The trouble with our times is that the future is not what it used to be. Too many credit unions are living on borrowed time as well as outdated business models. They believe that the past can be maintained, even restored-that philosophical advocacy and emotion will carry the day. Financial stimulus initiatives and TARP funding may serve to temporarily delay the inevitable, but may also attract potentially retributive consequences.
To the point: Strategic planning needs to become strategic, a significant change from the decade-old processes of incrementally establishing ratios, growth projections and other traditional metrics. Not that these aren't important. They will result from a focus on macroeconomics. An old Chinese proverb bears repeating; "When the wind changes direction, there are those who build walls and those who build windmills."
The current financial industry tsunami has to awaken those in the credit union seats of power to a new perspective and a different future. This will require the abandonment of a vast array of injurious concepts and failed business practices. Pragmatic forward-thinking leadership is needed; those with the will and the courage to boldly move forward in times of adversity; simulators who can intelligently deal in reality. This future will aggressively pursue the numerous business opportunities that often have been traded off primarily to preserve the tax-free status of U.S. credit unions. Elsewhere-Canada, Great Britain and Australia-credit unions are taxed, yet remain predominantly profitable. They have seized the opportunity to become key influential players and integral partners in the national banking system.
The following 10 issues provide a starting point. Planners should fully discuss the implications of each for their organization and objectively drill down into the subsets, as well as the cost-benefit relationships and assess the best case, worst case and most likely planning scenario appropriate to their individual circumstances.
Consolidation of all federal regulatory groups into one national regulator and deposit insurer and the likely demise of excess insurance corporations (except where legislated, as in Massachusetts) in light of the $250,000 insured limit.
Loss of credit unions tax-exemption. Considering the United States' projected federal deficits over the next three to five years, tax revenue generation will be paramount. Accepting TARP and other funding will generate renewed ABA initiatives to tax credit unions and legislators will be hard pressed to justify exemptions.
As taxable corporations, operating on a level playing field with banks and other financial fiduciaries, the common bond will be redefined and probably eliminated; UBIT litigation becomes a moot exercise; SEGs, CUSOs and similar inventions will largely become irrelevant.
Consolidation of credit unions from the current 8,000 to 2,500 or less, and a marked reduction in conversions to mutual savings banks. The surviving credit unions will be community based, offering a broad range of services to consumers, smaller enterprises, as well as participation lending with other credit unions to larger businesses. Survivors will have developed a list of merger partners and begin actively soliciting interest in combining operations.
Reduction in the number of state and national trade associations, special interest organizations, corporates and a consolidated advocacy initiative. Dues will be minimized or offset against fees for services that will generate the revenue to promote and protect the overall industry.
As consolidation progresses and aggressive credit unions make significant investments in information technology to automate administrative processes, thousands of credit union employees will lose their traditional jobs, including CEOs. New productivity benchmarks, like accounts per employee, will become paramount. A strategic focus on risk-management policies and practices will become critical to achieve a prudent risk framework.
The dual chartering system will likely lose its appeal. The FDIC, the IRS and FASB will become the three primary influences that drive business decisions. State credit union regulatory bodies may no longer serve any useful regulatory purpose.
Credit unions operating in sponsor facilities can expect their corporate step-child status to end, resulting in increased operating costs. Corporations everywhere are looking at ways of paring down their costs as well as increasing revenue.
The greatest risk any industry faces is reputation risk. As the financial woes of the credit union system become exposed in the public arena, strategic planners will have a well thought out response system in place.
Establish an objective tone for setting future strategic policy.
The Stone Age didn't end because they ran out of stones. Innovation replaced stones; innovation created the industrial revolution; innovation created the Information Age, and innovation will drive the world out of the current global economic crisis. Greed and malfeasance created toxic assets. Strategic and innovative planning will separate the survivors from the credit union graveyard.

Instant Insights /

Credit Unions Must Put Strategy Behind Their Strategic Planning

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