MADISON, Wis. — As the United States faces a banking crisis,modern day credit unions are hoping they will gain market sharelike their predecessors did in the 1930s. However, the U.S. andworld economies have changed quite a bit in nearly 80 years. Arethere more recent examples of banking crisis that indicate creditunions will, in fact, gain market share?

Yes, said World Council of Credit Unions Chief Operating OfficerBrian Branch. In fact, financial crises like the current U.S.banking crisis are actually quite common around the world.

“In fact, when we get more involved, it's often a more traumaticsituation, like a civil war or huge natural disaster that wouldwipe out banking and financial services,” Branch said. “But, evenin these environments, you see credit unions continue to operate,and reignite their communities.”

Perhaps the most appropriate comparison to the current U.S.situation is the banking crisis that affected the South Americancountry of Ecuador in 1998, when its currency was severelydevalued, and the government was forced to bail out several banks.According to Luis Jara, a WOCCU employee who heads various programsin South America, Ecuador fell victim to a practice that hascrippled banking systems in other South American countries: bankfinancing of political campaigns.

“The high liability rates to which they were capturing depositsgave us the idea that something serious was about to come,” Jarasaid, recalling the events that led up to the crisis in his homecountry.

Throughout the crisis, however, Ecuadorian credit unions didn'tfind it difficult to stay in business.

“We practically never closed–only when the government consideredthat no financial institution should serve until they made theiradjustments to the new monetary policies,” Jara said, adding thatliquidity was an issue at first as many financial resources weretied up in failed banks.

Luckily, Ecuadorian credit unions had recently improved capital,lending standards and risk management, working with WOCCU toincrease standards.

“Thanks to the technical assistance that had been offered by theproject [WOCCU Ecuador], a large part of the cooperative sector didnot have funds in banks that were declared bankrupt. Helping inthis manner to give the image of solidity of the cooperativesector, not even one single credit union was declared bankrupt,”Jara said.

“No credit union limited the withdrawal of member savings, norloans, unless they considered a measure analysis. At no moment werethe credit operations closed due to the crisis; on the contrary,credit unions tried to help a larger number of members that hadbeen left without liquidity by the bank crisis.”

Branch agreed, saying in contrast, banks stopped lending to theaverage Ecuadorian, sending consumers to credit unions in droves.The cooperative system grew in both membership and deposits.

Credit unions first had to overcome the public's initialdistrust for all financial institutions, Jara said.

“However, because credit unions did not close their doors, hadsufficient liquidity to attend as much to withdrawals as tocredits, and adequately managed with anticipation the financialrisk indicators, it helped to rebuild the confidence of themembers,” Jara said.

Does Jara have any advice for American credit unions, trying tonot only retain members, but increase market share?

His words of wisdom centered on the need for basic safety andsoundness, a cornerstone credit union principle.

“While the banks passed through sustained insolvency, creditunions held a very high institutional capital indicator, in somecases they exceeded 10% in relation to total assets, which helpedthem to stay afloat until financial problems passed,” Jarasaid.

Looking back, Branch said what allowed Ecuadorian credit unionsto thrive in the late 1990s was the “not very exiting stuff likegood management and good loans,” which positioned them to growduring the crisis.

However, these days, Ecuadorian credit unions are back tocompeting full-tilt once more against banks with deep technologyand advertising pockets.

“Frankly, the public's memory is very short, and after thecrisis, it was another rush to what's shiny and new,” Branch said.“Just like here in the U.S., Ecuadorian credit unions always haveto stay on their feet and respond to next market challenge.”

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