“Wake Up” to regulatory favoritism for largest credit unions
By Brad Bolton
While Main Street lenders have been helping their communities through the coronavirus pandemic, the federal credit union regulator has used the crisis to benefit the largest credit unions — at the expense of community banks and small credit unions alike. The latest action by the National Credit Union Administration demands congressional oversight, and those demands should be made by credit unions themselves.
Credit union executives might not be in the habit of listening to community bankers, but we have a long history of standing up to too-big-to-fail institutions — and the facts speak for themselves. The NCUA is acting on behalf of a select handful of nationwide credit unions obsessed with increasing their assets by designating these entities as low-income institutions and thereby expanding their powers.
The NCUA’s sudden change to its low-income methodology benefits neither low-income Americans nor military personnel, who already qualify for credit union membership. Rather, the change — made amid a global pandemic without a formal rulemaking process — frees the largest credit unions to raise funds from outside investors, make unrestricted commercial loans, and accept non-member deposits. In other words, these mega-institutions may operate like full-service banks on a national scale while continuing to pose as traditional credit unions, undermining credit unions like yours. Think about it: with the stroke of a pen, the NCUA essentially created a $125 billion-asset regional bank.
This gift to the riskiest entities the NCUA is charged with regulating is one piece of a broadly expansionist agenda driven by trade associations that claim to represent the entire credit union industry. The agenda — which includes expanded business lending, loan-maturity extensions, lower capital standards, and more — favors growth-oriented entities while increasing risks to the share insurance that local credit unions fund.
Further, these actions raise questions about the credit union model itself, which Congress established to promote not-for-profit, tax-exempt institutions that serve people of modest means with a “common bond” of occupation or association. Navy Federal has expanded rapidly to more than $125 billion in assets, and PenFed has partnered with Goldman Sachs to provide a nearly $1 billion loan to finance a luxury mixed-use real estate development in the nation’s capital while advertising that “anyone can join.” These institutions contrast sharply with the credit union industry’s founding purpose — and those entities that continue to live by it.
For community bankers, holding too-big-to-fail institutions’ feet to the fire starts with enhanced oversight. If a federal regulator won’t stand up to the largest and riskiest financial institutions it is charged with overseeing — or will even actively do their bidding without the benefit of public comment — Congress must exert its oversight authority to ensure agencies promote equitable regulation and a safe and sound financial system.
Now is the time for small credit unions to urge Congress to hold hearings on the NCUA’s recent actions. Only by demanding that lawmakers check this runaway regulator’s expansionist agenda can we rein in the explosive and risky growth of the largest credit unions — and the harm it poses to local institutions and communities nationwide.
Brad Bolton is president, CEO and senior lender at $152 million-asset Community Spirit Bank in Red Bay, Ala., and vice chairman of the Independent Community Bankers of America.
