Leadership capability shows up under stress, not in benign conditions. The decisions your CEO made during the easy years on everything from underwriting discipline and liquidity buffers to capital management, determine whether your credit union weathers the next downturn or scrambles to contain damage.
In short, your CEO performed well when credit was cheap and members wanted loans. Now it's time to test how they'll do when defaults climb and liquidity tightens.
What CEOs Did When Growth Looked Easy
The last few years rewarded CEOs who said yes to loans. Rates were low, employment was strong and members had cash. Credit unions that grew their loan portfolios looked smart. Those that maintained tight underwriting standards looked cautious, maybe even timid.
So what did your CEO actually do?
Did they loosen debt-to-income ratios to keep pace with competitors? Did they extend auto loan terms to make payments affordable? Maybe they pushed into commercial lending without building the underwriting expertise first, or approved second-lien home equity loans at 95% CLTV because the collateral looked solid.
Did they hold the line when everyone else was easing standards? Did they walk away from deals that didn't meet established criteria? Did they build capital buffers when they could have paid higher dividends?
The answers matter now. Credit cycles turn. The loans your CEO approved in 2021 and 2022 are starting to show stress. The underwriting decisions they made when growth felt free are becoming delinquencies, charge-offs and board conversations about allowance adequacy.
The Liquidity Question Nobody Asked
Growth eats liquidity, and every new loan funded draws down cash or requires borrowing. CEOs chasing loan growth during the easy years made a bet: That deposits would keep pace, that borrowings would stay cheap, and that they wouldn't need cash for anything unexpected.
The credit unions struggling now aren't the ones with credit problems yet. They're the ones with liquidity problems. Members moved deposits to money market funds chasing yield and borrowing costs jumped. CEOs who assumed liquidity would always be available are learning it's expensive when you need it and gone when you can't pay for it.
The CEOs who maintained higher cash positions looked inefficient when rates were low. Now they look prepared. They have options. They're not scrambling to offer promotional rates to retain deposits or explaining to the board why they're paying 5% to borrow from the FHLB.
Capital Buffers: The Decision That Tells You Everything
Capital management reveals how CEOs think about risk. When earnings are strong, the question is simple: Build capital or distribute it?
CEOs focused on member satisfaction and board goodwill pay higher dividends, offer lower loan rates, and keep net worth ratios near regulatory minimums. They optimize for today's satisfaction scores and this quarter's financials.
CEOs focused on institutional resilience build capital when they can. They maintain buffers above regulatory minimums. They explain to boards that capital is insurance, not waste. They endure complaints about being "too conservative" because they know what happens when capital is inadequate and losses materialize.
Check your net worth ratio in 2021 versus now. If it declined while earnings were strong, your CEO chose current benefits over future protection. If it increased, they prioritized resilience.
Neither choice is obviously wrong when things are going well. Yet when losses mount and regulators start asking questions, you'll know which CEO you have.
Leading Indicators They Should Be Watching Now
The CEOs built for credit cycle downturns don't wait for delinquency reports to tell them loans are souring. They track leading indicators that predict trouble before it shows up in past-due categories.
What is your CEO monitoring right now?
Early-stage delinquency trends: Are 30-day delinquencies rising before they become 60 or 90-day problems? Small movements in early delinquency predict larger losses six months out.
Credit line utilization: Are members drawing down HELOCs and credit cards faster than usual? Rising utilization signals cash flow stress before missed payments start.
Payment-to-income ratios: As inflation ate into household budgets, did members' debt service burdens increase even if they're still current? Members with DTI above 43% are statistically more likely to default when any disruption hits.
Charge-off timing: How long does it take your credit union to recognize a loan is uncollectible? CEOs who delay charge-offs to manage earnings are storing problems, not solving them.
Member service patterns: Are more members requesting payment extensions, loan modifications or skip-a-pay options? These requests are leading indicators of financial distress.
The CEOs who track these indicators adjust underwriting, tighten standards and increase reserves before the board asks. The ones who don't track them explain rising losses after they appear.
What Crisis Decisions Reveal
The measure of a CEO isn't found in routine governance or long-term strategy sessions. It's revealed when systems fail, risks materialize and decisions must be made with limited information.
When early warning signs appeared, did the CEO immediately inform the board or hold back until the numbers forced the conversation? Did they build loss reserves ahead of time, or react only after examiners intervened?
A CEO who delivers bad news promptly, moves ahead of mandates and is willing to be criticized for caution protects the organization. A CEO who prioritizes perception, delays tough choices and rationalizes the past increases the eventual cost.
The Path Forward
If your CEO made conservative choices when growth looked easy by maintaining tight underwriting, building liquidity buffers and increasing capital, they're ready for what's coming. Trust them when they recommend tightening standards further or increasing reserves. They've earned credibility.
If your CEO chased growth without building defenses, you have decisions to make. Can they adjust to the new environment? Do they recognize what needs to change? Are they monitoring the right indicators and taking action, or are they defending past decisions?
Some CEOs who thrive during expansion can't shift to defense during contraction. The skill sets are different. The temperament is different. If your CEO can't make that shift, delaying the decision makes the problem worse.
Credit cycles separate the CEOs who can manage through volatility from those who need stability to succeed. You're about to find out which one you have.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.