The Road Ahead for CUs Need Not Include a Cut and Run to Bank Charters
I was slightly amused when I opened your Jan. 20 edition to the centerfold and noticed articles from two noted credit union lampreys, Marvin Umholtz and Alan Theriault. As they have done so often in the past, both give the opinion that the credit union community faces severe difficulties. Umholtz focuses on the long-term negative impact that the losses in our corporate credit union system will have on natural person credit unions. Theriault follows that with his usual answer to our dilemma-convert to a bank charter. Rather than point out the self-serving nature of their positions, I think it's only fair to acknowledge that there is some truth to their basic premise. After all, even hypochondriacs get sick on occasion.
It is true that natural person credit unions will be responsible for repaying billions in losses from corporate system losses. And unless this economy makes a dramatic turnaround, we will very likely be facing hundreds of millions in losses from natural person credit unions in the near future. It is also true that, under current regulations, the only way for most credit unions to foot these bills will be from existing capital or future earnings. Either way, our business plans will be impacted by the limited options afforded us.
Regulators, legislators, Treasury officials and anyone who can spell AIG have developed a deep desire to "protect" the financial system from future collapse. That desire will certainly lead to requirements for increased regulatory oversight and increased capital levels. From what I can tell, every community bank in Florida is currently working on plans to increase their capital, even those not required to by regulators. They understand that access to capital is the biggest driver for their future success and, yes, survival. Is there any conceivable scenario where credit unions will not be facing the same issue?
But our response shouldn't be, as Theriault suggests, to cut and run to the nearest stock option. The credit union charter is the most favorable charter for consumers. It just needs to provide for capital options that will enable us to continue providing services to our members in this new normal economy. Those options (risk-based and alternative forms of capital) already exist and work, just not for most credit unions in the U.S. It's time we caught up to our fellow cooperatives around the world.
Important regulatory changes are being considered right now. We should do everything within our power to make sure our legislators and the administration understand that for credit unions to remain the viable, consumer-focused financial institutions we were created to be, we need capital reform.
Suncoast Schools FCU