Deposit Insurance Isn't the Only Safety, Soundness Issue
Credit union boards are to be commended for keeping credit unions out of the direct line of fire in the current financial crisis. Their experience and training has been crucial.
Credit unions are predisposed to conservative tendencies by their very nature because they represent the good of the membership and not the profit margins of stockholders. This attitude has served them well. The volunteer credit union directors take on a heap of responsibility with little to no compensation.
For the sake of the credit union movement and the individual credit unions, maintaining and even supplementing board member education is critical. Budgets are tight as we all know, and travel is often the first to take the hit. In recognition of this, many organizations are now offering Webinars and other online tools for continuing education.
However, what will become of credit unions when that wealth of knowledge current board members supply one day disappears? Looking around the halls of credit union conferences at the white, gray and sometimes shining heads of the board members there, it could very well happen like that--poof, it's gone.
I have no statistics, but it's discussed in the back halls of these very conferences that succession planning for boards, as well as management, is becoming increasingly vital to the future of the credit union movement. It truly is a safety and soundness issue.
I don't think I'm stretching too far to say that many, if not most, of the current credit union board members are products of the Great Depression; granted I doubt many actually recall it, but they felt the impact from their parents' dispositions. That very experience has helped credit unions weather the current economic storm.
Right now is the next generation of board members' Great Depression, though hopefully it won't reach that severity. If up-and-coming board members aren't permitted to experience it from inside the credit union board room, credit unions are doomed. These economic swings are cyclical and history will repeat itself.
Certainly, I'm not advocating major turnover; not at all. That would have its own safety and soundness implications. But credit unions ladder their investments; why not their boards? Adding a board member or two who are not eligible for Social Security would create long-term stability for the leadership. It would also better represent credit union members, or those younger people you want to become credit union members, without eliminating the wisdom and institutional knowledge that already exists.
One thing I think can't be emphasized enough is that a changing of the guard is not personal. Many board members have served their credit unions well for a very long time, but they, quite literally, can't be there forever.
I also realize recruiting new board members cannot be easy. People with full-time careers--we all know these aren't 40 hours a week anymore--and children must carefully weigh their options when it comes to extracurricular activities.
Credit unions have not tried hard enough to boost themselves up on that list. How many credit union members even know the difference between a bank and a credit union or that there even is a volunteer board they could run for? People volunteer for Red Cross and hospice houses because they know they're there. Credit unions must market themselves better, not just for new membership or expanded member relations but for recruiting board members. Recruiting members for committees is a good first step toward cultivating board members.
One place credit unions do not want their board members coming from is the NCUA I would wager. With the federal government's action to buy stakes in big banks, a logical next move would be for the Feds to demand board representation, just as they have done in England. In these times of turmoil, it is not difficult to picture Uncle Sam sitting on their boards. The general problem with the Treasury's plan, other than it possibly not working and taxpayers being on the hook to cough up even more money to the government, is that decisions would not be just financial but also political. The combination can be like oil and water.
Another place where the federal government has stepped in to the affairs of depository institutions was the increase in deposit insurance coverage. The successful effort to ensure credit union parity in this change was a positive. However, there are serious issues that must be addressed.
Discussion of deposit insurance raises the issue of moral hazard. Again, credit unions weren't the ones making unwise investments that led to the current financial crisis but, if the U.S. government is going to foot the bill for $250,000 or more per accountholder, might the banks be more likely to take greater risks? Hopefully, they've already learned their lesson but only time will tell.
Another problem with the deposit insurance increase is that it sunsets at the end of 2009. But, on the practical side, I'd be interested in seeing what sort of exit strategy the government has in place. The FDIC and NCUA's insurance hotlines are ringing off the hooks because much of the general public doesn't understand how deposit insurance works. Depositors will not pay attention to when the increase sunsets so they could have a ton of uninsured deposits they don't even realize if coverage was cut back. Additionally, right now, NCUA is not requiring additional deposits from credit unions in the NCUSIF to cover the extra insured shares. What's the cost to credit unions if it's continued?
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