One of the great movies that came out last year was “Moneyball,” a film about baseball but also about how organizations can thrive in challenging times. It certainly applies to credit unions given the economic, regulatory, legislative, and other challenges that they’re facing. The movie offered a number of lessons: results matter even when times are tough; it is important to adapt rapidly to a changing environment; and it is critical to stay true to one’s values.
Just as in baseball, results matter for credit unions. Sports teams are supposed to win games and credit unions are here to help our members buy things. If they want to buy something now, credit unions can lend them the money. If they want to buy it in the future, credit unions can take their deposits and hold their money until they need it. Credit unions are successful with their service and pricing when they convinces members to choose their cooperative over the competition.
But to be positioned for future success, credit unions have to grow capital. This means that credit unions have to make money and just how much they need to make is driven by how fast they want to grow. In short, they need to grow at some rate, and make money on capital at a similar rate to avoid capital issues that may limit the future ability to help members.
In “Moneyball,” the team adapted to its situation by being unwilling to pay for what they didn’t need. For credit unions the ability to adapt is increasingly important. The events of the financial crisis have had effects on credit unions’ financial performance. Early in the crisis, earnings suffered as credit losses increased. Since then, earnings have benefited from the reversal overly aggressive allowance for loan losses as well as by the transition to a much lower rate environment.
Over time, the allowances for loan losses will decrease to the appropriate size and interest rates will begin to stabilize and perhaps increase. These two recent tail winds to earnings streams will dissipate and making money will become more difficult.
To adapt to a tougher earnings environment, credit unions need to take an example from “Moneyball” and become more efficient in how they operate. Find ways to serve your members that both increase your level of service to them while decreasing the cost of doing so.
The things that made credit unions successful a few years ago may not lead to success again, so adaptability will become increasingly important as the pace of economic, regulatory, and legislative change increases.
True To Credit Union Values
Toward the end of “Moneyball” the main character faces a dilemma: he’s offered an opportunity that has a number of benefits but that conflicts with his values. He turns it down. Credit unions similary stick to their values by being there for members. If a product, service, or activity doesn’t benefit members, you shouldn’t be doing it.
Without them you can’t be there for your members. In 2011, credit unions posted their strongest financial results ever. But the landscape is changing and many of the revenue sources will decline while regulatory and credit costs are likely to rise.
Adapting by increasing operational efficiency and ensuring that revenue sources are sufficient to build capital to support growth has never been more important. Remaining true to your values and to your members will ensure that you don’t lose your way. Baseball may be our national pastime, but credit unions are our nation’s premier financial institutions.