New NCUA chief puts diversity, cybersecurity atop priority list
Rodney Hood is getting a second chance to make a first impression.
Hood, who served on the National Credit Union Administration's board from 2005 to 2010, is now the agency's chairman. In his new role, Hood has spent much of the first four months of his four-year term addressing unfinished business.
In June, he shepherded a plan to delay implementation of the contentious risk-based capital regulation by two years, until January 2022. A month later, Hood helped push through a controversial proposal increasing the threshold for appraisals on commercial real estate properties from $250,000 to $1 million —twice the threshold for banks.
The NCUA has been debating risk-based capital since 2012. The appraisal rule was first proposed in September 2018, seven months before Hood and Todd Harper joined the NCUA board. Banking groups registered strong opposition to the risk-based capital delay and the appraisal plan.
With the board’s to-do box emptied, Hood can begin to leave his own stamp on the agency and the $1.5 trillion credit union industry. In a recent interview, he discussed plans to strengthen minority depository institution (MDI) and community development financial institution (CDFI) credit unions, spur innovation, bolster capital and protect against cyber threats.
For Hood, who was corporate responsibility manager at JPMorgan Chase before rejoining the NCUA, extending financial services to minority communities will be a special priority that he intends to highlight by convening a high-level meeting with MDI and CDFI credit unions in Washington next year.
It comes at a time when banking groups have questioned credit unions’ traditional commitment to serving people of modest means.
The American Bankers Association released a detailed study in late June claiming to show a shift in the industry’s focus to middle- and upper-class households, while calling for the NCUA's inspector general to conduct a “top-to-bottom assessment” of how well credit unions follow their statutory mission.
Hood's hint that new capital regulation may be unveiled soon could lead to a new round of conflict with banks, who are resisting a plan, introduced in May, that would let credit unions accept more deposits from nonmembers.
For his part, Hood doesn't seem overly concerned about banker resistance or the possibility of a divided board. In fact, he sounded eager to get started translating his priority list into action items. Here’s an edited transcript of the conversation.
You returned to NCUA a decade after your first term ended. Were there any changes that struck you in a good or bad way?
RODNEY HOOD: I’m still seeing that enthusiasm. I’m still seeing that love of credit unions, and it’s unique. You don’t typically hear people tell you how much they love other institutions, but they come up to me and tell me they love their credit union and how much it means to them. Maybe that isn’t a surprise. It’s just interesting to see, after a decade, that same energy and verve.
Within NCUA, did you notice any process improvements?
Within the agency there’s a continual quest to improve processes. I’m seeing more of the use of technology.
I’m very pleased to see us using technology to help with the examination process. There are improvements that are taking place, getting away from some of the antiquated systems that our examiners and supervisory folks have been using, moving now into creating opportunities to streamline the process.
Also, you’re seeing modernization in play with the call reports credit unions are filling out.
We’re seeing game-changing things coming into the industry and our agency that will help credit unions. I’m really happy about the use of technology. These are things that simplify the operating standards for the credit unions, if they can have efficient modernized systems to use, whether it be for exams or the call reports.
It’s interesting you mentioned exams. One of the ways NCUA is using technology is making much of that process virtual.
Exactly. That is something that is really resonating with a lot with the regulated entities.
The examiner does not have to spend a lot of real time at the credit union. It doesn’t disrupt credit union operations. It means they can now sit [off-site] and have information in real time. Those are the things I’m really pleased we’re implementing here.
From what I’ve been told, we are one of the first [Financial Institutions Reform, Recovery, and Enforcement Act] agencies to embrace virtual technology. When we officially roll out the replacement to [the current exam system], I’ve invited all the other financial regulators to see it in action so they too can maybe glean insight. If they want to also embrace this technology, we’ll be there for them.
I’m excited. I’m a champion for it, but when you roll something like this out, you have to realize it also requires training the examiners and all of the groups here internally in how to use it. I will be trying to make it to many of those training sessions just to underscore my support for them embracing technology and moving forward with 21st-century solutions to help conduct examinations.
Do you have an idea for when you’d like to see that happen?
I don’t have a timeline. Having been here since April, I know this is something that’s been underway for quite some time. I do know it’s going to be happening sooner rather than later in terms of a time frame.
From your recent statements, it seems like working with minority depository institutions is one of your priorities.
Minority depository [credit unions] are critically important to the lifeblood of overlooked communities.
There are many communities where a lot of the brick-and-mortar institutions that provide capital access, they’re no longer there. It’s those minority depositories that are there to help communities of color have access to affordable financial products. A lot of my background has been in helping in community development, providing affordable access to financial services.
