WEBVTT NOTE This file was generated by Descript 00:00:00.470 --> 00:00:02.340 Samantha: Hello, this is Samantha Shares. 00:00:02.830 --> 00:00:07.740 This episode covers the N C U A's new and final succession planning regulation. 00:00:08.300 --> 00:00:10.740 This is in the N C U A Boards own words. 00:00:11.414 --> 00:00:14.644 This podcast is educational and is not legal advice. 00:00:15.134 --> 00:00:19.174 We are sponsored by Credit Union Exam Solutions Incorporated, whose 00:00:19.174 --> 00:00:22.264 team has over two hundred and Forty years of National Credit 00:00:22.264 --> 00:00:24.174 Union Administration experience. 00:00:24.614 --> 00:00:28.254 We assist our clients with N C U A so they save time and money. 00:00:28.674 --> 00:00:32.594 If you are worried about a recent, upcoming or in process N C U A 00:00:32.594 --> 00:00:37.054 examination, reach out to learn how they can assist at Mark Treichel DOT COM. 00:00:37.474 --> 00:00:41.834 Also check out our other podcast called With Flying Colors where we provide tips 00:00:41.834 --> 00:00:44.414 on how to achieve success with N C U A. 00:00:45.115 --> 00:00:45.975 And now the Board 00:00:46.362 --> 00:00:49.112 The first item of business today is the final rules succession 00:00:49.112 --> 00:00:53.842 planning part 701 and 741 staff presenting our John Barry Jr. 00:00:54.112 --> 00:00:59.412 policy officer, office of examination and insurance and Ariel Pereira, senior 00:00:59.412 --> 00:01:01.212 staff attorney, office of general counsel. 00:01:01.667 --> 00:01:04.817 Joining John and Ariel at the table to answer any questions is 00:01:04.817 --> 00:01:08.537 Kelly Lay, Director of the Office of Examination and Insurance. 00:01:09.067 --> 00:01:10.997 Good morning to all three of you. 00:01:11.047 --> 00:01:13.997 John, you're a pro at this now, so this should be fine. 00:01:14.387 --> 00:01:16.887 Uh, please begin whenever the two of you are ready. 00:01:17.757 --> 00:01:18.687 Is the webcast on? 00:01:18.687 --> 00:01:25.177 Um, good morning, Chairman Harper, Vice Chairman Hoffman, Board Member Otzka. 00:01:25.597 --> 00:01:28.497 My colleagues and I are here to present for your consideration a final 00:01:28.497 --> 00:01:30.217 rule entitled Succession Planning. 00:01:30.787 --> 00:01:36.237 The final rule follows the publication of July 25th, 2024 proposed rule and takes 00:01:36.237 --> 00:01:40.097 into consideration the public comments received in response to the proposal. 00:01:41.507 --> 00:01:45.697 The final rule applies to all consumer FICUs, including federally insured 00:01:45.857 --> 00:01:47.187 state chartered credit unions. 00:01:47.197 --> 00:01:47.257 Thank you. 00:01:47.737 --> 00:01:51.737 However, to the extent that a FSCU is subject to a state statutory or 00:01:51.737 --> 00:01:56.037 regulatory requirement that conflicts with the final rule, the NCOA 00:01:56.137 --> 00:01:57.617 will defer the state requirement. 00:01:58.627 --> 00:02:03.787 The comment period on the proposed rule closed on September 23rd, 2024. 00:02:04.257 --> 00:02:07.507 The NCOA received 187 comments in response. 00:02:08.117 --> 00:02:11.657 Comments were received from individual FICUs, state and regional credit 00:02:11.657 --> 00:02:15.667 union organizations, credit union trade organizations, consulting 00:02:15.667 --> 00:02:17.437 providers, and individuals. 00:02:17.937 --> 00:02:21.857 Approximately 116 of the comments were form letters 00:02:21.957 --> 00:02:23.437 with nearly identical wording. 00:02:24.087 --> 00:02:27.437 The issues raised in the form letters were similar to those made 00:02:27.437 --> 00:02:29.227 in many of the other comment letters. 00:02:30.257 --> 00:02:32.667 The majority of commenters acknowledged the importance of 00:02:32.667 --> 00:02:35.877 succession planning and agreed with the intent of the proposed rule. 00:02:36.427 --> 00:02:39.357 However, they also raised questions and issues regarding the rule. 00:02:39.877 --> 00:02:42.367 These are addressed in the preamble to the final rule. 00:02:43.247 --> 00:02:46.597 In general, the changes made in response to comment increased the 00:02:46.597 --> 00:02:49.947 flexibility of credit unions in complying with the new requirements. 00:02:50.387 --> 00:02:54.187 Among other changes, the final rule makes the following changes to the proposal. 00:02:55.012 --> 00:02:59.092 First, the final rule provides that a board must review its succession 00:02:59.102 --> 00:03:01.372 plan no less than every 24 months. 00:03:01.832 --> 00:03:04.522 This is opposed to the annual review that would have been 00:03:04.522 --> 00:03:06.162 required under the proposed rule. 00:03:06.992 --> 00:03:10.882 Further, loan officers, supervisory committee members, and credit committee 00:03:10.882 --> 00:03:14.512 members have been removed from the list of FICU officials that must 00:03:14.512 --> 00:03:16.292 be covered by the succession plans. 00:03:17.152 --> 00:03:21.502 The final rule also no longer specifies that a succession plan must address 00:03:21.542 --> 00:03:26.432 unexpected or temporary vacancies and does not specify required contents 00:03:26.662 --> 00:03:28.642 for FIQ's recruitment strategy. 