How Two Game Changers Got Lost In Shuffle
OVERLAND PARK, Kan.-With so many things in the financial services world crashing down around credit unions, it was easy to miss the two big game changers that would have remodeled corporates regardless of the new corporate rule out of NCUA.
That's according to Dan Kampen of the Rochdale Group, who noted that corporate credit unions have long recognized that if ever the Federal Reserve began to pay interest on reserves and the settlement process was to be streamlined, corporates were going to have to rethink the way they do business.
And both of those things have happened. The Fed began paying interest on reserves (though the Fed compounds fortnightly, while corporates compound daily), and same-day ACH and other online technology has greatly improved settlements.
"It's still an arduous task," said Kampen, the one-time president of US Central who departed before the current problems developed. "But it wasn't nearly as tough as we thought it was going to be when we had clients request that we evaluate their settlement mechanisms. It is not insurmountable. Change is always difficult, but this is easier than credit unions think."
Credit unions now have more control over how they want to do this business, he suggested. Adding to that is the fact that NCUA isn't forcing credit unions into a rush to judgment.
"NCUA was good about giving credit unions time to make good choices," he said. "You really have to hand it to NCUA, given what they had to work with, they did a good job. Credit unions don't have to panic because they have some time. Of course, that time will go quickly, so they can't dawdle, either, but they're not left scrambling."
What will credit unions be looking at during that time? "A lot of credit unions are looking for collaborative ways to deal with this," Kampen offered. "Even if it's not with a corporate, credit unions are looking at how they can come together to work on this. They are looking for options that don't require a corporate charter or any sort of financial institution charter, because then you have to write a capital check."
As for the corporates themselves, it's going to be a brave new world. "Corporates that can think outside of the box and embrace the new reality posed by those two game changers, those that can develop a new business model, will survive," he observed. "I think the future for corporates is going to be transaction facilitation and not balance sheet management, facilitating movements of liquidity, rather than managing that liquidity directly."
As broker/dealers and other vendors look to swoop in and grab market share, credit unions may well find they are willing to give up a few basis points if it means they don't have to put additional capital.