Regulations protect but can also enable innovation

The analogy always holds true: the same old thinking equals the same old results. The financial markets and expectations of the financial consumer have vastly changed in the past 30 years. Innovations in technology, 24-hour news cycles and access to world-wide markets have created an enormous expectation from today’s consumer. Consumers of all ages have come to expect fast, simple and efficient solutions for all their financial needs.

Has the credit union movement kept pace?

Granted, credit unions provided the lion’s share of lending through the crisis, especially to Main Street, but the effects of historically low interest rates and constantly compressing margins during this period made it very difficult to invest in future and forward-looking initiatives. With the absence of new products and platforms that could mitigate the earning compression and provide the means to improve earnings, there has been the tendency to cling to the same old way of conducting business.

And it has led to the same old results.

For example, the interpretation of the Federal Credit Union Act that drives NCUA regulations has remained relatively consistent throughout the past 30 years. Until recently, it has been the general practice to interpret the FCUA and NCUA regulations to determine what is not permissible for credit unions, rather than thoroughly examining the regulations, and applying them to determine what is permissible.

Only recently have we seen NCUA leadership begin to think more broadly about the industry and how the FCUA should be interpreted in 2017. Clear examples of this expanded thinking have resulted in revised regulations concerning field of membership, member business loans and loan securitizations, along with a renewed focus on secondary capital. As pointed out in the recent guidance on loan securitizations, “a FCU may exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it is incorporated.” In the course of expanding the powers of FCUs, Congress has repeatedly taken the opportunity to encourage the NCUA to be flexible, innovative and responsive in meeting the needs of credit unions and their members.

Congress acknowledged the difficulty in regulating contemporary financial institutions within the framework of an Act that has on a continuing basis required major updating by means of regulation.

The FCUA and NCUA regulations provide for the creation of an abundance of new permissible products, platforms and services. By eliminating the same old thinking and aversion to change, CMS has taken steps to originate new funding, asset and capital products that are truly relevant to success, and much needed by the credit union movement. We take the approach that regulations are there to protect, but also enable the means to create and provide new financial facilities that have valuable benefits for credit unions, if you are willing to do the work and have the expertise to understand the application.

We continually discard the same old thinking and are driven to develop new, necessary and valuable tools and opportunities that are requirements for the credit union movement to be relevant and successful. The results of implementing tools like non-member funding and secondary capital are quite simple; expanded ROA and ROE lead to increased earnings, which lead to the ability to provide more member services, which lead to higher member retention and increased member growth.