We are at a critical juncture in the history of credit unions. Negative events seem to be piling up on us. There is enough denial, over-reaction, semi-panic, and name calling to fill our days. It is time for all of us to take a deep breath, reflect and consider where our behavior is leading credit unions.
Addressing credit unions that were well run and prudent, I am sorry that you were adversely affected by all of this. It is easy to see that your patience is tested when your hard earned capital is depleted by assessments through no fault of your own. To add insult to injury, you have an examiner that lectures you to build up your capital while also telling you to reduce the risk in your lending portfolio that earns income to build capital. If that were not enough, your sizable non-interest income from interchange fees and overdraft fees is being drastically reduced by Congress.
This is a lousy hand of cards to play but play them you must. You have some choices to make. The temptation is to “hunker down,” trim some costs and staff, increase a fee or two, and weather the storm until things get back to “normal”. You hope the capital will hold out until you can find a way to earn money again. This is your heart talking. Your head knows that there is new normal and the traditional credit union model of living off of the net interest margin is gone forever.
Albert Einstein said, “Problems cannot be solved within the framework in which the problems were created.” If we are to solve the problems of the traditional credit union model, we must look outside the credit union world for answers. The outside business world is evolving from the traditional top-down all in-house run organization to a more nimble organization that uses a combination of in-house and out-sourced service solutions that provide superior and accountable services at a reduced cost. Credit unions need to emulate that model in order for the industry to sustain itself.
CUSOs and collaboration work to generate income and reduce expenses. There are examples of credit unions and CUSOs that have generated over a million dollars in non-interest income and saved over a million dollars in operational expenses for credit unions. Collaboration works but there has to be the right mindset, a sense of urgency and the will to implement it.
Now is the time for the regulators and the regulated to consider how we can build a business model that works in today’s environment. Maybe that model includes risk based capital and secondary capital but it will surely include an extensive network collaboration model. In this model, credit unions will share resources for operational services such as compliance, IT support, HR, internal auditing, due diligence etc. Credit unions and regulators will permit these CUSO networks to act on behalf of the member credit unions for due diligence and operational oversight for the services offered. The credit unions will remain independent entities. The CUSO network will be invisible to the members of the credit unions. How can credit unions, particularly small credit unions survive without collaboration? The supervision of credit unions will be much more efficient and effective with CUSO networks.
We are at a pivotal point in the history of credit unions. Credit union regulators and credit union leaders have an opportunity to make transformational changes that will insure the survival of credit unions for generations. If this opportunity is not seized quickly, we will witness the slow motion liquidation of many credit unions. The risk of doing nothing has now exceeded the risk of change.