FROM THE OFFICE OF PUBLIC AFFAIRS

I. INTRODUCTION

My topic this morning is Goals, Grassroots, and Gigabytes. The goals are the ideals of the credit union movement. You and your members are the grassroots. And "gigabytes" is a computer term that I'm using as a shorthand way of referring to the future -- the future in an information age. (Incidentally, a gigabyte represents eight billion bits of digital information -- a gigantic number but not one you'll need to worry about here.)

I will begin by talking about the ideals of the credit union movement and some of the implications of those ideals, now and for the future. I especially want to focus on the ideals of service and self-improvement.

Then I'd like to touch on how technological innovation is having far-reaching effects on financial services, and what those changes might mean for you as credit unions.

II. CREDIT UNION IDEALS AND THEIR IMPLICATIONS

Over the years, CUNA and others have sought to articulate the ideals of the credit union movement. You can find these ideals in formal documents like the "Statement of Credit Union Operating Principles" adopted by the World Council of Credit Unions and endorsed by CUNA. You can find them in CUNA pamphlets like "Credit Unions: A World of Difference." And you can find them in the CUNA study entitled: "Credit Union Philosophy & Uniqueness."

As I said in my introduction, I'd like to focus on two of these ideals: service and self-improvement. This is by no means an exhaustive list. I could talk about the importance of cooperation and mutual self-help. Or about credit unions' emphasis on equality.

But I want to concentrate on service and self-improvement. They are very important ideals. They are also high ideals -- challenging to live up to.

A. SERVICE

Let me begin with service.

Few would dispute that service is crucial for any business enterprise, certainly including conventional, for-profit businesses. Over the past decade, we've seen companies around the country give new emphasis to customer service. They recognize that without satisfied customers, you can't stay in business -- people will take their money and go elsewhere.

Now even if it took some industries years to catch on, this emphasis on service comes as no surprise to credit unions. Service has been at the heart of credit unions' mission since the very beginning of the credit union movement.

Let me quote from a CUNA publication entitled "Credit Unions: A World of Difference":

At credit unions, the highest priority is put on people. This means close personal service for all members regardless of the size of their deposits. This also means arranging loans for the jobless, providing credit counseling, encouraging thrift among young people, even helping to revitalize inner-city neighborhoods."

The fact is, you in the credit union movement hold yourselves to a very demanding standard. Service, according to the credit union philosophy, extends to much more than getting good feedback on a customer questionnaire. Service is also about service to the broader community.

I think the World Council of Credit Unions expresses this ideal very well in its Statement of Credit Union Operating Principles:

"Credit unions seek to bring about human and social development. . . . The credit union ideal is to extend service to all who need and can use it. Every person is either a member or a potential member and appropriately part of the credit union sphere of interest and concern. Decisions should be taken with full regard for the interest of the broader community within which the credit union and its members reside."

Every time a credit union makes a loan to someone to help them get through difficult financial times, that credit union is reaffirming its commitment to serving the community. It gives hope and opportunity to one person, but in so doing it gives strength to the entire community. Credit union members understand that cooperation and mutual self-help are also about achieving a higher goal. They're about helping each other so that we have better places to live, more prosperous communities, and more opportunities to succeed.

The Clinton Administration shares this ideal of service. And the Administration has a deep respect for the values of the credit union movement -- values like service, self-improvement, cooperation, mutual self-help, and equality.

The Administration has translated those shared values into real policies and programs.

Think about the Community Development Financial Institutions Fund, which fosters community-based lending to help revitalize distressed communities in urban and rural areas around the United States. Think about Americorps -- a voluntary program that gives young Americans an opportunity to serve their communities in exchange for college funding. I could go on about the Administration's focus on making investments in people -- in job training and education -- but I think I've made my point. These programs are all about serving people and their communities.

