Matz Stresses Need for Capital Reform

NCUA chairman says younger generations provide biggest opportunity for CUs.

August 1, 2011

NCUA Board Chairman Debbie Matz reaffirmed her support for supplemental capital reform and balanced consolidation policies, and encouraged credit unions worldwide to reach the next generations of members.

She addressed 1,700 attendees during the World Council of Credit Unions' annual conference in Glasgow, Scotland.

“To keep the industry moving forward safely, we must look ahead to the challenges, risks, and opportunities of the future,” Matz said. “We need to think globally about how to prepare for uncertainty, reach new markets, and better serve consumers.”

She stressed the need for credit unions to hold sufficient levels of capital to ensure the credit union industry’s safety and soundness, and to soften the impact of unexpected market fluctuations and economic volatility.

Commenting on how the latest international capital standard, Basel III, may differ among nations, Matz voiced her support to give U.S. credit unions more leeway to raise statutory capital in two ways: letting qualifying credit unions to exclude zero-risk assets from their total assets and allowing qualifying credit unions to issue supplemental capital.

The adoption of legislation to accomplish these two objectives would ease restrictions that place downward pressure on the capital-to-assets ratio, which declines as deposits increase, Matz explained. “These solutions would give well-managed credit unions the flexibility to better manage capital-to-asset ratios under varying economic conditions.”

CU consolidation

Matz also noted the need to balance the benefits of credit union mergers against the concentration risks of such consolidations.

“While many believe ‘small’ means better service, consolidation does have some virtues,” she said. “It allows credit unions to better compete, broaden their geographic reach, and take advantage of economies of scale.”

Matz cited the need for consolidation regulations to not impede innovation. Improved member service can result from assuming certain levels of risk and expanding a credit union’s consumer base.

Challenging the industry to look at how innovation can increase membership, Matz noted historical trends for bringing financial services to underserved rural populations, and highlighted the need to apply community-building skills in burgeoning urban communities. She also mentioned

Matz stressed the need to revitalize the credit union movement through effective outreach to younger generations. “Perhaps the segments that present the biggest opportunity for credit unions are Generations X and Y.”

The average age of U.S. credit union members is 47—past the peak borrowing ages of 25 to 44. “This trend is also mirrored globally,” Matz said, “Ultimately this trend must be reversed if credit unions are to survive.”

To reach this group, credit unions must improve transactional mobility, she advised.

“Throughout the world, mobile banking is becoming more prevalent,” Matz said. “Younger consumers don’t just desire this service from financial institutions; they demand it. It is clear that to win over a new generation, credit unions will have to embrace these technologies. Credit unions will have to be creative to attract and retain the consumer base of tomorrow.”

Click here for the full text of Matz’s speech.