No Government Bailout Required: Credit Unions Pick Up the Check
Gina Ragusa March 30, 2011
As the big bank bailout and financial debacle continues to echo down the hallowed hallways of Wall Street investment banks, credit unions remain focused on the mission of “people helping people,” even opening their wallets to aid the industry.
Recent news of NCUA’s pending Wall Street investment bank lawsuit further illustrates the financial ripple effect big banks have had on the economy. Last Wednesday, The Wall Street Journal reported that federal regulators are accusing Wall Street banks Goldman Sachs, Bank of America Corp.'s Merrill Lynch unit, Citigroup Inc. and J.P. Morgan Chase & Co. for the demise of five major wholesale credit unions in 2009 and 2010.
The banks sold $50 million worth of subprime mortgage backed securities to these credit unions that ended up only being worth $25 million. When the credit unions collapsed the entire industry was put into peril because wholesale credit unions (credit unions for credit unions) provide vital services such as check clearing for nearly 8,000 member-owned retail credit unions across the country.
Rather than see the entire industry go down with the ship, NCUA asked Congress to create a corporate stabilization fund attached to a loan through the Treasury Department. This fund, however comes at a price…directly from your credit union’s pockets.
Instead of looking to the government for help or passing the cost onto its membership, retail credit unions have quietly paid loan premiums based on their total deposits.
Local Credit Unions Are Ready to Help
According to Rogue Federal Credit Union President/CEO Gene Pellham paying the premium to help the industry was a no brainer.
“Fortunately, credit unions are incredibly resilient and the credit union model has been validated by how we have managed to keep the number one focus in credit unions, our members, the number one focus during the economic crisis.”
Pellham says that he stands proudly by the credit union model and feels that the industry was prepared for the challenge. “I am a champion of the credit union model and while the difficulties presented by the investment losses have challenged our movement, we have proven, once again, our tax exemption is justified and provides a clear benefit by proving that we were able to navigate through this crisis without direct federal assistance.”
He continues by saying that rather than dwelling on the negative, credit unions across the country are shedding a positive light on the situation. “Would we have liked it to be different, absolutely, but instead of sitting around complaining about our challenges we are taking advantage of the opportunities this crisis has presented.”
Additionally, now that big bank politics and mismanagement has come to the forefront through issues such as this, consumers are taking another look at credit unions and voting with their dollars. Pellham says, “Our credit union has experienced member growth of over 6% and our deposit growth is currently running over 15% because we were there when our members and our community needed us. The industry will be reshaped by the opportunity to show our country what a valuable and trusted resource their local credit union can be.”
The Credit Union Movement Has Been Reinforced Through Tough Economic Times
Pellham explains that consumers are seeking an honest financial advocate who will be on their side more than ever. The “bigger is better” philosophy has washed away and todays' consumer seeks a financial institution that plays fair and protects the member/consumer relationship.
Rogue, like many credit unions, have found that membership has grown over the past year, partially due to multi-national financial fallouts but also because people simply want a financial institution that does the right thing.
“We realize the importance of really winning the relationship of our members today. If we do the right things for our members they are going to remember who was there for them when they were at the most difficult point in their lives.”
We have to remind ourselves of our purpose of ‘people helping people’ and continue to provide our members with the services they need at the local level,” he says. “So, early in the crisis our leadership team developed a clear, measured, and methodical plan to address the increasing severity of the financial challenges that we were being presented with.”
Pellham explains that this detailed plan was approved by the board and then shared with each staff member. “Everyone knew that our focus was first and foremost to protect member value, maintain our high level of service, and provide assurance to our staff that while we would ask more of them, we would do everything in our power to avoid layoffs or other benefit reductions.”
He says that this contingency-based plan outlined three levels with a corresponding response to each level. By clearly communicating the consequences, everyone joined together and were able to maintain our high level of service and avoid staff reductions or decreases in benefits.“
Pellham adds that this plan solidified the credit union’s position in the community as a trusted, local, financially sound institution. “I am so proud of how our staff and volunteers rose to the occasion and our tempered, but determined response to the crisis has resulted in even greater member loyalty to our credit union.”
What’s Next for Credit Unions?
Pellham says that credit unions will continue to stand strong and provide the same level of service and focus as it has for over a century. He explains that Rogue and other credit unions throughout the nation stood tall during this economic crisis and will continue to produce the same strength and vibrancy for years to come.
“I feel it is important for credit unions to embrace the credit union model and all that being a not-for-profit financial cooperative entails. We chose to sacrifice current earnings and net worth to help our loyal members through this economic crisis. Why? Because it was our members’ money, not ours!”
He admits that this philosophy is not acceptable for a for profit institution, but that’s why consumers seek credit unions. “We leveraged our net worth to build trust and confidence in our credit union that will ensure our vibrancy and relevance for many years to come.”
“We chose to implement measures that were member focused and still came out of the crisis with a strong balance sheet and an even stronger organization. I am fortunate to have a board of directors that leads our credit union as a member focused and financially sound credit union, not as a Fortune 500 company. If we can learn one thing from this crisis… it is that “doing the right thing, is still the right thing!”
Related Article: NCUA Wants Answers for Credit Union Financial Losses