Corporate Capitalization: Look at the Big Picture
With weeks to go in the corporate capitalization process, it is important that every credit union make a thoughtful, well-documented decision and actively consider their involvement, if any, in a properly structured corporate as part of their fiscal strategy moving forward. This call to action raises two distinct questions. What do the terms “actively consider” and “properly structured” mean?
In the most basic sense, actively consider means that no credit union should allow the option for corporate involvement to pass without directly reviewing the situation and all possibilities for capitalization with due diligence. It is true that in recent history corporate capitalization has come under fire and in some cases for good reason.
This does not mean that corporate involvement should be written off, particularly based on emotion. Many credit unions have invested the appropriate time and resources to ensure that the decisions they make are in the best interest of their members as well as in the interest of the credit union system. They should be commended for these efforts and their example should be taken as a friendly reminder that all things being equal, credit unions' support for each other is critically important.
Holding leadership positions throughout my career, I fully understand that with the pressures of daily operations, it takes work to maintain a healthy perspective on big picture items. This issue is one that may have a long-term and widespread effects on the health of the credit union system.
In light of this, I urge the leadership of our nation's credit unions to play an active role in bringing this decision to your boards and membership and weighing all options and factors carefully before moving forward.
Once all options for capitalization are on the table and being considered, the question of sustainability comes to the forefront. Corporates that are properly structured or restructured as the case may be, will be in the position to stay healthy and provide relevant services far into the future.
It is no secret that the number of corporate credit unions, as well as the role they play in day-to-day business, will be significantly amended in the near future.
The corporates that do survive will be operating under a substantially different model, and there are several key indicators that can be used to assess an institution’s adoption of this model. One such indicator can simply be the stated intent and plan to restructure.
Also important is a thorough review of capital and resources other than capital. It will require open and candid communication from all parties involved to assess the soundness of an institution prior to capitalization. Maintaining member service as our primary purpose and guiding principle will help to ensure that healthy decisions are made.
Moving forward with these decisions, it is easy to make reactive choices based on the recent problems faced by some of the corporates. Please remember that for decades corporates have provided excellent service, solid returns and trusted relationships. In fact, the corporate system was created because our outside relationships were unavailable, fickle and could rarely be trusted.
There are great options for capitalization available, and each credit union should actively seek out these properly structured institutions and provide their support. Time is running out to preserve the option for credit union corporate services, and the current regulatory mandate requires live or die decisions to be made by early September.
CEOs and boards should take action immediately. It would be unfortunate to let the capitalization deadline come and go on a passive basis only to look back wistfully and wish decisions had been handled differently. We in the credit union movement have, in the last few years, weathered the worst financial storms since our founding.
Again, each credit union must make its own decision, but from my new prospective, I personally believe it would be helpful to have the option of corporate services available to credit unions as we emerge from these hard times and build a new era of cooperation and service.
Make a conscious decision. Don’t let this issue be decided by default.
Daniel A. Mica, former CUNA president/CEO, recently established his own management consulting firm, Daniel A. Mica LLC.
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