Let's not forget how this approach differs from that of the two previous Administrations, in charge from 1981 through 1992. They took a very different view of cooperative enterprises like credit unions. They had an ideological distaste for them. They seemed to think that credit unions had no legitimate place in our free-market system. But we in this Administration believe that cooperative enterprise is valuable, and legitimate, and important. We want credit unions to do well, just as we want conventional for-profit financial institutions to do well. The various types of financial institutions -- all of them -- have important roles in our nation's financial system. They help meet people's needs for financial services, and they give consumers a choice.

B. SELF-IMPROVEMENT

Now I'd like to move on to a second ideal: self-improvement.

There's a striking example of this ideal in the World Council of Credit Unions' call for self-audit and renewal. It says: "Credit union management and staff should regularly ask the question, `How have we acted like (or unlike) a credit union today?'"

This is not the sort of statement you see just anywhere. It's a remarkable call to reflection and renewal. It's a call to self-improvement as credit unions. It's a call to examine what you do -- how you operate -- in light of credit union ideals.

I think this applies at several different levels. It applies to each individual credit union. It also applies to credit unions as a group. And it applies to credit unions organized together in associations like CUNA.

The ideal of self-improvement carries with it an openness to change. Think back to that pair of questions: How have we acted like a credit union today? How have we acted unlike a credit union today? The whole idea of asking such questions is to try to rise above our old habits, our first reactions -- the easy, comfortable, usual way of doing things.

Let's think about what this means for how credit unions approach public policy issues -- including issues regarding credit union supervision, and credit union safety and soundness. Some people seem to think the best way to protect the credit union movement is to resist any policy, any change, that didn't originate with credit unions themselves. For example, some proposal by the National Credit Union Administration. Perhaps they fear that if you go along with someone else's reasonable ideas, you'll establish some sort of precedent and have to go along with their unreasonable ideas, as well.

Whatever the reason, it can be very easy to fall into a pattern of having a negative reflex reaction to outside proposals for reform. Many trade associations operate that way in Washington. They think it's a real badge of strength to be able to deep-six even reasonable proposals originating outside the trade association. They can show they're an 800-pound gorilla. They can show they can't be touched. It's a very macho mentality. And it's very respectable inside the Beltway -- where many organizations spend much of their time trying to prevent or hijack change, and where lobbyists gin up campaigns to protect entrenched interests.

I believe that credit union ideals point in a very different direction. I believe a movement committed to high ideals looks for ways to make things better. I believe a movement committed to self-improvement looks for ways to make itself better. If renewal is your goal, you don't just brush off new ideas. You look at what can best help you realize your ideals.

Let me underscore this point by talking about David and Goliath, two names that appear in materials for this conference. I'd like to draw an analogy based on the kind of people David and Goliath were.

The Biblical David was (among many other things) someone acutely open to self-reflection. He seems to have done his own regular self-audit. He was open to renewal, open to change. Goliath, by contrast, was a big bully, proclaiming that might makes right. He was about as open to self-audit and self-improvement as a pile of bricks.

In a sense, we can think of David and Goliath as embodying different ways of approaching public policy issues. CUNA is free to choose either approach. Goliath is the 800-pound gorilla. He bats away proposals for reform like King Kong swatted those little biplanes. But David is open to self-improvement, open to change, open to renewal. That doesn't mean getting pushed around. It does mean looking for ways to come even closer to credit union ideals -- those bedrock values that set credit unions apart.

And here I want to emphasize the importance of strong, effective supervision by regulators like the NCUA. I know it's easy, in times like these, when the financial system is as healthy as it's been for decades, to get complacent and see supervision and examination simply as burdens. Remember that effective supervision protects your long-term interests. It is good for the health of your individual credit unions. It is good for the health and credibility of the credit union movement. And it protects your investments in the Share Insurance Fund.

III. TECHNOLOGICAL INNOVATION AND THE FUTURE

I've talked a bit about change within the context of credit union ideals. Now I'd like to spend a few moments talking about change in financial services generally.

Today we face rapid changes in financial services. Several key forces lie behind this transformation, including technological and financial innovation, consolidation, globalization, and customer demand. Each has important implications for the future. I'd like to share with you some thoughts about just one of these changes -- technological innovation -- because I think it will have such far-reaching effects.

