How credit unions are still benefiting from the 2023 banking crisis

Credit unions have been yelling from the mountaintop for years that they are not simply banks with a tax exemption. And in a time of crisis, the differences in how they operate became more evident — and more beneficial.

In early March, Silicon Valley Bank's outsized deposit exposure to vulnerable technology start-ups ultimately forced regulators to shut it down. That was quickly followed by Signature Bank failing, and Silvergate Bank deciding to self-liquidate following its big bets on cryptocurrency.

Credit unions hustled in the aftermath of the failures to get the message out to members that their balance sheets were vastly different than those of the failed banks and therefore they do not have such risky exposure. They also reflected on their own operations to ensure that they remained protected from any of the market trends that the crisis amplified. 

As part of American Banker's Most Powerful Women in Credit Unions ranking, several honorees weighed in on what the financial crisis taught them, and how the situation reiterated what the industry has been saying for decades.

"Credit unions are part of the solution. In many ways, the crisis was about consumers' trust. Overall, I think it affirmed our mission and our purpose, that we were on the path toward helping people in achieving financial wellness," said Donna Bland, president and CEO of $20.5 billion-asset Golden 1 Credit Union in Sacramento, California.

Bland also said the crisis was a reminder that the strength of a financial institution and its practices are vitally important. 

"That's why we employ prudent risk management practices in our decision making, including diversification of our portfolios, protecting Golden 1 and our members in volatile economic periods," Bland said.

Beverly Anderson, president and CEO of $29.2 billion-asset Boeing Employees Credit Union in Tukwila, Washington, said the crisis highlighted the fact that credit unions saw little stress from members, and in some cases, credit unions in close proximity to some of the failed banks saw net gains in members and deposits. 

"That said, our foundational approach to business and financial management has not changed as a result of the banking crisis," Anderson said. "BECU's business model is largely consumer-based and well-diversified."

Anderson pointed to the credit union's diverse deposit base as proof. BECU has about 8% of uninsured deposits, and that level has remained stable over time, she said. Member deposits were $25.9 billion and were relatively flat year-over-year after two years of record-setting growth, Anderson said.  

In 2022, during a time of severe economic uncertainty, BECU saw new membership growth of 3.6%, equating to over 100,000 new members and bringing its total to nearly 1.4 million. 

The credit union also ended the year with a net worth ratio of 10.66%. BECU's member loan portfolio grew by 23.1%, to $16.3 billion, and its teams returned over $362.3 million to its members through lower rates and low-to-no fees compared with bank averages 

As the nation's sixth-largest credit union, Golden 1 wanted its members to know that the credit union is well-capitalized with more than $1.3 billion in net capital and has access to more than $10 billion in available liquidity to absorb any potential impacts of shocks within the financial markets, Bland said.

"Credit unions were founded on the concept of people helping people and improving the financial well-being of its members. The banking crisis really showed us how important educating members and communities can be," Bland said. 

Some smaller credit unions used the financial crisis as a reminder of the importance of contingency planning.

Tonita Webb, CEO of the $837 million-asset Verity Credit Union in Seattle, said the credit union was reminded that it must always be prepared to shift and adapt swiftly to changing circumstances. 

"This mindset not only allows us to weather unexpected challenges, but also positions us to seize new opportunities that may emerge during times of disruption," Webb said. "We recognize there is nothing wrong with pivoting in a different direction when circumstances demand it."

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Moreover, the crisis prompted Verity to assess its branching strategy. The credit union examined whether it is operating in the correct locations to serve its members effectively, Webb said.

"We considered how the pandemic had shifted the preferences of our members, with some embracing digital banking and others preferring traditional in-person services. This evaluation helped us refine our branch network and enhance our digital offerings to ensure we met our members where they were," she said. 

Some economists are predicting that the U.S. could still enter a recession this year, so financial institutions are not yet out of the woods. Going forward, some credit unions — including the  $168.4 billion-asset Navy Federal Credit Union — said they will work to develop special programs and education to address member concerns.

"At the end of the day, we have an important advantage: we are not-for-profit. We are member-owned cooperatives, and our members are our shareholders. Especially in times of financial uncertainty, we will always have a member-first mentality," wrote Mary McDuffie, president and CEO of Navy Federal. 

McDuffie, who ranked No. 1 this year and last  year in American Banker's Most Powerful Women in Credit Unions, said all credit unions are going to face challenges in 2024, given the state of the economy. 

"My aim is to enhance our members' experience as much as possible during these challenging times, listen to their feedback and adapt accordingly," she said.