September 14, 2023
In the ever-evolving world of finance, the ability to adapt to change and seize opportunities amid chaos is crucial. In a recent episode of “22 Minutes in Lending,” Dan Berger, President and CEO of the National Association of Federal Credit Unions (NAFCU), shared valuable insights into the challenges and opportunities facing credit unions today. With over three decades of experience in the industry, Berger’s perspective sheds light on how despite credit union challenges there are opportunities in a changing financial landscape.
Operating in Chaos
The financial world has recently witnessed a whirlwind of changes: rising interest rates, bank failures, increased regulatory scrutiny, and intense competition from both traditional banks and emerging fintech startups. These challenges might seem daunting, but as Berger points out, within chaos lies opportunity.
Challenges Faced by Credit Unions
1. Regulatory Challenges: The Consumer Financial Protection Bureau (CFPB) has been actively pursuing regulatory actions, potentially impacting credit unions by regulating fees and expanding examination powers. Berger discusses the need to navigate these regulatory challenges effectively.
2. Liquidity Management: The rise in interest rates has led to a surge in deposit competition. Credit unions must adapt to changing liquidity needs while maintaining their focus on safety and soundness.
3. Competitive Landscape: Competition is not limited to traditional banks; credit unions now face competition from fintech companies and even other credit unions, often driven by innovative online platforms.
Managing Chaos with Partnerships
To tackle these challenges effectively, Berger emphasizes the importance of partnerships with organizations like LendKey and other service providers. Such partnerships enable credit unions to devise strategies to address the challenges and seize opportunities in this dynamic environment.
Insured Deposits and Risk Management
Credit unions have an advantage when it comes to insured deposits, with the vast majority being insured. However, concentration risk can still be a concern, as seen in the case of recent bank failures. Proper risk management is essential.
Legislative Opportunities vs. Regulatory Overreach
Berger discusses the challenges posed by legislative stalemates and regulatory overreach. While there is a need to defend against regulations like the Durbin Amendment 2.0, he also emphasizes the importance of legislative initiatives that empower credit unions to serve underserved communities, especially in rural areas.
Securitization and Credit Unions
The conversation turns to securitization, a financial tool that could benefit credit unions. Berger discusses the 2017 NCUA opinion letter that allowed credit unions to participate in securitization, albeit with limited adoption. He highlights the need for credit unions to become more comfortable with securitization and potentially partner with organizations like LendKey to leverage this tool effectively.
CUSO Rule and Expanding Credit Union Lending Abilities
Berger shares insights into the 2021 CUSO rule, which expands credit unions’ lending abilities through Credit Union Service Organizations (CUSOs). This rule has the potential to facilitate securitization and syndication, allowing credit unions to work together more effectively.
Loan Participations and Eligible Obligations
The discussion touches on loan participations, an important risk-sharing mechanism for credit unions. Berger emphasizes the need for permanent regulatory relief to encourage more credit unions to participate in loan participations, reducing the risk of a credit crunch during economic volatility.
The Future of Credit Unions and Fintech
Berger concludes the conversation by addressing the evolving relationship between credit unions and fintech companies. He highlights the importance of partnerships with fintechs to stay competitive in the digital landscape while advocating for a level playing field in terms of regulation.
Dan Berger’s insights reveal that credit unions can not only survive but thrive in a rapidly changing financial landscape. By leveraging partnerships, exploring securitization, and advocating for regulatory fairness, credit unions can navigate chaos and seize opportunities, ensuring their continued relevance and success in the evolving financial sector.
To listen to Dan’s episode of 22 Minutes in Lending click here.