00:03:29.582 --> 00:03:32.642 The final rule no longer requires the deviations from approved 00:03:32.652 --> 00:03:36.042 succession plans to be documented in the board's meeting minutes. 00:03:36.702 --> 00:03:39.712 Finally, the rule makes several other technical, non substantive 00:03:39.712 --> 00:03:41.412 edits for purposes of clarity. 00:03:42.342 --> 00:03:46.052 To help ensure that FIQs have the necessary time to develop their succession 00:03:46.052 --> 00:03:51.672 plans, the final rule provides for an effective date of January 1st, 2026. 00:03:52.392 --> 00:03:56.242 I will now turn it over to John, who will discuss the specifics of the final rule. 00:03:56.592 --> 00:03:57.252 Thank you, Ariel. 00:03:57.512 --> 00:04:00.612 Good morning, Chairman Harper, Vice Chairman Hoffman, and Board Member Otsuka. 00:04:01.142 --> 00:04:04.232 The final rule requires that a federally insured accredited board of directors 00:04:04.232 --> 00:04:05.752 establish a written succession plan. 00:04:06.027 --> 00:04:07.557 that addresses specified positions. 00:04:08.077 --> 00:04:11.437 At a minimum, the succession plan must cover members of the Board of Directors, 00:04:11.727 --> 00:04:14.777 management officials and assistant management officials, senior executive 00:04:14.777 --> 00:04:17.897 officers, and any other personnel the Crediting's Board of Directors deems 00:04:17.897 --> 00:04:21.557 critical given the crediting's size, complexity, and risk of operations. 00:04:21.997 --> 00:04:25.097 As Ariel noted, the list of covered officials has been revised 00:04:25.117 --> 00:04:26.437 in response to public comment. 00:04:27.027 --> 00:04:30.467 Supervisory committee members, credit committee members, and loan officers 00:04:30.467 --> 00:04:33.267 were removed from the list of personnel required to be covered in a federally 00:04:33.267 --> 00:04:34.447 insured crediting succession plan. 00:04:35.162 --> 00:04:38.052 The final rule also requires the succession plan to address the 00:04:38.052 --> 00:04:40.852 crediting strategy for recruiting candidates with the potential to 00:04:40.852 --> 00:04:42.442 assume each of the covered positions. 00:04:42.912 --> 00:04:46.462 The strategy must consider how the selection and the diversity of skills 00:04:46.462 --> 00:04:49.812 among the employees covered by the succession plan collectively and 00:04:49.812 --> 00:04:52.472 individually promotes the safe and sound operation of the credit union. 00:04:53.212 --> 00:04:56.402 The Board of Directors will be required to review the succession plan in accordance 00:04:56.402 --> 00:04:59.732 with the schedule it establishes, but no less than every 24 months. 00:05:00.842 --> 00:05:03.672 Although the Board of Directors is expected to adhere to its succession plan. 00:05:04.152 --> 00:05:07.802 The NQA recognizes that circumstances might require changes to the plan 00:05:07.852 --> 00:05:09.912 when filling specific vacancies. 00:05:10.262 --> 00:05:13.842 However, unlike in the proposed rule, the Board of Directors no longer 00:05:13.842 --> 00:05:16.842 is required to approve deviations from their approved succession plan 00:05:17.072 --> 00:05:19.982 or document the rationale for the deviation in their meeting minutes. 00:05:20.942 --> 00:05:23.632 The final rule also amends section 701. 00:05:23.632 --> 00:05:24.272 4b. 00:05:24.272 --> 00:05:27.872 3, which contains education requirements for directors of federal credit unions. 00:05:28.472 --> 00:05:31.412 The rule requires that directors be familiar with the succession plan no 00:05:31.412 --> 00:05:32.942 later than six months after appointment. 00:05:34.527 --> 00:05:37.417 The expectation is that a federally insured credit union will develop a 00:05:37.417 --> 00:05:40.317 succession plan that is consistent with its size and complexity. 00:05:40.747 --> 00:05:44.057 Credit unions, not the NCUA, are best positioned to assess 00:05:44.057 --> 00:05:46.907 various risks and opportunities related to succession planning. 00:05:47.737 --> 00:05:50.847 A credit union will need to make its own determinations on the detail necessary 00:05:50.847 --> 00:05:54.247 to address the required elements in their succession plan and whether additional 00:05:54.247 --> 00:05:57.937 factors, other than those required in this rule, should be considered when, 00:05:58.357 --> 00:06:00.007 uh, in their succession planning process. 00:06:00.967 --> 00:06:04.737 As an aid, the NCUA is making available a sample succession planning template. 00:06:05.087 --> 00:06:07.807 That may be appropriate for some smaller federally insured credients, 00:06:07.977 --> 00:06:11.077 though it might be beneficial to all credients to review. 00:06:11.797 --> 00:06:13.107 This concludes our presentation. 00:06:13.277 --> 00:06:14.997 We'd be happy to address any of your questions. 00:06:15.947 --> 00:06:17.177 Thank you, Ariel. 00:06:17.187 --> 00:06:17.767 Thank you, John. 00:06:17.767 --> 00:06:21.037 And thank you, Kelly, for your hard work and presentation on the final 00:06:21.037 --> 00:06:25.017 rule that codifies the succession planning process for key positions 00:06:25.017 --> 00:06:26.637 at federally insured credit unions. 