SAN DIEGO-The commissioner of the California Department of Financial Institutions does not anticipate many credit unions will follow in the footsteps of Technology CU and seek to switch to a bank charter.
"We are encouraging inquiries, but we try to remain charter neutral," William Haraf told attendees of the California and Nevada Credit Union Leagues' recent Annual Meeting and Convention here. "It is an arduous, lengthy process, so because of that we do not anticipate a flood of conversions."
According to Haraf, the key numbers for credit unions in the Golden State are "slowly improving." He said net worth ratios, delinquencies, charge-offs are all moving in the right direction, although ROA was depressed by the latest corporate stabilization assessment.
Despite the assessment, he reiterated, he does not anticipate CUs looking to convert to bank charters.
What worries Haraf is a lack of good revenue opportunities.
"The economy is in deleveraging mode, which is why the recovery feels so shaky even though the recession ended in 2009," he assessed. "People are still cautious or they took hits to their credit scores during the downturn."
As a result, credit unions must take on some riskier borrowers, Haraf continued, noting CUs already are booking more mortgages and investing in long-term securities.
"When I look at that picture, credit unions are taking on the profile of the S&L industry, and that worries me," he declared. "The Fed has stated it will keep interest rates near zero through 2013. I applaud that, but it comes with risk. One thing we have learned from this crisis is to expect the unexpected."
Fragile Recovery
U.S. gross domestic product for the recently concluded third quarter was an improvement over Q2, Haraf noted. California created 12,000 new jobs in September, but still that remains one-million jobs below the 2007 total.
Other risk factors for the recovery include the global economy, which Haraf said "weighs on all our minds." He predicted the problems in Europe will need a "long time" to work out, and expressed concern about inflation in China.
But the biggest risk factor, he continued, is political stalemate in Washington. "Both sides of the aisle have refused to cooperate and fix problems," he asserted. "The parties are anticipating next year's elections, but we cannot go on with this system. The super committee should help. I hope so, because the solutions won't wait until 2013."
The key differentiator in success versus failure for CUs is management and board governance, said Haraf, adding the leaders must have the ability to identify and remediate weaknesses quickly.
"Credit unions need a sober-minded assessment of risks, opportunities and their business plan," he said. "Many CEOs are on the verge of retirement-are their credit unions ready?"
Haraf said open and honest communication with the regulator is important on any issue facing CUs. "We don't like surprises, but we want you to succeed," he told the audience.
