The most important issue facing the National Association of State Credit Union Supervisors this year will be the relationship between state-chartered and federally chartered credit unions, according to
Knight, who took the helm last month after
“If we restore a healthy dual chartering system, the framework between state and federal credit unions will balance. All credit unions benefit from the healthy competition between charters to innovate and enhance the value of the charter,” Knight said.
To this end, Knight will advocate for regulation and supervision that enforces safety and soundness while also recognizing technological advancements in the financial services ecosystem, he said.
Part of the challenge for state-chartered credit unions is that the National Credit Union Administration plays the role of both insurer and charterer for federal credit unions. This can often muddy the distinction between supervising safety and soundness and regulating a charter, Knight said.
“Blurring that line homogenizes the state and federal charters and hinders innovation. This weakens the entire credit union system,” he said.
That “blurring” of the NCUA’s functions can manifest itself through federal examiners misapplying federal credit union rules to a state charter on an insurance review, which can lead to a form of unnecessary preemption of state authority, he said.
Some credit unions choose a state charter because those regulators provide a more local perspective and tend to keep their focus on issues that impact the state's economy.
On the flip side, federal charters allow credit unions to take advantage of interstate branching, which isn’t available to all state charters.
“We will continue to consult and collaborate with NCUA on these issues to restore enhanced vitality to the dual chartering system,” Knight said.
NCUA board Chairman Todd Harper said the dual chartering system allows credit union management to exercise choice based on geographic concerns, regulatory structure and philosophy and powers. It fosters healthy competition and provides checks and balances, he said.
“Essential to making that system work is a strong partnership between the NCUA, state regulators and organizations like NASCUS," Harper said in an email. "Lucy Ito worked to strengthen that foundation, and I know that Brian Knight will continue to build on that work."
Knight, who joined NASCUS in 1998 as a director of regulatory affairs and was appointed as the organization’s first internal general counsel in 2007, agreed NASCUS and the NCUA need to have a strong working relationship.
“While we have our differing views on some issues, there is no question that NCUA, NASCUS and the state regulatory agencies agree completely on the need for effective and efficient supervision and a safe and sound credit union system," Knight said. "Our relationship has been on a positive trajectory that has benefitted the entire system and I anticipate that continuing in 2022."
Competitive innovation between the two charters in the past has led to the introduction of share draft accounts, expanded authority of credit union service organizations, better-calibrated commercial lending rules and fields of membership that provide more consumers the opportunity to join a credit union, according to Knight.
“That said, a healthy dual chartering system is not possible when state innovation is overly constrained by federal preemption. We need to carefully consider what NCUA rules applicable to state charters unduly preempt state authority and weaken the dual chartering system,” Knight said.
While only about 39% of credit unions in the U.S. were state chartered at the end of the third quarter of 2021, those organizations held more than 50% of assets in the system.
Benson Porter, president and CEO of the state-chartered Boeing Employees Credit Union in Tukwila, Washington, said NASCUS is an important voice championing the dual charter system and state-level innovation.
The modernization of credit union chartering and the field of membership are “critical” policy initiatives for the entire credit union movement, he said, and state credit unions in particular face increasing challenges as they grow to serve regional and national memberships and their communities.
“NASCUS is uniquely positioned as a forum for the state regulatory system interests and dual chartering system advocates to lean into these emerging issues of importance,” said Porter, head of the fourth-largest credit union in the U.S. by assets at $29.6 billion.
Knight will also have to contend with the increased pressure the banking industry has put on the
“The credit union system is a trusted and valued provider of financial services, and I am confident it will persevere and continue to evolve well into the future,” he said.
