That was part of the message from Richard Dorfman, president/CEO of the Federal Home Loan Bank of Atlanta, who spoke at the NCUA Risk Mitigation Summit. The $200 billion wholesale financial institution operates in seven states and the District of Columbia. There are 8,100 credit unions that have partnered with FHLB with 1,250 of the alliances in Georgia.
"I'll use a bridge as a metaphor that runs between the local, regional or national community. The other side is global debt. It's very disturbing because it is not available to us and fundamentally, it is not available to you," Dorfman said. "Global debt markets want certainty. [Credit unions] have sound principal underwriting. To be safe and sound is second nature to you."
Building connections with global markets can beneficial to credit unions. Eighty-five percent of FHLB's profits are passed on to its lending partners through dividends.
Dorfman said credit unions should tout their model more, especially as other financial institutions have buckled under bad lending decisions. He encouraged the industry to do away with the "natural frictions" that sometimes exist between large and small credit unions.
"If your name is Navy [Federal Credit Union], that's good. If your name is [a] 'local' [credit union], that's good," Dorfman said. "Study yourselves because you will be called upon by regulators and others who want to know 'how did you do that.'"
Dorfman said the FHLB is looking to expand its affordable housing initiatives with credit unions. In 2008, the FHLB Atlanta poured $43 million into developing owner-occupied and rental housing for very low-, low- and moderate-income families. Credit unions in Georgia contributed $600,000 to the effort, Dorfman said.
Days before President Obama unveiled his plan to help homeowners facing foreclosures, Dorfman expressed optimism that the mortgage market is nearing the bottom.
"We may never return to an area of rapid growth. The proper controls must be firmly implemented and controlled. Risky practices must be eradicated."
Dorfman said one of the "greatest under-told stories" is the universal availability of cash that is being conserved because "risk is out of style." He acknowledged recognizing "investors who are conserving capital and expressing no degree of risk that is going to advantage their financial institution."
"The question is how long can investors tolerate no return. The other question is how much pain can the other side take," Dorfman said.
Touching on other issues, Dorfman told attendees that he is not aware of how many credit unions and other lenders are being affected by fair value accounting, but "for us, it's constant and painful and we're doing our best to manage through it." FHLB Atlanta has spent time working with regulators and independent auditors to "value our securities appropriately." Indeed, the public deserves to know how the bank is selling its debt securities and how to invest at certain prices, Dorfman added.
"I remember a much nicer time early in my career when at 3:00 or 4:30, I would make some calls and have a sense of the mark to market-mark up or down based on volatility," Dorfman recalled. "But [now] when you're looking at 3,000 basis points, something smells."