internal NCUA problems are symptoms of a much larger issue. Credit
unions are fighting for their survival, their relevance during a
time of extraordinary change and opportunity. In a networked era
during which cooperative, Internet-based solutions could be changing
the options for consumers, credit unions are at a regulatory disadvantage.
NCUA has not grasped this challenge.
point out NCUA's failure to understand the change in credit unions'
market situation. The first is the flight from the federal charter.
Conversions to state charters are now being talked about by most
credit unions. Although many have decided not to change, the topic
has been brought to a federal credit union's board table more frequently.
The second example
is even more telling, however. The current NCUA policies have allegedly
been directed at helping small credit unions survive. But the data
shows that the reverse is true.
71% of Credit
Unions are Going Out of Business
Over 71% of credit unions have fewer than $20 million in total assets.
Looking at these credit unions' recent performance shows that members
are slowly liquidating their involvement. The majority of these
credit unions have negative share growth. Membership growth is less
than half the national average. These credit unions must spend from
25% to 70% more on operating expenses than they can pay in dividends.
They must charge more on loans than larger credit unions to sustain
their margin to pay the higher expenses. Few can offer share drafts
or credit cards and their average share and loan balances are only
15% to 30% of that of larger credit unions.
These 71% of
credit unions are going out of business. They are not producing
value for their members. With rare exceptions, such as significant
sponsor support or unusual sacrifices by a management and board
team, the credit unions cannot keep up.
But they are not alone. The rest of the credit union system is suffering
from the same market-driven changes as are the small ones. Larger
credit unions may have more options to stave off short-term assaults,
but not the inevitable outcome. Today, consumers are looking for
ways to manage their funds and financial relationships very differently
from the ways of the 1960's and 70's credit union model. Credit
unions need a much more open and responsive regulatory system to
meet members' changing expectations.
Kind of Failure
Because there have not been the insurance losses that characterized
prior periods of change in financial services, many people today
assume that the system is sound and that the future is, even if
uncertain, at least assured. Nothing could be further from the truth.
Failure today is caused by a loss of relevance. The problem shows
itself most clearly in the smaller credit unions, but the challenge
is one every credit union faces. NCUA has not responded to, let
alone recognized, this sea change facing the credit union system.
with New Leadership?
Two qualities will be necessary in the new leadership at NCUA if
the regulatory climate is to help credit unions reverse the trends
The first is an administration more open to the demands and requirements
of the marketplace. Members are not tied into their credit unions
by some special charter or regulatory fiat. Members have choices
and will go where they can be best served.
The second is
a more open and conscientious administration of NCUA assets and
personnel. Spending more is not the key to effectiveness; nor is
a larger workforce. Focusing on unleashing the power of credit unions
to cooperate may entail fewer agency resources in some areas.
The case for
change is not a Republican or Democrat issue, or a liberal versus
conservative view of government's role. Rather it is recognition
that credit unions, despite widespread participation, often have
very shallow member relationship roots. Finding ways to enhance
the way credit unions serve will be an enormous challenge. Likewise,
new leadership at NCUA needs to redefine how the agency plays its
role in the credit union system.