A Missed Opportunity to Tell the Credit Union Story

In an October 14, 2009, presentation to the Senate Banking Subcommittee on Financial Institutions, NCUA missed a chance to present the extraordinary results credit unions have achieved during the worst financial crisis of a generation.

The hearing on the state of the banking industry began as Congress is also taking up bills to revamp the regulatory structure. As Senator Tim Johnson, subcommittee chairman stated at the outset: “I don’t think we can do that (reform) without a clear understanding of what is happening with the sector.”

If there was ever a time to tell the credit union story, this was it. But instead of describing the incredibly positive results credit unions have accomplished for their members, the economy and America’s recovery, the Agency presented 19 pages of predictions of increasing problems and losses.

The Real Credit Union Story

The real credit union story of the past two years can be quickly summarized and presented. During this period of severe systemic risks, credit unions using the latest June 30, 2009, data reported:

• Record share growth
• Record amounts of loan originations
• The strongest capital levels of all financial institutions
• Stable asset quality reflecting sound underwriting
• Growing market share in every credit market in which they participate
• Increasing trust by both members and the general public

The national press has stated that credit union lending practices could be “serving as a model of others” (Business Week, August 13, 2009). This spring, at the peak of the credit crisis, a March 15, 2009, Wall Street Journal article stated: “the nation’s 8,000 credit unions are gaining new stature as reliable sources of lending in the tempest-tossed credit market.”

The Credit Granting Story

Sometimes a picture is worth a thousand words. As shown in the following graphs, banks have been shrinking their loan portfolios and unused credit, including an $800 billion reduction in credit card lines alone.

In contrast credit unions have increased their loan portfolios, originations, and market shares.

Our Story is Even Better in Context

All of the above has been accomplished solely with credit union resources. There has been no TARP, no TALF, and no other aid from the government to inspire this record credit granting activity.
In addition, credit unions have been leaders in loan modifications, a fact NCUA did record, but failed to mention that the industry had requested the CLF’s help to accelerate this modification effort just as the need turned greatest last fall. So much more could have been, and still could be done, if the collective resources were made available so that credit unions could implement even faster their counter-cyclical lending role.

What is even more disappointing in this public presentation of the industry’s state is that the same day as this hearing, J.P. Morgan reported its third quarter results of record earnings of almost $2.6 billion. One of the initial Tarp recipients, now paid back, and a user of the FDIC guarantee to issue debt, J.P. Morgan’s financial success was hailed as an example of the positive benefits of the government aided recovery under way.

What went unnoticed except for a back page analysis in the Wall Street Journal was the following fact:
“J.P. Morgan’s results suggest it will be a long time before the business of making loans recovers. Loans fell $28 billion from the second quarter.”

Telling the Credit Union “First-Responders” Story

Whatever the reason for NCUA’s inability to present the credit union story before Congress, it does not make the real facts any less relevant or important.

Of all the financial institutions today, credit unions have been leading America’s financial recovery. They have done this by being the first responders to the credit needs of members and communities.

Now the credit union system participants must tell the story of keeping faith with members, doing the ordinary in extraordinary circumstances. This is a critical message for Congress, the Administration, and the general public as the economic revolution enters the phase of regulatory reform. Credit unions have stayed true to their public policy purpose. Who knows, maybe even the regulator might get the good news.