilling a Congressional request for state credit union information, and NCUA is gathering data on federal credit unions. It is the regulators' role to speak to the safety and soundness of the credit union system and serve as unbiased filters of information. Credit unions and their associations can use that information to complete the true picture of the credit union system and advocate on behalf of the system.
As NASCUS and state system leaders gather at the Summit, these issues will certainly be discussed in sessions and dialogue among attendees. NASCUS looks forward to continuing the cooperation to measure and further success in the credit union system as we meet the system challenges of today and tomorrow.
Mary Martha Fortney is president of the National Association of State Credit Union Supervisors and can be reached at marymartha<at>nascus.org.