Successfully navigating the perilous seas of the deepest economic decline since the great depression and a global credit market meltdown was no easy task... congratulations. Sure most of us have some water in our boat needing to be pumped (not bailed) out, but we were available for members when they needed us most. Coming into the recession, the fundamentals of solid capital levels and disciplined underwriting helped us weather a serious storm. From this position of strength we helped a record number of members improve their cash-flow through refinances, extended credit when others had exited the market and provided a safe haven for member deposits.
Is it over yet? Metaphorically moving from the sea to land, we are on the road to recovery, but the road is filled with ruts and loose stones. Stumbles are likely; falls (double-dip recession) are possible. If this was the great recession, why would you expect a normal recovery? While many economic indicators are headed in the right direction, there are a great many risks as well. Credit crisis II could easily begin in Europe, the commercial real estate markets, Fannie Mae/Freddie Mac, or any combination of the above. Given unprecedented global fiscal and monetary stimulus, interest rate spikes are possible and would trigger a major economic setback. Indexed interest rate resets would generate payment shocks and likely set off round two of delinquencies, defaults and charge-offs. The list goes on and on.
Am I pessimistic about the future? No, we will recover, but I am also pragmatic, knowing recoveries are not straight lines moving from the trough of the recession to the next peak. I will become more confident when I see consistent, sustainable employment gains, particularly in the private sector.
Since St. Mary's Bank opened its doors 101 years ago, the nation's credit unions have survived and prospered through 20 recessions. We accomplished this by focusing on member financial well being and constantly evolving to meet members' needs. Will we suddenly stop evolving? Our history and knowing a great number of credit union leaders, gives me confidence in our future. If all goes right, we should see slow, but steady progress toward rebuilding capital.
Not intending to pile on, but beyond the current economic challenges we have a rapidly evolving legislative and regulatory environment. So far, everything I've seen detracts from the bottom line and our ability to rebuild capital. From NSF to interchange, non-spread revenue will be diminished. From compliance to healthcare costs, expenses will rise. Throw in assessments and average investment yields just barely above cost of funds and we have an environment where all expenses must be challenged. And we need to revisit potential economies-of-scale through a common credit union back-office platform.
Moving beyond the near-term, my big concern is that economic cycle and legislative/regulatory issues are stealing precious leadership time from strategic preparedness. Boomers are entering their retirement life phase en masse. How do we remain relevant to key membership segments? Has anyone noticed the next generation of borrowers rarely sits across the desk from the loan officer? How do we become relevant to the membership segment needed to lead us into the future?
CUNA Mutual Group Chief Economist Dave Colby submitted this guest blog entry.