I speak to many credit union and vendor executives and enjoy a bird's eye view of the credit union industry at the national level, so I chose this week to share the top five challenges I see right now for credit unions.
No. 1: Access to and treatment of capital.
The remainder of this list isn't in any particular order, but capital access and treatment is credit unions' No. 1 issue, not du jour, but in perpetuity.
I'm an alternative capital convert, but restrictions must apply. Healthy credit unions should be permitted to offer members the ability to invest in their financial institution without expectation of special treatment other than a higher return on their uninsured funds. The one member, one vote philosophy must be maintained.
However, probably more helpful and more likely to get approval in Washington is risk-based capital. As the international banking scene lays out its framework for capital, so should credit unions. Positioned as a tool for the regulators to better understand the issues of a credit union, it would be difficult for lawmakers to responsibly deny this for credit unions when the other financial regulators are using it. A risk-based capital framework for credit unions, depending upon the leverage ratio, is something the American Bankers Association has said it would not oppose. To quote ABA Economist Keith Leggett from 2006: "Yes, we think it's wise that you have risk-based capital standards that are comparable to banks' risk-based standards." The NCUA and the industry working on this together will also have a greater impact with the legislators.
Either or both will help credit union executives to better run their institutions to expand financial services to those who need them and act as an even more influential governor on pricing. Or at least it could help credit union to not cut back their services to pay for the NCUA assessments.
No. 2: Board member education.
The NCUA has issued a notice of proposed rulemaking on board of directors' fiduciary duties. The recent revelation that three-quarters of credit unions are under some sort of administrative action by the NCUA, according to "The Safety & Soundness Report," indicates two things: the agency is being hyper-vigilant on several fronts, and some boards need to kick oversight up a notch. The basic training in the NCUA's notice is just a sign of things to come and it needs to be taken very seriously. And it is the right thing to do to help prevent further financial crises.
This isn't just about credit unions. For-profit entities will be tightening up their board requirements as well. The hurdle that credit union's have is the difficulty they can face in recruiting board members on a volunteer basis. Yes, credit unions are not-for-profit and board members aren't paid, but the responsibilities are essentially the same. Some credit union boards and management are very on top of the issue, but many are not.
No. 3: Demographics.
The average age of credit union members is in the upper 40s. Credit unions literally cannot afford to not proactively seek out younger members. The figure isn't going to magically change on its own. And if younger people don't know of credit unions or understand their benefits enough to become a member, then how are they going to become interested enough to work at a credit union? Credit unions may not offer the pay and benefits that many banks do, but they offer, or should offer, other lifestyle benefits that can be appealing to Gen Y, such as flexible schedules, time off for volunteer work or on-site childcare. Diverse demographics at your credit union-among members, staff and boards and across age, gender, race, etc.-is a safety and soundness issue. Without diversity, no business will be successful.
As there is turnover in credit unions' corner offices and others in the C-suite because the baby boomers are beginning to retire, it could be a serious wake-up call for boards as well. We often receive press releases on executives retiring after three, four, even five decades of service. Some of those retiring started out as tellers and worked their way up the ladder, but that's not how the next CEO will get that spot. The next CEO candidates likely will be mid-level managers from banks with MBAs in hand. Compensation expectations will be quite different, and credit unions will have to pony up to obtain and retain the necessary talent.
No. 4: Exploring new or expanded revenue streams.
NAFCU wrote last week to President Obama, who faces 9.5% unemployment as many of his fellow Democrats head into election season, asking him to support the Udall amendment to expand credit unions' business lending authority. Credit union business lending is an obvious and free way for credit unions to help spur the economy.
Service Credit Union has caught the bug, but the banks and CUs are still feuding in Washington. The banking groups, which had the cap slipped into H.R. 1151 in 1998, are highly reluctant to give it up. The bankers argument that credit unions business lending cap is because they are tax-exempt entities does not hold water because both business lending and the federal corporate income tax exemption have been a part of credit unions since well before 1998.
And while it's helping the economy, expanded business lending-underwritten and priced properly, as well as other relevant services-provides credit unions a greater revenue stream that's badly needed right now. This is just one of many options for credit unions to explore.
No. 5. Public image or lack thereof.
Credit unions must develop a national awareness campaign. Credit unions and related entities must brush up on public relations. Credit unions must realize PR is not the same as marketing.
Both marketing and PR are crucial, but selling a product and pitching a story idea are entirely different. CUNA, in particular, has received a lot of airtime and ink in the mainstream media. The trade group accomplishes this by presenting its staff as experts in housing or credit or whatever the subject-not hawking its wares. The implicit third-party recognition that these credit union representatives are experts goes a long way toward awareness and credibility. Try it at your credit union.
The ABA last week sent me, as a journalist, an e-mail survey about the helpfulness and responsiveness of its PR team and the quality of its staff expertise. This effort will likely go a long way toward fine tuning bankers' PR work. And consumers already know what banks are.
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