In many ways, the current technological revolution is best characterized by the explosion in information technology. In his book, The Road Ahead, Bill Gates of Microsoft writes: "What characterizes this period in history is the completely new ways in which information can be changed and manipulated, and the increasing speeds at which we can handle it."

Let me go back to my opening point about gigabytes. You'll recall those are the eight billion bits of digital information I told you not to worry about. You probably don't think about gigabytes every day, but they're hard at work for you all the time. Computing power is a prime example of how quickly things change in this world.

Every 18 months, the cost of computing power falls by half. Experts call this phenomenon Moore's law. Now let's put this in perspective. If we wait about the same length of time it'll take Congress to enact last year's budget, you and I can buy twice as much computing power for the same price.

Moore's law has held true for several decades. In 1983, IBM computer owners could buy 10 megabytes of additional computing power for $3,000 -- or $300 per megabyte. Now let's fast forward to the present. Today you can buy a hard drive with 1.2 gigabytes -- 9.6 billion bits of information -- for only about $250. That's 21 cents per megabyte. From $300 down to 21 cents -- that's value.

But it means a great deal more than just value. It means opportunity. It means that as costs decrease and computing power and capacity increase, people will find new uses for information technology. They'll find faster, cheaper, and better ways to do what we do now. And they'll find ways to do things we hadn't even thought of in the past. The more people learn about and make use of these developments, the more they'll become comfortable with them and even demand more of them.

Consumers today are more willing than ever before to use alternatives to brick-and-mortar branches. They expect access to ATMs. Once they've tried direct deposit, they generally like it. And they're coming to accept debit cards. And that's not to speak of electronic benefits transfers and electronic money, which are laying the foundation for a fundamentally new paper-less payment system. I note that 31 percent of the homes in American owned a personal computer as of 1994, up by four million households over 1993.

All of this means that the way in which retail financial services are provided will continue to change. Financial institutions will probably form alliances with providers of information technology to distribute products in new ways to consumers. Any consumer using the Internet can access the Worldwide Web and use financial planning shareware and spreadsheets to make their own calculations based on live data and quotes from a financial services firm. This will be assisted by the fact that, according to some estimates, by the year 2005, 80 percent of U.S. homes and offices will have some form of connection to the Internet. Others predict that by 1999 almost 50 percent of U.S. households will be using home-based financial services.

Technology has slashed the costs of gathering information and transacting business, and could provide substantial economies of scale. That is, they could potentially give a competitive edge to large financial institutions able to make substantial up-front investments in technology. And they could help drive continued consolidation among financial institutions.

The technological revolution will have profound implications for you as credit unions, as providers of financial services. Harnessing the new technology will take considerable effort and may have high up-front costs. Much may depend on how readily smaller institutions can purchase the relevant expertise from outside vendors, rather than having to develop it themselves. Perhaps CUNA, as a leader in the credit union movement, can keep a watchful eye to make sure such expertise is available.

As our financial system becomes more concentrated and financial products become more standardized, credit unions -- as grass-roots, member-oriented organizations -- can become even more important in assuring that people within their common bond get good, personal service.

IV. CONCLUSION

Let me close with a few observations, summarizing my key points.

Service and self-improvement are among the ideals that define and distinguish credit unions. They are high ideals. And they are values the Administration shares and respects, along with such other ideals as cooperation, mutual self-help, and equality. Service goes to the heart of how you treat your members and how you approach the larger community to which you and they belong. Self-improvement -- including self-audit and renewal -- are crucial if you are to remain centered on credit union ideals and strive to achieve them more closely. Remember the question: "How have we acted like a credit union today?" And remember that in approaching public policy issues CUNA has a choice between the way of David, the way of self-audit and renewal -- and the way of Goliath, the way of the 800-pound gorilla.

I have also touched here on technological innovation, its far-reaching significance for financial services, and the challenges it will pose to all financial institutions.

Thank you for the opportunity to speak here today. I hope you will continue your tradition of excellent work in your communities across America.