There are some
serious disconnects going on, ones that imperil the safety and soundness
of credit unions. One is the disconnect between credit union members
and their credit unions. The other is between credit unions and
their regulators. Think of members -- or the financial service clientele
at large -- as being on one railroad track. It is engaged in a curve
that has been and is becoming increasingly sharp. It is pursuing
the goal of greater convenience, faster transactions, better technology,
lower borrowing costs, and higher returns, most notably long-term
returns for college and retirement, even at the risk of no federal
are trying to stay on a parallel track in order to keep up with
the members, but the credit union curve has very often been less
sharp. It is in danger of allowing more and more distance to intervene
between its track and the members' track. It tries to offer the
technology the members -- or potential members -- want, tries to
offer the convenience, rates, products and services they are demanding,
but finds the attempt to do so very much a struggle.
yet on a third track. This one has the shallowest curve of all.
Increasing distance is building up between it and the credit union
track. The reason for the divergent paths or tracks is not too hard
to fathom. Organizations such as credit unions are market-driven.
Regulatory systems are bureaucratic and not market-driven. The bureaucratic
system can change, can follow a curve, but very often it is not
going to be on a curve parallel to the market-driven one.
This is what
is happening now. Credit unions are on the middle track. Members
tug it from one side; regulatory bodies from the other. Members
are not going to pay much attention to regulatory bodies; they are
going to go where the good products and services are. Credit unions
will try to keep up at the pace regulators allow. If the regulators
don't provide the flexibility and responsiveness needed, the credit
unions won't be able to keep up and the not-for-profit cooperative
alternative to for-profit banking in this country will cease to
Bit of History
in this century the American people needed an alternative to banks.
Common people pooled their resources and made credit unions, which
became charted in two dozen states. Credit unions were created to
serve people, and they did so. In fact, they were doing such a good
job, they petitioned Congress to allow for a federal charter and
credit unions across the country. Congress obliged.
Thus we don't
have to concern ourselves when people ask, "But what did Congress
intend us to be?" Our movement does not exist because it was
created from the top down; rather it was created from the bottom
up. We told Congress what we intended to be: cooperatives that would
try to serve the needs of its members whatever those needs might
Back to the
railroad track analogy. At the time of the organization of credit
unions early in this century, credit unions were on a track exactly
paralleling that of the members. The members, after all, created
the credit unions in order to exactly keep pace with their needs.
When the government helped set up a regulatory system in the 1930s,
its track was in pretty close parallel with that of the credit unions,
too. Otherwise, as everyone knew, the credit unions would not be
able to keep pace with member needs, members would drift away and
credit unions would fail.
You might say
that the best "safety and soundness" in those days was
really keeping the credit unions up to speed with the demands of
the members -- and potential members.
It is worth
noting that we did not tell Congress we wanted to be "safe
and sound" institutions. We always knew that if we were lending
to our members, there was risk involved. Serving came first; safety
and soundness was a means to the end of serving.
Back in Synch
we are faced with three tracks but on curves that are somewhat out
of parallel. Members are on the steepest curve -- they are changing
the fastest. Credit unions are on somewhat of a less steep curve;
they are changing, but not as fast. Well, to be more precise, some
credit unions are changing as fast as the members and are being
successful while other are changing less fast and becoming increasingly
distant from the members and potential members. The point is that
as a whole, credit unions are finding it difficult to keep up. The
regulators are changing too, but not so fast as the other two. They
are not so cognizant of just how rapid the changes in the real world
are. They, in part, focused on a bookkeeper's definition of safety
When really, the ultimate safety and soundness is not the level
of capital but how well the institution is attuned to the market.
If it is not tuned well, it is going to fail no matter its present
level of capital. If it is tuned well, it will retain and attract
members and it will be healthy.
Our task now
is neither to jump the track we are on to new forms of charters
nor to allow the three tracks to drift further apart. Our task is
to bring the credit union track and the regulator track into a parallel
relationship with the member track.