Sitting through NCUA Board Member Gigi Hyland's 75th anniversary celebration of the Federal Credit Union Act, two things struck me: This isn't your run-of-the-mill CU celebration, and credit unions should not and cannot run around blaming everyone else for their woes.
First, after many years of attending various functions held by the NCUA, the trade groups and others, I have to say this was the most truly interactive event that held participants' attention that I've ever been to. There were no sacred cows. Topics ranged from supplementary capital to the future of the corporate system to alternative credit unions models from across the globe.
Note that it wasn't in some steamy, exotic locale; it was just a thorough, constructive and pointed exchange of ideas among regulators from all over North America, consultants, credit union executives, and board members in a nice but not ostentatious hotel on Capitol Hill. The location was appropriate to the times, right where policymakers do their work, and modest. Really, it was too bad that many could not afford to participate or chose not to, but then again, a larger crowd might not have allowed for the same casual yet stimulating back-and-forth.
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One of the themes of the first panel was that credit unions are looking around for everyone else to blame for their problems: the corporates, the regulators, the banks or whatever hairy, fangs-drenched-in-blood demon was available. Sure, all of these things impact credit unions, but credit unions must undertake some profound introspection as well. While everyone else is pointing fingers at the mortgage brokers, the investors, the ratings agencies and the regulators, it's tempting to do the same, but that won't fix the immediate concerns.
And these are issues that have been festering for, well, nearly 75 years, not just since the housing market crash and the recession. These matters include credit unions' inefficiency, appropriate capital levels, how to cooperate and compete, and organic growth.
For example, Scott Sommer, president/CEO of Cornerstone Advisors, blasted the myth that credit unions really tout their service. The cold, hard truth is so do the community banks. And, he said, much of that great member service is really putting out your own fires.
In addition, credit unions' efficiency ratio is horrendous. Credit unions spend 92 cents for every dollar they earn. Meanwhile, the banks are in the high 50s to low 60s. I'm not suggesting that credit unions slice and dice to the bare bones like the banks do to please their share holders, but there must at least be some happy medium. Credit unions would like to remain the warm and fuzzy lenders that try to please everyone. But it is in the best interest of the credit union community to preserve the institution and the movement for the future and not just preserve the past. If you continue to do what you've always done, you'll always get what you always got.
There's a lot of talk in the industry now about how do we become more efficient; we've gotten the requests for more news stories on the subject. The issue has reached critical proportions now, but why wasn't this a paramount matter while credit unions were out there in the good times being inefficient with members' money?
Credit unions claim to be all about the members, yet how do you think your members would feel if they knew you were only earning eight cents on the dollar?
One audience member stood up and stated that credit unions have been ridiculed for their high capital levels, but without them, they wouldn't be in a good position now to handle the rough times.
A panelist replied, much more eloquently than I will reiterate here, that the mentality was equivalent
to living in a bunker, and finally when "the bomb" is dropped you get to shout from the rooftops a resolute "I told you so." Yet, in the meantime you weren't living.
The same holds true for capital, which until recently hovered over 11% among all federally insured credit unions. Sure, it's great that the capital was around to be drained down, but how many opportunities for new avenues to capital were forsaken along the way? I don't mean regulatory or legislative changes, though that would help; I'm referring to offering prudent member business lending or risk-based lending or payday loan alternatives. These and many other products credit unions are not heavily involved in provide greater diversification of products for members, income streams for the credit union and reasons for more members to sign up.
The fact that about a quarter of credit unions are not online is astounding. I can't imagine a more efficient way to serve your members than a transactional Web site. Technological upgrades or even initiation are a must for the future.
Or maybe you're a tiny community development CU run out of someone's kitchen a few hours a week. You're proud of the way you provide savings and financial education to your low-income members, but do you not want to serve them once they grow into more financial savvy, more profitable members. It seems to me they would be absolutely essential to your very survival.
And for all the talk of being a cooperative movement, credit unions are not very cooperative. Canadian credit union representatives explained that many of the credit unions there are provided with a uniform marketing strategy and other efficiencies through a conglomerate organization.
However, in exchange, they give up the right to set individual interest rates. I believe that idea would probably go over like a lead balloon in the U.S., but the concept of collaborating on a universal brand is a promising one that credit unions must explore in earnest again, as well as other cooperative efficiencies.
Credit unions can continue to gripe about the banks beating up on them and moan about overly restrictive regulations. I hope this is not news, but these circumstances are not going to change and will likely only get worse. The key to keeping the credit union business model alive is to work creatively and collaboratively within it.
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