The One Thing Needful

What should the credit union approach be to the economic downturn? I believe it is very simple: give us the tools and we will continue to lead America’s economic recovery. The tool involves only a three-word change in the Federal Credit Union Act’s definition of net worth.

By striking the current definition of “retained earnings balance” and replacing this with the word “capital” or “member capital” as determined under generally accepted accounting principles, the credit union model is complete.

Why focus on member capital?

For every dollar of capital an individual credit union will lend another $6-$8 dollars in loans. The most pressing need in America today is a resumption of normal credit market activity. Credit unions are proving daily that they are the most viable financial system in America.

Member capital will provide the foundation for continued leadership, enhance the reality of member-ownership, provide alternate capital models and thereby enhance future safety and soundness.

Member capital is the original core of the credit union cooperative model. Share insurance neutered the economic impact of this structure. Prior to the Credit Union Membership Access Act of 1998, alternative member capital was both a statutory and practical reality. CUMAA eliminated this historical legacy, imposed PCA and provided no tools to meet this new capital model. Now is the time to correct this structural flaw.

Today, natural person credit unions can capitalize CUSO’s, corporate credit unions, the CLF, the NCUSIF, and the FHLB system; but not each other! The system has over 11% capital but often it is not in the right place at the right time and therefore cannot be mobilized for opportunity, to address economic distress, or to underwrite new charters.

How to accomplish this goal:

The time is short. The Congressional momentum is urgent. The temptation for credit union congressional strategists to ask for everything in the hope of getting something is overwhelming.

Credit unions have a documented record of successful lending and leadership in this economic downturn that Congress will respect and honor—if we continue to focus on our model. If we become another supplicant, how do we distinguish credit unions from those institutions which caused the problem?

Unity of purpose and plan is critical. NCUA and the state regulators with NASCUS must affirm the vital role of member capital. CUNA and NAFCU must have a common front. Everyone must put their individual priority second to the welfare of the whole. Large credit unions and small, financially successful and economically challenged ones must agree that a foundational change, a capstone to the cooperative model, is more important than a myriad of other pressing needs.

To assist this process, the CUSO partnership CUFLSP managed by Callahans has put together a short draft position paper providing some more background on the opportunity. Do take a few minutes to read this draft.