I recently started in my fourth decade in the credit union movement (20 years at natural person credit unions and 13 years at Corporate One FCU). During that time, I've seen my share of regulation changes, legislative mandates and economic cycles.
There have always been those who have predicted that “this or that” will result in the demise of credit unions. Yet, credit unions are still here and still thriving. Sure, we've had tough times, but we've also had great successes. That's the strength of credit unions; we turn adversity into opportunity by the thing we hold dear–keeping the focus on the members.
It's no different for corporates. Lately, I'm frequently asked about the future of the corporate system. There is a common misconception today that corporates must radically reinvent themselves or that there won't be any strong corporates in the future. I've provided my thoughts to four of the more common questions and concerns I frequently hear from credit union leaders about the future of corporates.
Aren’t all corporates essentially the same, with the same challenges and/or the same business model?
No. Just as there are credit unions of different sizes and different fields of membership, so too are there corporates of different sizes, with different service offerings, different capital structures, different levels of personnel expertise and different business plans. There really is a difference.
Are changes to NCUA Reg 704 going to hinder corporates from being profitable, and will they be less competitive in the future?
Just like credit unions, the key to success under the new rules and capital ratios proposed by the NCUA will be how well the institution is run. My advice is to start looking around at each corporate, choose a few to examine with some thorough due diligence, and look for a corporate with the necessary capital strength, consistent earnings and menu of service offerings to serve your credit union members into the future. Find the ones that have managed well throughout the crisis and who are ready for the future.
Aren’t economies of scale required to make it in the new competitive environment?
Strong, disciplined management focused on running an efficient business model beats out bigger any day. Today, being bigger alone does not create economies. It is innovation, the application of technology and staying focused on what you do well that create the greatest economies.
Finally, the question I get the most. What will a successful corporate look like in the future?
First and foremost, tomorrow's strong corporate will be focused on creating value for their members and providing them with the solutions they need to be successful. They also will be well-capitalized, not adequately capitalized. (How many of your examiners are happy if your credit union is just adequately capitalized?)
A strong capital position allows corporates to use their balance sheet to provide solid returns on their members' excess funds, and most importantly, provide members liquidity and lines of credit, which was the reason corporates were set up in the first place.
Capital also provides us the ability to grow the corporate and invest in our members, continuing a tradition of providing innovative solutions designed by credit unions for credit unions. Just like at your organization, capital is the foundation for a successful business.
I'm very optimistic about the future of corporates because I believe there is still a need for the services we provide. I'm proud to be a part of a system that is able to serve and support the credit union movement. At the end of the day, the corporates that will succeed will be those that can continue helping credit unions do what they do best, which is serve their own membership base. If we continue to do that, and I know we can, corporates are here for a long time to come.
Lee C. Butke is president/CEO of Corporate One.