00:06:26.977 --> 00:06:30.027 And thank you to the many others across the agency who worked 00:06:30.077 --> 00:06:33.657 collaboratively to bring this final rule before the NCUA board today. 00:06:34.227 --> 00:06:37.657 Moreover, I am grateful for the consideration by all three board offices 00:06:37.957 --> 00:06:40.027 in negotiations over this final rule. 00:06:40.502 --> 00:06:43.252 It's fair to say that none of us got everything that we wanted in 00:06:43.252 --> 00:06:47.402 this rulemaking, but all of us got something that was important to us. 00:06:47.722 --> 00:06:50.992 That's how boards and how compromising to reach consensus should work. 00:06:51.292 --> 00:06:54.882 So thank you to my fellow board members and their policy advisors. 00:06:55.532 --> 00:06:57.542 Why is succession planning so important? 00:06:57.962 --> 00:07:01.352 It's because the best way to solve a problem is to prevent it. 00:07:01.842 --> 00:07:07.457 Some attribute Benjamin Franklin with saying, if you fail to plan Regardless of 00:07:07.457 --> 00:07:11.397 whether Franklin said those precise words, I very much agree with the sentiment. 00:07:11.787 --> 00:07:14.877 We know that failure to plan for management and key decision maker 00:07:14.877 --> 00:07:16.937 transitions comes with a cost. 00:07:17.317 --> 00:07:21.297 The potential costs range from an unanticipated merger of a credit union 00:07:21.647 --> 00:07:24.607 or its failure when key personnel depart. 00:07:25.077 --> 00:07:29.547 For small, low income, and minority depository institution credit unions, as 00:07:29.547 --> 00:07:34.547 well as those that support under resourced and rural communities, the situation 00:07:34.557 --> 00:07:36.877 happens more than any of us would like. 00:07:37.477 --> 00:07:42.317 In my view, it's better for consumers and the system to have many smaller, diverse 00:07:42.337 --> 00:07:46.687 credit unions serving a wide variety of purposes, communities, and markets, 00:07:46.917 --> 00:07:50.937 instead of consolidating credit unions into fewer and larger institutions. 00:07:51.522 --> 00:07:56.452 More competition leads to greater consumer choice, lower prices, and better services. 00:07:56.872 --> 00:08:02.102 Moreover, arge and increasingly complex credit unions can expose 00:08:02.102 --> 00:08:06.632 the National Credit Union Share Insurance Fund to greater risks. 00:08:07.062 --> 00:08:10.322 This final rule on succession planning establishes a way for the 00:08:10.322 --> 00:08:13.922 NCUA to address one of the most common causes for unplanned and 00:08:13.932 --> 00:08:15.462 unforced credit union mergers. 00:08:15.802 --> 00:08:19.612 It also ensures that smaller credit institutions remain the 00:08:19.612 --> 00:08:22.842 cornerstone of our nation's federally insured credit union system. 00:08:23.442 --> 00:08:27.392 Specifically, the final rule requires the board of a federally insured credit union 00:08:27.662 --> 00:08:31.792 to establish a written succession plan that addresses the specified positions 00:08:32.022 --> 00:08:35.342 that are vital to the credit union's continued operation and management. 00:08:35.867 --> 00:08:38.877 Boards also need to review these plans periodically to 00:08:38.877 --> 00:08:40.367 ensure they remain current. 00:08:40.877 --> 00:08:44.817 The final rule additionally requires newly appointed members of the board to gain 00:08:44.817 --> 00:08:48.477 a familiarity with those plans within six months of appointment, as John said. 00:08:48.947 --> 00:08:52.307 Further, for federally insured state charter credit unions in states 00:08:52.307 --> 00:08:55.837 that have established succession planning requirements, the NCOA will 00:08:55.837 --> 00:08:59.997 defer to such requirements to the extent no conflicts exist between 00:09:00.007 --> 00:09:01.707 the final rule and the state's rule. 00:09:03.017 --> 00:09:06.797 Some commenters argue that the rule will have the unintended consequence of 00:09:06.797 --> 00:09:11.097 increasing the number of consolidations as smaller credit unions do not have the time 00:09:11.327 --> 00:09:13.177 and resources to comply with the rule. 00:09:13.637 --> 00:09:17.357 This, in turn, could lead to mergers with larger institutions, they assert. 00:09:17.887 --> 00:09:20.967 But smaller credit unions can develop succession plans by leveraging the 00:09:20.967 --> 00:09:22.697 templates included in the rulemaking. 00:09:24.612 --> 00:09:29.002 I'm the NCAA's Small Credit Union and Minority Depository Institution 00:09:29.012 --> 00:09:33.102 Support Program and completing online training available through the 00:09:33.102 --> 00:09:35.172 NCAA's learning management system. 00:09:35.852 --> 00:09:38.472 From my own experience, I know firsthand the effort needed 00:09:38.472 --> 00:09:39.982 to develop a succession plan. 00:09:40.422 --> 00:09:43.942 I once served on the board of a non profit group with approximately 650, 00:09:43.972 --> 00:09:49.132 000 in annual revenue, a level of earnings that puts the organization 00:09:49.142 --> 00:09:52.942 on par with many of the credit union industry's smaller institutions. 