Be Brave and Do the Right Thing

When the dust finally settles on credit union crisis two things may emerge. The first may be enforced reform and the second a split as the movement fragments into various constituencies.

Reform may be enforced by virtue of the state supporting credit unions through a guarantee or some form of NAMA solution for investment losses. And the state will be right to insist on reform.

Its sheer nonsense to continue to carry on the business using a model that is decades out of date. Credit unions whether the like it or no will be forced to adopt the savings and loans model where they will be funded through deposits and share accounts will represent a form of equity investment carrying higher potential returns paid from residual profits. They will also be required to get the business of savings and loans right – they will never be allowed to build large scale investment portfolios again and many will be required to unwind from their ludicrous high risk exposures they should never have built.

They will be required to shrink balance sheet size if they cannot lend. This means learning to operate on a slimmer budget and reduce costs in line. Already there is a move to reduce the cost of free LP/LS insurance coverage and some will shortly move to a hybrid free/member pay model.

Enforced mergers will become common place and may be facilitated through some form of government intervention. Left to ILCU or credit unions themselves consolidation will become a shambolic mess. Indeed I would argue that credit unions should look for a central agency tasked with consolidating the sector. There is only one sponsor with the power to ensure a proper approach and that is Government. It most certainly is not a trade body, ILCU or CUDA, operating through a self-directing stabilisation system no matter how well intentioned or for that matter regulated.

The nonsense of launching a universal banking account will have to take a back seat.
Credit unions cannot afford to increase costs any further and do not have the resources to support the investment and effort required to build a meaningful presence in the consumer current account/transactional market. In any event the marketing spend required to achieve even a 1% market share gain would bankrupt many operations.

Lending safely will be quite a challenge given the sub-prime pathology inherent within lending practices and the publics’ perception of credit unions being a clubby poor man’s bank. The current media advertising campaign is correct to position lending in the right market space but will need a hell of a lot of local intense marketing to make it pay. It’s failing to gain traction as the news is that new lending volumes are declining and not increasing.

In their short life time of only 50 years credit unions have never faced such dangerous times. The absence of a central body charged with ensuring financial stability and having the resources to do so is making matters far worse. Most directors will be unaware of the danger inherent in governments’ recent moves to legislate for private stabilisation – they may even believe it is a good thing. Far from it, private schemes have failed or been shut down everywhere else in favour of government agencies who have been largely successful in ensuring strong stable credit union movements. The real danger lurking in the long grass is that credit unions will be left to sort out their own problems which is something in the absence of leadership, competence and ability they will be unable to do. One senses that a hidden anti-credit union agenda hides behind political rhetoric. Memories of times when credit union reneged on a deal and nearly brought down a government remain strong.

The brave thing to do is to actively advocate for and insist on a government supported and empowered “credit union support agency” tasked with helping the movement trade through its crisis and facilitating consolidation onto a stable financial platform for the future.

How many credit unionist leaders would adopt such a position today? How many would be prepared to argue for reduced autonomy within a federalist system to achieve a sustainable future?