It is crucial that a dynamic and strong American credit union system have a dynamic and strong corporate credit union network. It is equally crucial that credit unions and corporates support each other in challenging times.
One of the CEOs I respect highly for the quality of the corporate he manages is Lee Butke at Corporate One in Columbus, Ohio. Lee once told me that "if there wasn't a corporate system already in place, a strong cooperative movement like credit unions would certainly create one." I agree wholeheartedly with Lee, and in my time as NCUA chairman, I witnessed first-hand how the corporate system helps the credit union system remain competitive and progressive.
Cooperatives, by their nature, should look for ways to cooperate within their cooperative family. For member-owned credit unions to do business wherever possible with other member-owned sources of product offering not only makes philosophical sense, it enables cooperatives to differentiate themselves more clearly in the marketplace.
Member-owned value can be added to member-owned value. The result is, not amazingly, more value to members.
As the current economic and financial crisis has caused many credit unions to begin asking the same safety and soundness questions they are being asked daily by their members of those they do business with, I have been questioned recently by many of my clients about the strength and long-term viability of the corporate network today.
My answer is always the same. The corporate system is and will be as strong as the support it receives from the natural person credit unions that both own and use the corporate system.
Most financial institution balance sheets are not as strong today as they were a few years ago. The mortgage meltdown has had spillover effects in other areas of lending, as well as in the value of mortgage-backed securities held in portfolios.
In a classic example of how an overreaction to an earlier oversight crisis at Enron and WorldCom can create one-size-fits-all statutory, regulatory and accounting interpretations that result in helping cause the next crisis, mark to market accounting rules have created a snapshot valuation scenario that inadequately indicates that some performing securities that are clearly intended to be held to maturity are valued today at a deeply discounted value as if they were being forced, in some unlikely scenario, to be liquidated in an illiquid market.
Corporate credit unions, like natural person credit unions, have not been exempt from these pressures.
However, the regulators at the federal and state levels have done an excellent job in responding appropriately to these issues within the corporate system.
Regulators are monitoring and stepping up their supervision of corporates to make certain that liquidity capital and risk factors are being properly managed. Anything but asleep at the switch, the regulators are being vigilant and diligent in their oversight. However, rightfully, they are not overreacting in a way that might cause the very type of problems in the corporate network they are working to avoid.
Only two things could bring about a permanency to the snapshot balance sheet issues facing some corporate credit unions today. One would be an ill-considered regulatory overreaction that might force the liquidation of assets in a very distressed market. The other would be an overreaction by natural person credit unions in pulling deposits out of their corporates and triggering the need for such a liquidation of corporate assets. In both of these worst-case scenarios, credit unions could lose a valuable resource in the corporate system.
I see neither happening.
The regulators are calling the game with integrity, but they are not going to the sidelines and forcing the coaches to call plays that may result in the corporates being thrown for a loss. They are being diligent but prudent. Likewise, credit unions are demonstrating prudence by hanging in there in support of their corporates.
The cooperative spirit seems to be reviving itself in this time of challenge in the nation's economy and financial system. Credit unions are providing the same level of support for their corporates as they are asking of their members in support of their credit unions.
The result will be a stronger system, both for credit unions and their corporates, when this fog lifts. And, as it always does, regardless of the deepest economic fog of our lifetimes, this current fog will lift.
And when it does, a stronger credit union system will emerge as our not-for-profit, cooperative structure becomes viewed by more Americans as a viable alternative to what surveys indicate they view as the "greed-based, profit at any cost" banking
and brokerage system that their tax dollars are
being called upon to bail out to the tune of hundreds
of billions.
Integral to the opportunities that credit unions will find before them when the fog lifts will be a healthy system at the credit union and corporate levels.
Today's support of credit unions by corporates and of corporates by credit unions will position our movement better when the sun does indeed break the gloom-as it always does.

Instant Insights /

Corporate System Is Only as Strong as Its Natural Person CU Support

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