00:09:53.637 --> 00:09:58.087 The volunteer board of that non profit developed a succession plan that included, 00:09:58.287 --> 00:10:02.947 um, that included what would happen if the leader departed and adjusted the salary 00:10:02.947 --> 00:10:07.807 structure over time to a market rate to allow for the recruitment of a new leader 00:10:07.987 --> 00:10:09.627 when she, uh, the departure occurred. 00:10:10.217 --> 00:10:13.267 These efforts helped to ensure the future viability of the non profit when the 00:10:13.267 --> 00:10:15.477 leader moved on to her next opportunity. 00:10:16.072 --> 00:10:19.972 This final rule also aims to be straightforward and manageable. 00:10:20.342 --> 00:10:23.692 It provides a standardized template to support credit unions and their 00:10:23.692 --> 00:10:24.912 succession planning processes. 00:10:25.712 --> 00:10:29.552 It's also unnecessary to hire expensive consultants or to make 00:10:29.572 --> 00:10:31.812 the exercise overly complex. 00:10:32.082 --> 00:10:35.342 The NCWA simply expects credit unions to develop a succession plan. 00:10:35.687 --> 00:10:41.207 Consistent with their size and complexity, smaller institutions can have a simple 00:10:41.207 --> 00:10:45.497 succession plan that addresses a few leadership positions, while larger 00:10:45.497 --> 00:10:50.207 institutions would have more extensive plans for a variety of critical roles. 00:10:50.457 --> 00:10:54.027 The final rule also narrows the list of covered officials. 00:10:54.642 --> 00:10:58.212 That change recognizes the many varied structures and operations 00:10:58.212 --> 00:11:00.082 of credit unions within the system. 00:11:00.552 --> 00:11:03.982 So long as the succession plan addresses the required elements under 00:11:03.982 --> 00:11:07.982 this final rule, credit unions may adjust their plans to reflect their 00:11:07.982 --> 00:11:10.112 unique operations and structures. 00:11:10.522 --> 00:11:15.292 With these provisions, credit union management and boards of Not the 00:11:15.292 --> 00:11:19.192 NCUA are in full control of the credit union succession planning. 00:11:19.792 --> 00:11:23.992 Some commenters noted that the supervisory guidance instead of a rulemaking is a 00:11:23.992 --> 00:11:25.852 better approach to address this issue. 00:11:26.372 --> 00:11:31.352 We have chosen instead to adopt a rule as a helpful because as, as 00:11:31.352 --> 00:11:33.242 helpful as supervisory guidance may. 00:11:33.912 --> 00:11:35.812 It is just that, guidance. 00:11:35.862 --> 00:11:40.092 There would be no requirements on what constitutes an acceptable succession plan, 00:11:40.302 --> 00:11:45.792 and the NCWA would lack the regulatory tools needed to address deficiencies in a 00:11:45.802 --> 00:11:47.542 credit union succession planning process. 00:11:48.252 --> 00:11:52.342 In closing, for the credit union system to achieve its full potential, smaller 00:11:52.342 --> 00:11:55.502 credit unions must remain viable and at the heart of the movement. 00:11:55.832 --> 00:12:00.752 However, a survey of NCUA exams in 2023 found that approximately one in four 00:12:00.752 --> 00:12:04.882 credit unions lacked a succession plan or had an inadequate plan in place. 00:12:05.272 --> 00:12:08.782 A credit union board's failure to plan for transition of its management and 00:12:08.782 --> 00:12:13.292 key decision makers has far reaching consequences that affect members, local 00:12:13.292 --> 00:12:16.442 communities, and the health of the share insurance fund, as well as the 00:12:16.442 --> 00:12:18.412 sustainability of the credit union system. 00:12:18.872 --> 00:12:22.062 This succession planning rule will help address one of the most common reasons 00:12:22.062 --> 00:12:26.812 for unnecessary consolidation within the industry, and it will better ensure the 00:12:26.812 --> 00:12:29.342 system's long term viability and promise. 00:12:29.777 --> 00:12:32.587 Finally, this rule will benefit credit union members and communities, 00:12:32.817 --> 00:12:35.707 including many of our nation's poorest and underserved areas, 00:12:35.947 --> 00:12:39.377 by ensuring the sustainability of their local community credit union. 00:12:39.747 --> 00:12:42.777 This prudent and sensible regulation makes sense, and I support it. 00:12:43.087 --> 00:12:46.357 That concludes my remarks, and I now recognize Vice Chairman Hoffman. 00:12:46.987 --> 00:12:47.477 Thank you, sir. 00:12:47.477 --> 00:12:48.487 And thanks for the presentation. 00:12:48.707 --> 00:12:49.057 Ariel. 00:12:49.057 --> 00:12:49.647 John Kelly. 00:12:49.697 --> 00:12:51.047 I know it was a lot of work. 00:12:51.137 --> 00:12:55.367 A lot of the changes late was such a planning itself is 00:12:55.367 --> 00:12:56.597 important for all credit unions. 00:12:56.967 --> 00:13:00.077 I appreciate the intent of this final rule to protect the members of smaller 00:13:00.077 --> 00:13:02.227 credit unions from unintended mergers. 00:13:02.897 --> 00:13:06.647 One thing I know is after a credit union mergers, it's almost certain they'll never 00:13:06.647 --> 00:13:08.517 be another credit union just like it. 00:13:09.147 --> 00:13:11.367 That membership has lost his credit union forever. 