DANA POINT, Calif. — There is no shortage of challenges andissues facing the credit union system, and three of the industry'sleaders had the opportunity at the NASCUS State System Summit toshare their perspectives on what they consider the primary issuesthe industry must address to preserve and strengthenstate-chartered credit unions and the dual chartering system.

Joining moderator John Annaloro, president/CEO, WashingtonCredit Union League on a panel discussion were Kirk Cuevas,partner, Dollar Associates; Diana Dykstra, president/CEO, SanFrancisco Fire CU; and Gavin Gee, director, Idaho Department ofFinance.

“Credit unions are at a crossroads, at a fork in the road. Thechoices are there for them to make,” Cuevas told attendees beforesharing his observations on the issues influencing credit unions'decisions and future.

Among the issues he cited were decreasing numbers of creditunions while membership is increasing, all-time high capital levelswhile CUs' growth is constrained because capital is based on totalassets, increased scrutiny of the tax-exemption, expanded productsand services but increased regulatory requirements, increased costof compliance, the importance of regulators keeping the balancebetween safety and soundness and the ability of credit unions tocompete effectively, and lack of documentation demonstrating creditunions' service to the underserved.

Cuevas continued to outline what he considers the six choicescredit unions will need to make: 1. Capital modernization–the needfor a risk- based capital structure that “truly” identifies risk.2. Competition–credit unions are either going to have to “embracethe marketplace or try to escape from reality.” 3.Cooperation–credit unions have to find more ways to cooperatethrough things like CUSOs and shared branching if they're going tobe able to compete because of limited resources. 4. Enhancing theviability of the credit union charter–the federal and statecharters are viable charters in the competitive financial servicesmarketplace, and “we have to take that argument off the table as areason for a credit union converting to a non-credit unioncharter.”

5. Congress–CUs can't rest on their laurels from their victoryin 1998 with H.R. 1151. They need to remain committed toadvocacy.

6. Consumerization of members–members increasingly can't tell usthe difference between credit unions and banks.

Commenting on the issue of CU-to-bank conversions, Cuevas said,“Credit unions and regulators have to think outside the box to findways to work within their statutes in a safe and sound manner socredit unions aren't forced to find alternative ways likeconverting to non-credit union charters. Both state and federalregulators have to explore ways to be innovative.”

Dykstra also addressed the importance of members understandingthe credit union difference.

“If members don't understand it, then the credit union valueproposition is all messed up,” she said adding, “Credit unions havethe wrong value proposition. They need to compete to be unique. I'mnot sure credit unions are relevant in members' lives. Creditunions need to take a more forward look on where the market isheaded and find innovative ways to respond.”

On that subject, Dykstra offered, “Sometimes credit unions thinktoo much about what regulators may think about what they want to doinstead of thinking of what's best for their members.”

Dykstra also agreed with Cuevas' position that cooperation iskey to the credit union industry's survival.

“Why spend money on redundant resources when you can share inoperating expenses?” she asked.

When it was Gee's turn at the microphone, he cited severaladditional crucial issues facing the credit union system, includingthe increased federalization of the financial services industry,the adequacy and stability of state agency budgets, the loss ofsmall credit unions, and the regulatory burden on creditunions.

According to Gee, increased federal preemption of state law andauthority “is a threat to the entire state credit union system.Preemption is very broad in its scope. A preemption in one statesets a precedence for preemption in other states.”

Concerning state agencies, the Iowa regulator said states almostalways have balanced budget requirements. In addition, he said,“states are always vulnerable to piracy by federal regulatorsbecause of the salaries federal agencies are able to pay.

Gee estimated the credit union system is losing about one creditunion a day through consolidation, and “that's both a state anddual chartering system issue,” he said.

Gee noted that the states charter about 85% of new creditunions, and “it's a threat to the entire credit union system tolose these credit unions.” –[email protected]