CUNA Forecast: Be Prepared for Continued Slow Recovery (Misc News: January 13, 2011)
A CUNA economist says the expected slow recovery of the nation’s economy has implications for credit union actions.
CUNA’s forecast calls for the job market to continue to recover slowly while the unemployment rate remains elevated. Credit union savings balance growth is expected to remain at 5 percent this year, while loans are expected to increase to 4 percent.
With the recession ending, credit unions will need to look at rebuilding their capital. At the beginning of the recession, 91 percent of credit unions had net worth/asset ratios exceeding 9 percent (e.g., well-capitalized with a two-percentage-point buffer). Today, only 75 percent of credit unions have this level of capital, Schenk said.
"Most of those institutions that saw the decline in capital saw that decline through no fault of their own," Mike Schenk, CUNA vice president of economic and statistics told CUNA News Now. "They were collateral damage - suffering simply because local real estate markets imploded. It's important for all credit unions that those affected credit unions be given the chance to restore net worth quickly through access to alternative forms of capital.”
Schenk said credit unions need to step up their involvement in the political process to avoid even more regulations than came down in 2010.
"There were a boatload of laws and regulations introduced last year. Those laws and regulations come at a cost,” Schenk said. “Credit unions can either pass costs along to their members or eat them - but then credit unions can't grow as fast, and members will suffer down the road. So continue lobbying lawmakers and regulators to soften the blow of the new regulations.”
A majority priority for CUNA in 2011 will be ensuring that the two-tier interchange system will be effective. Credit union members can go to Operation Comment on the
CUNA homepage to submit their comments on interchange to the Federal Reserve Board.
• "In the current environment, investment yields are close to zero, which indicates that the changing mix of credit unions assets has put significant pressure on credit union bottom lines," Schenk said. "Credit unions should - if they haven't already done so - re-evaluate deposit pricing to ensure that they can afford the growth."
• "On the other side of the balance sheet, it makes sense to redouble efforts to steal loans from other financial institutions," Schenk said. "While members' appetites for new debt are low, it may be possible to entice those burdened with higher-rate bank loans to come to credit unions."
• While CUNA expects the economy and labor markets to improve, there definitely will be unusually high levels of bankruptcy filings in 2011. So proactively helping members to avoid that situation and/or managing that process will be especially important, Schenk said.
• A final key action is collaboration. "It would probably make sense - given the financial challenges - for credit unions to begin steps to redouble efforts to engage in more cooperative endeavors, and collaborate to reduce costs and eliminate redundancies," Schenk said.