00:13:11.397 --> 00:13:14.027 We should do everything we can to help individuals keep their own. 00:13:14.527 --> 00:13:15.677 Safe and sound credit union. 00:13:15.827 --> 00:13:16.457 I want to be clear. 00:13:16.457 --> 00:13:17.857 I'm still somewhat skeptical. 00:13:17.857 --> 00:13:20.817 This rule will achieve that, especially for smaller credit unions. 00:13:21.157 --> 00:13:24.317 Most regulations are generally harder for smaller credit unions. 00:13:24.977 --> 00:13:28.707 I'm also generally averse to words like mandatory or new edicts that 00:13:28.717 --> 00:13:31.437 tell other people what to do, when to do it and how to do it. 00:13:32.187 --> 00:13:36.437 Now, this past July, I voted against the proposed rule in such play. 00:13:36.497 --> 00:13:40.967 Now, staff heard my concerns and took a less intrusive approach to 00:13:40.967 --> 00:13:44.017 the final rule before us today, and I appreciate that very much. 00:13:44.017 --> 00:13:44.162 very much. 00:13:44.942 --> 00:13:47.562 A succession plan at a large credit union is difficult, but in 00:13:47.562 --> 00:13:50.412 smaller credit unions, a definitive one is nearly unattainable. 00:13:51.092 --> 00:13:55.272 Uh, those of us who have never worked at a credit union, which is most of us, may 00:13:55.272 --> 00:13:56.672 be thinking it shouldn't be that hard. 00:13:56.712 --> 00:13:58.762 Smaller credit unions have fewer positions to fill. 00:13:58.792 --> 00:14:00.322 It's a short form, filling it out. 00:14:00.702 --> 00:14:03.522 Shouldn't take more than a couple hours, but here's why it's 00:14:03.522 --> 00:14:04.692 harder for a smaller credit unit. 00:14:04.862 --> 00:14:09.342 For one thing, there are fewer employees to draw from existing employees. 00:14:09.342 --> 00:14:12.352 A credit union with three employees cannot just draw talent from within. 00:14:13.052 --> 00:14:15.642 Even a credit union with 20 employees will not have the talent pool of 00:14:15.642 --> 00:14:18.502 qualified candidates to draw the way a larger credit union does. 00:14:19.052 --> 00:14:22.322 My point is, setting someone up for a management position is a great thing 00:14:22.322 --> 00:14:25.732 to do, but a small institution that can create a cascade of open positions. 00:14:26.502 --> 00:14:28.627 This is a unique hardship for small credit unions. 00:14:29.117 --> 00:14:31.227 Secondly, for board positions, the same is true. 00:14:31.357 --> 00:14:34.397 If the field of membership is smaller, then the talent pool is smaller. 00:14:34.797 --> 00:14:38.107 My educated guess is that in smaller credit unions, finding someone willing 00:14:38.107 --> 00:14:41.977 to volunteer for monthly meetings, usually in the evenings, plus mandated 00:14:41.977 --> 00:14:46.327 training on compliance, personal risk as a fiduciary, not a dollar 00:14:46.327 --> 00:14:49.852 in pay, And all the challenges that go with being a board member, that's 00:14:49.852 --> 00:14:53.102 already difficult at a credit union with a limited pool of candidates. 00:14:53.132 --> 00:14:54.472 It becomes really impossible. 00:14:55.182 --> 00:14:57.562 Third, smaller credit unions are more isolated. 00:14:58.002 --> 00:15:01.442 So soliciting talent from other credit unions is harder. 00:15:01.772 --> 00:15:05.262 They often don't have the human or financial resources to regularly 00:15:05.262 --> 00:15:06.362 network with other credit unions. 00:15:06.372 --> 00:15:08.162 The CEO is a working manager. 00:15:08.162 --> 00:15:11.472 It must fill in for other staff when you're filling in for a teller. 00:15:11.472 --> 00:15:13.912 Even breaking away for a zoom meeting is a challenge. 00:15:14.492 --> 00:15:18.492 And lastly on this, smaller credit units cannot pay as well as larger 00:15:18.492 --> 00:15:23.092 ones, so the jobs are less attractive to candidates, uh, that have experience. 00:15:23.402 --> 00:15:26.062 When they can't promote within and they're cut off from a natural 00:15:26.062 --> 00:15:28.822 source of candidates in the credit union world, salary is one of 00:15:28.822 --> 00:15:30.232 the few tools available to them. 00:15:31.022 --> 00:15:34.002 This is all to say that a succession plan for a smaller credit unit is significantly 00:15:34.012 --> 00:15:37.442 more difficult, but not impossible if we give them the latitude to be flexible. 00:15:38.332 --> 00:15:41.242 No matter what a small credit unit puts in their plan, when the time 00:15:41.242 --> 00:15:42.932 comes to implement it, the options. 00:15:43.652 --> 00:15:45.492 available to them will probably change. 00:15:45.702 --> 00:15:46.082 If N. 00:15:46.082 --> 00:15:46.172 C. 00:15:46.172 --> 00:15:46.302 U. 00:15:46.302 --> 00:15:46.432 A. 00:15:46.442 --> 00:15:50.752 Wants to preserve smaller credit unions, the best way to do that is to make running 00:15:50.762 --> 00:15:52.632 a small credit union less burdensome. 00:15:53.062 --> 00:15:57.552 If we can make that a more attractive job, then a lot of problems go away 00:15:57.732 --> 00:16:00.962 and Americans are more likely to have choice to join a small credit union. 00:16:01.432 --> 00:16:05.312 If we cannot give them flexibility without the additional work of documentation and 00:16:05.312 --> 00:16:10.872 approval by us, then the only definitive option for a succession plan is to merge. 