The MDIs in the credit union space are uniquely qualified to do that. They are there for their member-owners. Almost one in 10 credit unions are classified as minority depository institutions. They’re on the ground lending, they’re doing outreach, they’re doing financial counseling.
I want to be responsive to demographic shifts. The minority population is expected to grow exponentially over the next 20 or 30 years. Minority depositories can do more to make sure these folks are coming into the financial mainstream, that they’re learning about products they can use to build credit and have access to a full panoply of services.
Also, I’m looking at MDIs as a pipeline for future workers. When we look at the workplace today, many communities of color still do not have adequate representation when we look at financial services as a career path. So, I’m looking at encouraging MDIs to hire folks that resemble the communities we serve and be responsive to demographic shifts.
Just as I make that desire known to the external MDIs, I’m making that same request known to our folks here internally. I’m looking at them to be responsive to demographic shifts, making sure we’re creating opportunities for minority suppliers, minority business owners to do business with the agency, also tasking our folks with recruiting [minority students].
It’s a whole ecosystem I’m looking as it relates to MDIs. It’s a focal point because one, it’s good business, two, it's being responsive and, three, if we don’t empower and enable those MDIs to grow, it means their communities are being left vulnerable to payday lenders.
One of my efforts is to look at how can we bring even more opportunities for the creation of de novo MDIs. It’s something I care about. My whole background has been helping overlooked communities.
Another thing I’m looking to announcing soon, recognizing the significance of MDIs, recognizing the significance of low-income-designated credit unions, I intend to have a roundtable for MDIs and CDFIs in Washington in early 2020. It will involve talking about mentoring, talking about relationships, opportunities for them to grow and thrive and serve their members.
I think we can serve overlooked communities and still be mindful of safety and soundness. The two aren’t mutually exclusive.
What are your other priorities?
If there's an issue that keeps me up at night, it’s cybersecurity. I not only care about this. I’m putting it into action. One of my first orders of business was to create a new job here.
I now have a senior adviser for cybersecurity [after hiring Johnny Davis Jr.]. He comes from the Department of Defense. He spent some time in the Pentagon. He's going to be interfacing with our credit unions, interfacing with our examiners. He’s going to be visible. I’ve asked him to write a quarterly newsletter that we’ll be sending out to credit unions.
Innovation is another area that’s a priority. I believe there is innovation that’s needed for credit unions to embrace fintech. We want them to be able to use those tools and resources to serve not just overlooked members but all members who want to be served using 21st-century technology.
As a regulator, I want to make sure I’m providing a clear framework for credit unions to know their regulator is encouraging them to embrace fintech, but to do it responsibly. Make sure you’re mindful of protecting data. Make sure you’re mindful that as you embrace the technology you have to be equally mindful of cybersecurity.
As I build out my chairmanship, I would like perhaps even create a new office of innovation and access … a whole ecosystem around the use of technology and fintech to help provide solutions and to meet today’s member-owners in the manner they’d like to have their financial needs met.
Where does capital fit in?
As a safety-and-soundness regulator, I'd be derelict if I didn’t think about capital as one of my major priorities. We’re sitting right now at 11.3% net worth collectively.
I’m working with agency staff, senior leaders and our board members. We’re continually evaluating opportunities to look at capital, to ensure it remains adequate. A warning sign would be if the industry has net worth of less than 7%. We are more than 400 basis points above the capital adequacy levels we as a board have set. At the end of the day, we need to make sure we’re looking at levels of capital that are commensurate with the level of risk that’s within our credit union system.
While I don’t have a definitive response, just know that we’re continually evaluating opportunities. There will be other things that will come before the board during my chairmanship. I'd be derelict if I didn’t continue to look at new opportunities. When you’re sitting at a well-capitalized level, as we are today, that’s what gives us the opportunity to study and evaluate and bring more tools such as nonmember deposits or other things like that. You’ll be seeing some other things, who knows, maybe sooner than later.
The last two board meetings, there’s been disagreement about the pace of implementing risk-based capital and appraisals. How do you address that? Is there any cause for concern that some larger goals may be sidetracked by conflict?
There have been a few issues that have required 2-1 votes, but at the end of the day, I think reasonable people can disagree. The thing that matters most to me is, has every voice been heard? Have all of our board members had an opportunity to share their questions and share their concerns, both when we have private briefings with staff and then when we come before the public? We all come from such different viewpoints. That’s what makes for a robust, engaging board meeting.
What unites us is the fact that we all are committed to ensuring the safety and soundness of the financial institutions we’ve been entrusted to oversee, that’s 5,300 credit unions, 117 million members with those assets of more than $1.5 trillion. While we may have differing views and approaches, there’s no way for anyone to say we don’t care about credit unions.