Bankers all wrong on NCUA's subordinated debt plan

Growth is not just important for a company — it is essential.

The National Credit Union Administration has approved a rule allowing credit unions to issue subordinated debt to grow in order to meet the needs of their members and local communities.

For those who believe in putting people first, particularly those with less financial means and opportunity, they should be applauding the agency’s actions — not condemning them.

For decades, credit unions have stood up for the consumers and certain needs that banks often ignored. Credit unions have worked tirelessly to help small businesses and the mom-and-pop shops on Main Street overcome the coronavirus pandemic. And these institutions have historically helped minorities and low-income communities better than banks.

Today, there are over three times as many credit unions designated as minority depository institutions as banks, according to a study by the National Association of Federally-Insured Credit Unions. Since 2010, credit unions expanded the share of mortgage lending to Black borrowers from 3.7% to 7.3%, and to Hispanic borrowers from 3.8% to 6.4%, based on 2019 HMDA data. At the same time, banks have cut their share of loans to Black borrowers from 4.6% to 4.4%, and to Hispanic borrowers from 5.9% to 5.3%.

More so, bank branches in rural areas have declined by 11% since 2012, which has contributed to the rise of so-called banking deserts in the United States. But according to the Federal Reserve, credit unions’ commitment to serving rural areas has added an important counterbalance to banks’ swift exit.

That being said, regulatory efforts to advance reforms that allow credit unions to grow would directly provide more relief and financial assistance to the same communities banks have left behind year after year, and crisis after crisis.

In the aftermath of the 2008 financial crisis, credit unions remain well capitalized, but growth requires investment. While well-off Wall Street bankers may be able to purchase a home or attain a college degree using only personal savings, the average American cannot. Likewise, credit unions cannot finance growth using only retained earnings — they need additional funding to help overcome financial limitations.

The NCUA’s approval of its subordinated debt rulemaking would provide the financial support needed to allow credit unions to grow to meet changing consumer needs and better prepare for future economic downturns.

More so, this rulemaking would not change credit unions’ not-for-profit, member-owned governance structure or their consumer-oriented creed. Our cooperative industry will always continue to pour every ounce of sweat equity and growth into providing higher rates on savings, better loan terms and quality service to our membership.

While bank lobbyists and other opponents will consistently find new ways to oppose credit union growth, policymakers must reject these worn-out temper tantrums. Until banks reform their corporate structures, redirect profits back to customers instead of shareholders and grant their customers voting rights, credit unions will remain starkly different.

The NCUA’s adoption of its subordinated debt rulemaking helps spur marketplace competition, consumer choice and the well-being of the nation’s local communities. The agency should be commended.