00:16:10.972 --> 00:16:12.582 And that's exactly what we want to avoid. 00:16:13.557 --> 00:16:16.907 I deeply appreciate we were able to get rid of language that required a credit 00:16:16.907 --> 00:16:20.897 unit to document and get approval for any deviation from their written plan. 00:16:21.137 --> 00:16:25.697 It wouldn't be a good use of anyone's time for NCUA examiners to talk to a credit 00:16:25.697 --> 00:16:29.797 unit about the lack of documentation for deviating from a document that 00:16:29.797 --> 00:16:31.267 NCUA required in the first place. 00:16:31.597 --> 00:16:35.317 That takes us way off the point of this now, especially if that credit 00:16:35.317 --> 00:16:39.217 unit is not part of the problem They've actually managed this succession process 00:16:39.217 --> 00:16:41.667 quite well when considering any rule. 00:16:41.817 --> 00:16:46.237 I worry about the ineffective burdens placed on already strained 00:16:46.237 --> 00:16:50.427 credit units succession planning, even if it's difficult Has remains 00:16:50.427 --> 00:16:51.867 a key responsibility of management. 00:16:52.037 --> 00:16:55.937 The cooperative business model gives individual members a larger choice 00:16:55.977 --> 00:16:59.657 regarding their credit union's direction than an entity you're just a customer of. 00:17:00.167 --> 00:17:05.407 So my skepticism is solely about whether NCUA creating new paperwork for over 4, 00:17:05.407 --> 00:17:10.107 000 credit unions will actually, every year, will actually yield a tangible 00:17:10.107 --> 00:17:11.887 result that exceeds the rule's costs. 00:17:12.612 --> 00:17:16.342 And make no mistake, this rule has a very explicit goal. 00:17:16.412 --> 00:17:20.782 The chairman's been very clear from the start that the rules to avoid unnecessary 00:17:20.782 --> 00:17:24.872 mergers, whereby a field of membership loses their own unique credit unit. 00:17:25.482 --> 00:17:28.292 I believe the chairman used the example of a credit unit in the Pacific Northwest 00:17:28.292 --> 00:17:33.082 to focus on the logging industry and is now gone due in theory, because the NCA 00:17:33.162 --> 00:17:34.882 did not have a succession planning rule. 00:17:35.812 --> 00:17:39.052 For that reason, I'm grateful we have included language to re approve the rule. 00:17:39.397 --> 00:17:43.667 Uh, three years after its effective date that I believe will be Jan 2029. 00:17:44.907 --> 00:17:48.417 This gives future boards the opportunity to review its effectiveness as well 00:17:48.417 --> 00:17:52.687 as its cost of compliance to the credit unions and to the agency. 00:17:54.067 --> 00:17:57.897 So it is for those reasons, those changes done in good faith by my partners on the 00:17:57.897 --> 00:17:59.827 board, that I will be voting for the rule. 00:18:00.347 --> 00:18:02.147 Elena Anders, nothing inherently wrong with mergers. 00:18:02.797 --> 00:18:05.667 Even as part of a succession plan, however, mergers should 00:18:05.677 --> 00:18:08.317 be deliberate, intentional, and supported by their membership. 00:18:09.467 --> 00:18:14.137 So I'm aware we don't have a parallel universe that can show us what life would 00:18:14.147 --> 00:18:16.257 be like if we didn't pass this rule. 00:18:16.487 --> 00:18:18.667 We're only going to know what the next three years are 00:18:18.667 --> 00:18:20.787 like after we pass this rule. 00:18:21.397 --> 00:18:28.197 That said, in three years, there should be clear, identifiable benefits to this rule 00:18:28.227 --> 00:18:30.157 because the costs are very identifiable. 00:18:31.497 --> 00:18:35.987 If not, if we don't have clear, identifiable benefits to this rule. 00:18:36.482 --> 00:18:39.002 Then the rule, in my opinion, ought not be approved. 00:18:39.062 --> 00:18:40.592 I probably would not be here at that time. 00:18:40.642 --> 00:18:41.632 Can I put the slide up, please? 00:18:47.502 --> 00:18:51.112 As I said, this is a rare rule where we have a very explicit way 00:18:51.112 --> 00:18:52.472 of judging if it worked or not. 00:18:52.992 --> 00:18:54.522 I put the two lines up there, okay? 00:18:54.522 --> 00:18:58.242 That's the number of FDIC insured banks and NCUA insured credit units. 00:18:58.542 --> 00:19:03.742 Over time, this goes back 12 years, the slope is remarkably the same. 00:19:03.752 --> 00:19:06.452 There's a couple twists, but in the long run, it's remarkable. 00:19:06.472 --> 00:19:09.992 The decline in number of banks and credit units is almost identical. 00:19:10.402 --> 00:19:13.672 Now, if you see the dotted lines I made those up, okay? 00:19:13.722 --> 00:19:16.782 And I put those two lines there for the purposes so we could see them. 00:19:18.112 --> 00:19:24.022 This rule, from its inception, has been very clear that the world with the 00:19:24.022 --> 00:19:27.152 rule, the line, should be less steep. 00:19:27.182 --> 00:19:30.032 It'd probably still go down, because that's how it's been for 40 years. 00:19:31.362 --> 00:19:35.452 Then, without the rule, meaning in a parallel universe, where 00:19:35.452 --> 00:19:41.862 we don't pass this, it should be more mergers, more going away. 00:19:41.882 --> 00:19:43.642 Meaning a steeper line down, okay? 00:19:44.552 --> 00:19:48.112 Now, the reason I put the FDIC in there is for two reasons. 