Given that I’ve had plenty of past critiques of financial regulators in previous roles in my career, I thought it would be prudent to report on my first year as a board member of the National Credit Union Administration, the federal regulator and insurer of the nation's nearly 5,000 credit unions.
As a board member, my priorities stem from a problem endemic to all regulators: We are a monopoly, and monopolies, absent systemic reforms, produce mediocre products at high prices. This statement is true of public and private monopolies alike. I took the NCUA job partly to see if I could mitigate the often-unintended harm regulators do to those who pay their salaries. The good news is that NCUA staff and my fellow board members have been terrific partners in approving transparency and feedback initiatives, fostering innovation and chartering new credit unions.
Here’s where things stand:
On the issues of transparency and feedback: Regulators and those they regulate often have very different views on how well the regulator is doing. Thus, I couldn’t be more pleased to report that the NCUA is now the first financial regulator to develop Uber-style feedback forms after each exam that are filled out by both the credit union and its examiner. We’re still in the pilot stage, but the concept should be familiar to most Americans. One key benefit is that the survey will immediately alert us if something is “off” whenever the examiner responds differently than the credit union. Secondly, the survey lets the NCUA communicate its priorities. For example, one reason ride-hailing vehicles are usually cleaner than taxis is obviously because firms like Uber and Lyft put “cleanliness” at the top of each review. Similarly, NCUA’s pilot asks about common pitfalls of financial regulation, such as “was everything put in writing?”
We’ve also made an effort to record more exit exams. The NCUA has always allowed recording (provided the NCUA gets a copy and the examiner is aware), but credit unions were unaware or reluctant to do so. A recording is the ultimate transparency measure and eliminates many problems because we all tend to act better when things are recorded. Plus, the recordings are just flat-out useful, particularly for a new examiner or CEO of a credit union.
When it comes to fostering innovation, it’s important that regulators let innovation happen, especially around blockchain and cryptocurrency. We don’t want credit unions to go the way of Blockbuster Video because their regulator slowed down innovation. Thus, guidance on digital assets is on the way. Step one was just accomplished with recent guidance on partnerships that allow credit union members to trade cryptocurrency. The key point here is that nothing about these partnerships broke any existing NCUA rules. Yet many credit unions were reticent to provide these services because they were concerned about what their regulator would think. That was a problem. What’s the point of regulations if adhering to them doesn’t put you in the clear?
The NCUA has also made it easier to start new credit unions. We can’t credibly talk about diversity, equity and inclusion if underserved groups are prevented from forming financial cooperatives. As my fellow board member Rodney Hood says, “Financial inclusion is the civil rights issue of our time.” There’s still work to be done, but for my first year, we’ve done enough thus far to call this a “win” (for now). The NCUA just added additional resources to support small credit unions, with the goal of keeping those credit unions alive instead of pushing them into mergers. We also have a provisional charter in the works, which will allow a new credit union to open its doors with a lighter regulatory burden.
