ARLINGTON, Va. -- The credit union model is not sustainable without access to supplemental capital and more ability to make business loans, Co-Op Financial Services President/CEO Stan Hollen told a group of credit union executives.
Allowing supplemental capital would make credit unions more competitive because "some banks can count debt as capital, and we should be able to do it," he said during remarks at a July 26 meeting of the Metropolitan Credit Union Management Association.
He noted that the supplemental capital isn't a panacea, but it would be a boost for healthy credit unions, especially if it is structured so that only member capital is allowed. Otherwise, there will be undue pressure to focus on revenue, rather than what is good for the members, he added.
Hollen, whose CUSO is the nation's largest, said there are several things that should cause credit unions serious concern in the months and years ahead.
He noted, for example, that credit unions could lose between 30% and 50% of their interchange fee income because of the Federal Reserve's new power to regulate those fees. That provision was one of the most controversial parts of the regulatory overhaul bill that President Obama signed into law on July 21.
Hollen said in addition to interchange, losses in other noninterest income will be an exceptionally difficult challenge. Because of recent changes requiring consumers to opt in to overdraft programs, credit unions will need to be more aggressive in persuading customers to sign up. This is significant because 80% of the income from this kind of protection comes from 20% of members.
He also said that the smart use of technology can both make money and save money for credit unions. Encouraging home banking and other transactions that don't require personal contact can be a more effective way to expand operations than incurring the expense of building another brick and mortar branch.
Hollen, a former president/CEO of Golden 1 Credit Union, encouraged attendees to find more ways to cooperate among credit unions. This will save money and bolster the cooperative model.
"Much collaboration occurs because CEOs know and trust each other and want to work together. This has changed because more people in credit unions come from outside and don't have the experience in the culture of the credit union movement," he said. "Cooperation is important because none of us are strong enough to stand alone."
Hollen encouraged credit union leaders to view CUSOs such as his as partners, not vendors.
The event was moderated by Credit Union Times Editor-in-Chief Sarah Snell Cooke.