00:19:48.682 --> 00:19:53.502 One is it's kind of a control sample, because the pace of mergers is often 00:19:54.782 --> 00:19:57.152 defined, uh, by economic events. 00:19:57.362 --> 00:20:00.432 So, we don't know what the next three years will look like in 00:20:00.432 --> 00:20:01.652 terms of credit unions going away. 00:20:01.772 --> 00:20:04.792 By the way, this is just numeric credit unions, most of which are mergers, right? 00:20:04.802 --> 00:20:06.842 A couple go away for other reasons, we add a few. 00:20:07.262 --> 00:20:10.622 But the FDIC is there to isolate the variable of economic 00:20:10.632 --> 00:20:11.752 conditions that may occur. 00:20:12.082 --> 00:20:13.682 Create more or fewer mergers. 00:20:14.032 --> 00:20:19.112 Secondly, the FDIC is a control sample because they're not changing their policy. 00:20:19.202 --> 00:20:25.352 Only we are so not only should we be able to say this, this, this, and this 00:20:25.412 --> 00:20:28.352 credit union without the rule, not good successful playing, but without 00:20:28.352 --> 00:20:33.852 the rule would have been gone and we should be able to see some change in 00:20:33.852 --> 00:20:40.622 that line and a deviation from the FDIC line, the slopes over the last decades. 00:20:40.622 --> 00:20:43.012 You can go back are almost identical in the long run. 00:20:43.907 --> 00:20:47.437 So the FDIC isn't changing policy and NCUA is. 00:20:48.347 --> 00:20:53.347 A future board should be able to say, should we keep having our NCUA employees 00:20:53.387 --> 00:20:57.217 and thousands of credit unions do this or not, and should be able to identify 00:20:57.597 --> 00:21:01.167 whether it has its desired effect. 00:21:02.962 --> 00:21:04.612 That concludes my remarks on this. 00:21:04.752 --> 00:21:10.622 Um, and let me ask you this, uh, for credit unions out there hearing 00:21:10.622 --> 00:21:14.202 about this, how long, like, what are they getting picture it for us? 00:21:14.302 --> 00:21:16.242 Are they going to, um, the rule itself? 00:21:16.272 --> 00:21:17.912 What does it look like in terms of size? 00:21:19.557 --> 00:21:20.517 people at conventions. 00:21:20.897 --> 00:21:22.287 You passed 80 page rule. 00:21:22.347 --> 00:21:23.237 There's only three of us. 00:21:23.267 --> 00:21:25.297 You know, we work for the church credit union. 00:21:25.297 --> 00:21:26.077 We work in the basement. 00:21:26.077 --> 00:21:27.157 We're part time deacons. 00:21:27.327 --> 00:21:28.787 Like how are we supposed to do all this? 00:21:29.477 --> 00:21:30.267 What's it look like? 00:21:30.797 --> 00:21:33.887 The regulatory self text itself is fairly short. 00:21:33.967 --> 00:21:36.307 Um, it only amends to provisions. 00:21:36.327 --> 00:21:40.577 Um, so it's hard to say how long it will be in the code of federal regulations. 00:21:40.577 --> 00:21:43.522 But I would imagine Maybe one or two pages at most. 00:21:44.932 --> 00:21:45.442 You all agree? 00:21:45.462 --> 00:21:45.632 N. 00:21:45.632 --> 00:21:45.732 C. 00:21:45.732 --> 00:21:45.842 U. 00:21:45.842 --> 00:21:45.922 A. 00:21:45.962 --> 00:21:47.372 Does not run credit unions, right? 00:21:48.942 --> 00:21:50.242 So, yeah, absolutely. 00:21:50.442 --> 00:21:51.702 We do not run credit unions, correct? 00:21:51.822 --> 00:21:52.332 That's correct. 00:21:52.332 --> 00:21:54.152 We do not run credit unions. 00:21:54.302 --> 00:21:54.782 I agree. 00:21:55.042 --> 00:21:57.482 Actually, I make an exception except conservatorship. 00:21:58.472 --> 00:21:58.802 That's right. 00:22:00.212 --> 00:22:00.972 That's absolutely right. 00:22:01.382 --> 00:22:02.262 That concludes my remarks. 00:22:03.252 --> 00:22:03.682 All righty. 00:22:03.682 --> 00:22:05.562 Board member Otsuka, you're now recognized. 00:22:06.312 --> 00:22:07.482 Thank you, Chair Harper. 00:22:07.532 --> 00:22:11.457 Um, so first off, I just want to say Happy holidays to everybody. 00:22:11.567 --> 00:22:17.007 Um, I hope staff and those in the audience here virtually out in the public take 00:22:17.007 --> 00:22:20.977 some time over the season for some well deserved rest, relaxation and reflection. 00:22:20.997 --> 00:22:24.737 So I know everybody's probably getting excited about the holiday season. 00:22:25.447 --> 00:22:29.972 Um, John, Ariel, and Kelly, thank you so much for your presentation on the final 00:22:29.972 --> 00:22:33.272 rule to implement succession planning for federally insured credit unions. 00:22:33.792 --> 00:22:36.312 Um, I appreciate the work that you and your colleagues have 00:22:36.312 --> 00:22:37.732 done in crafting today's rule. 00:22:38.092 --> 00:22:42.062 Thanks to Chair Harper for championing, championing the rule that will improve 00:22:42.062 --> 00:22:45.262 the longevity of our credit union system and strengthen small credit unions. 00:22:46.282 --> 00:22:47.822 Um, I support the final rule. 00:22:48.087 --> 00:22:50.837 It which reflects feedback from many commenters. 