GREEN BAY, Wis. (5/18/10)--The economic downturn has created opportunities and challenges for the credit union system, but credit unions--and the system--may need to change if they want to meet the challenges and take advantage of the opportunities, say CUNA Mutual Group.
John Lass, senior vice president of strategy at CUNA Mutual, delivered that message to members of the Wisconsin Credit Union League at the league’s annual convention. Lass provided an overview of the economic crisis and the financial health of the credit union system to make his case. “We have come through a truly historic period of economic crisis,” Lass said. “As we now move into a recovery period, the question is how the credit union system can grow as a result of the upsurge in member trust that credit unions are experiencing and the decline in confidence in the large national banks.” His discussion explored practical ways “to take advantage of this unique opportunity.” Lass illustrated the need for a strong and competitive credit union system:
* Credit unions have a local presence and are funded locally, making them not as dependent on the capital markets as banks and finance companies. As a lending institution, credit unions use local underwriting and decision-making. In many cases, the credit union staff know the borrower on a first-name basis, which is typically not true of national bank lenders. * The cooperative ownership structure makes it difficult for any group of outside individuals to exert undue influence on credit unions’ strategic decisions. By comparison, many bank holding companies have institutional ownership. * Credit unions offer the affordably priced products and services that consumers require now more than ever. Credit unions provide an average benefit of $198 per member household, or $104 per member, according to the Credit Union National Association’s Benefits of Membership Report of December 2008. * The credit union system is not nearly as concentrated as the banking industry. Today the five largest bank holding companies control nearly 40% of total bank deposits in the U.S. The credit union system, by comparison, has less concentration. * The credit union system entered the economic crisis with strong capital. Despite combined impacts of assessments and loan losses, the average capital ratio on Sept. 9, was 300 basis points above the National Credit Union Administration’s (NCUA) “well-capitalized” benchmark. * The cooperative structure does not reward excessive risk-taking, resulting in lower delinquencies than banks. Banks reported a 4.94% delinquency ratio, according to the Federal Deposit Insurance Corp.’s Quarterly Banking Profile from third quarter 2009. During the same reporting period, according to NCUA’s 5300 data, credit unions reported a 1.69% delinquency ratio. * Credit unions can successfully pursue a customer-intimate strategy in a way that’s more difficult for a bank to achieve. Customer intimacy is considered the most powerful value proposition an organization can build. It not only commands the deepest and longest lasting customer loyalty, but enables the organization to better anticipate the needs of its customers. * Credit unions consistently achieve high consumer trust ratings in independent surveys, including the Financial Trust Index of Jan. 27, in which credit unions earned a trust rating of 58%, compared with local banks at 53%, national banks at 31% and banks in which government has a stake at 21%. The trust factor ranked credit unions seventh among top-ranked companies in Forrester’s 2010 Customer Experience Index. * Credit unions did not cause the current economic crisis. Recent credit union losses are more a result of being caught in the backwash of the broader financial and real estate markets. As a result, credit unions--for the most part--avoided the subprime and related lending practices that led to the current financial crisis. * Ironically, credit unions were formed in response to a similar environment of economic crisis, leading to federal legislation to establish credit unions in 1934. Times like this are why credit unions were formed.