New Industry Issues on the Horizon
After almost 10 years covering credit union news, sometimes it seems the same topics come up over and over. Not this week, as new industry issues graced the front page of our paper.
For example, credit unions dodged a bullet Oct. 17 when they woke up to news that Congress agreed on a plan to avoid a federal debt default and end the government shutdown. As Credit Union Times reported on page 1 this week (Debt Deal Spares Credit Unions), had the default occurred, it could have devalued the U.S. Treasury securities most consider to be gold standard investments.
As a popular YouTube video says, ain’t nobody got time for that.
According to the NCUA, as of Sept. 30, Treasury securities represent $6 billion in federally insured credit union assets.
Granted, that’s less than 1% of total industry assets, but it could have thrown a wrench in credit union books as they approach year-end, typically crunch time to shore up financials.
Thankfully, an end to the impasse means credit unions that extended federal pay to members will get their money back soon. In general, that backpay will come in the next pay period, although how that will all play out will vary from agency to agency.
For the price of two-week interest-free loans, credit unions picked up some great press and good will among members. However, I doubt anyone wants to see this come up again in February, even if it means federal employees flock to credit unions knowing they are a preferable source of emergency funds.
Another topics that was news to me this week was a survey that revealed only 18% of member households place a strong trust in their credit union’s financial advisers. Those same households overwhelming trust credit unions for basic financial services products, but when it comes to retirement planning and other important investment decisions, credit unions still have a reputation for being unsophisticated.
This flies in the face of bankers’ claims that credit unions, especially big ones, are essentially no different from banks. In the eyes of consumers, they’re not. And not in a good way. It brings to mind the never-ending effort to convince members that yes, credit unions do offer mortgages, and yes, they are competitive and convenient.
If I ran a credit union that offered investment services, I’d have to wonder if the effort is even worth it. By the time you commit to making investment services a core product and spending considering money on marketing, as experts recommended in the story, non-interest income gained might be a wash.
Thankfully, traditional products like new and used auto loans are picking up, and not a moment too soon for credit unions struggling to earn revenue as they face a risk-based capital rule that is expected from the NCUA by year end.
We all know the only way most credit unions can build capital is through retained earnings, which have been hard to come by lately for all but the largest of credit unions.
The silver lining to the risk-based capital rule is that it might give supplemental capital legislation the push it needs on Capitol Hill. Last Congress, the bill sponsored by Rep. Peter King (R-N.Y.) never made it out of committee although it had generated 45 co-sponsors. King reintroduced the bill in February and it has already attracted the same number of co-sponsors, with more than a year before the current Congress ends.
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) is not currently a co-sponsor, nor is Vice Chairman Gary Miller (R-Calif.), which probably means the the bill isn’t at the top of the committee’s priority list. However, Chairman Emeritus Spencer Bachus (R-Ala.) is a co-sponsor, and make no mistake: Bachus still has pull in the financial services arena.
Other members of the committee have also inked their support, including Ranking Member Maxine Waters (D-Calif.) and Gregory Meeks (D-N.Y.), who is the financial institution subcommittee’s ranking member.
I predict this bill will pick up steam after the NCUA proposes its risk-based capital rule, which is sure to draw howls of protest from the banking lobby. However, I’d imagine Congress is far more influenced by the NCUA’s support of supplemental capital than it is by the same old Chicken Little message from bankers when it comes to credit unions encroaching on their market share.
Let’s hope the industry can score a win on this one.