SACRAMENTO, Calif.-Remember those "experts" who told CUs too much capital was a bad thing?
Teresa Halleck does, and she said the chief lesson learned during the recession is clear.
"Prior to this economic downturn, there were some who used to preach that credit unions were doing their members a disservice if their net capital ratios were strong," recalled Halleck, CEO of $7.1-billion The Golden 1 CU. "In financial services, net capital is king and always has been. For the credit union industry, net capital is a very precious commodity since it is only attained through earnings. It is unfortunate so much pain has been endured in our industry as a result of the severe economic fallout over the past two years, however I remain optimistic that those who previously undervalued the accumulation of strong net capital now understand that it must become non-negotiable."
Lesson Two: A disservice is done to the credit union and the member when loans are made to borrowers who do not qualify. Credit unions have a responsibility to lend responsibly to their members, she insisted, and "sometimes the only appropriate answer to a member's loan request is a decline."
In such instances, the help the member needs is financial counseling rather than a handout that cannot be repaid due to financial incapacity, Halleck asserted. When a credit union "facilitates irresponsible member behavior and excuses poor underwriting practices under the guise of 'member service' it does the member and its entire credit union membership a tremendous disservice."
Lesson Three: Halleck believes the industry learned that no credit union-natural-person or corporate-should engage in activities that it does not fully understand or which cannot be fully explained to those who may be affected. Many credit union failures, she noted, appear to have resulted from CUs taking on lending activities which they did not truly understand or have the expertise to handle.
"But this shortfall could be applied to many other industry situations that have surfaced," she observed.
Lesson Four: The final lesson, in Halleck's opinion, "but certainly not least important," is the events of 2009 have been a wake-up call to the industry overall relative to its cooperative structure. She said regardless of how well managed any federally insured CU has been, or how insulated a credit union's members or service areas may be from the economy, "we are all feeling the impacts of corporate and natural-person credit union losses and failures."