00:22:50.907 --> 00:22:56.157 It is non prescriptive, and it still gives credit unions much latitude in determining 00:22:56.157 --> 00:22:58.257 a succession plan that best suits them. 00:22:59.287 --> 00:23:02.537 Um, on that note, I would also like to again encourage M. 00:23:02.537 --> 00:23:02.677 D. 00:23:02.677 --> 00:23:02.787 I. 00:23:02.797 --> 00:23:02.847 S. 00:23:02.867 --> 00:23:05.777 to account for their designation as they draft their succession plans 00:23:05.777 --> 00:23:11.847 again, you know, The purpose of this to really think about how best to serve 00:23:11.847 --> 00:23:19.657 the needs of members when there may be departures, you know, the, the community 00:23:19.657 --> 00:23:24.817 around you is changing just to think about how succession, a succession plan 00:23:24.817 --> 00:23:27.057 can help serve the members in the end. 00:23:27.697 --> 00:23:31.177 Our mission of providing credit to people of modest means. 00:23:31.612 --> 00:23:34.372 The credit union mission of providing credit to people of modest means 00:23:34.772 --> 00:23:37.872 is dependent on the presence of credit unions in rural areas, 00:23:38.292 --> 00:23:42.072 small towns, other communities that would otherwise be banking deserts. 00:23:42.712 --> 00:23:45.312 I think I mentioned this at the July board meeting when we first, 00:23:45.372 --> 00:23:47.062 uh, proposed, issued the proposal. 00:23:47.572 --> 00:23:51.162 A sudden departure, difficult recruiting for vacant positions, a 00:23:51.162 --> 00:23:52.832 lack of leadership at credit unions. 00:23:53.112 --> 00:23:54.572 We've seen all of these before. 00:23:54.912 --> 00:23:57.862 All of those things can result in financial and operational problems. 00:23:58.562 --> 00:24:01.902 which hurts members and puts the viability of the institution at risk. 00:24:02.402 --> 00:24:06.322 That's really the reason why, um, I think thinking about succession 00:24:06.322 --> 00:24:07.462 planning is so important. 00:24:08.762 --> 00:24:12.292 To this end, I encourage small credit unions and MDIs to share how 00:24:12.292 --> 00:24:16.212 else the NCUA can help think about their long term continuity plans. 00:24:16.932 --> 00:24:21.102 So, for example, we have a new crop of high school and college graduates. 00:24:21.487 --> 00:24:23.277 Uh, out there next spring. 00:24:23.667 --> 00:24:25.947 We have local members of the community. 00:24:26.197 --> 00:24:31.167 We have business leaders, all of whom can and should see viable 00:24:31.167 --> 00:24:32.777 careers in the credit union industry. 00:24:33.107 --> 00:24:37.337 So in addition to succession planning, I really do welcome any ideas and I'm 00:24:37.337 --> 00:24:43.027 happy to work with staff and stakeholders to promote the field of credit unions 00:24:43.287 --> 00:24:46.347 and ensure the success of the next generation of credit union leaders. 00:24:46.657 --> 00:24:50.957 Because I think that's part of it too, is really empowering the next generation 00:24:51.257 --> 00:24:56.357 of leaders in credit unions so that we can continue the credit union system 00:24:56.357 --> 00:24:57.797 that we have today and strengthen it. 00:24:58.477 --> 00:25:01.557 Um, so again, I support the rule and appreciate the work of my 00:25:01.557 --> 00:25:02.927 colleagues in collaboration. 00:25:03.167 --> 00:25:04.357 I'll turn it back to you, Chair Harper. 00:25:04.777 --> 00:25:05.577 Thank you so much. 00:25:05.577 --> 00:25:06.367 Board member Otsuka. 00:25:06.367 --> 00:25:08.197 I really appreciate your idea. 00:25:08.532 --> 00:25:12.502 Related to MDI credit unions and taking their circumstances under and I also 00:25:12.502 --> 00:25:17.082 appreciate your Comments about the need to scale our regulations vice 00:25:17.082 --> 00:25:22.092 chairman Hoffman I do want to note for the record that in addition to what's 00:25:22.142 --> 00:25:28.272 in this rule preamble we also have a rolling three year review of all of our 00:25:28.272 --> 00:25:33.617 regulations as well as we voluntarily participate in the decennial review 00:25:33.617 --> 00:25:38.757 required under the economic growth and regulatory paperwork reduction. 00:25:38.757 --> 00:25:42.147 I think I got all of those letters right uh, in it. 00:25:43.187 --> 00:25:45.207 Board member Oetzke, is there a motion? 00:25:46.507 --> 00:25:51.007 I move that the board approve Final Rule Part 701 and 741 of NCUA's 00:25:51.007 --> 00:25:53.807 Rules and Regulations as attached to the Board Action Memorandum. 00:25:53.967 --> 00:25:55.547 I second the motion. 00:25:55.557 --> 00:25:56.877 All those in favor say aye! 00:25:56.967 --> 00:25:57.267 Aye. 00:25:58.107 --> 00:25:59.307 All those opposed say nay. 00:25:59.737 --> 00:26:03.167 The ayes have it and let the record show that the motion passed three to zero. 00:26:04.067 --> 00:26:06.537 Thank you, Kelly, Ariel and John. 00:26:06.667 --> 00:26:10.137 Uh, that concludes our discussion of the succession planning final rule. 00:26:10.997 --> 00:26:15.127 This concludes the board meeting and board approval of the Succession Planning Rule. 00:26:15.850 --> 00:26:20.150 If your Credit union could use assistance with your exam, reach out to Mark Treichel 00:26:20.150 --> 00:26:22.790 on LinkedIn, or at mark Treichel dot com. 00:26:23.330 --> 00:26:25.980 This is Samantha Shares and we Thank you for listening.