A View Of CU Industry From Both Inside & Out
My favorite political philosopher, Yogi Berra, once remarked that "you can observe a lot by watching."
It was in that spirit that I set my compass during a five-year stint at the National Credit Union Administration. My time at the agency-after my years as a lobbyist at CUNA-gave me an opportunity to take a fresh and decidedly different look at credit unions, the industry's political agenda, the regulatory regime, and the way that credit unions are perceived on Capitol Hill and by the media.
I was often surprised, sometimes encouraged, occasionally disappointed-but never bored, particularly over the last two-and-a-half years, as the financial market meltdown convulsed the entire financial services industry.
As NCUA's congressional and media liaison, I had to cultivate an image that was different from my previous CUNA persona-not as an industry advocate, but as a representative of a federal agency responsible for advancing and articulating public policy.
The change in latitude, from CUNA's downtown Washington office across the Potomac River to NCUA, didn't produce a change in attitude. I have always been a true believer in credit unions and what they do for consumers. What it did produce, however, was an opportunity to see and hear things about the credit union movement that I hadn't been exposed to while in the trade association world.
I share the following observations in the spirit of helping the credit union industry refine its advocacy, accentuate the significant positives that credit unions offer, and avoid discussions that put credit unions in an unflattering light. In other words, to win the perception game.
Here are four observations about credit unions that crystallized during my time on the "outside"-all of them illustrating how credit unions can navigate increasingly deep and troubled waters.
• When credit unions advocate something for the good of members/consumers, they win. When they advocate something being good for their own bottom line, they don't. This became particularly clear during the opening rounds of the interchange battle last summer. The loss of fee income for credit unions, while undoubtedly real, shouldn't be the focus of the credit union argument against the Durbin Amendment.
The impact on consumers, on the ability of the credit unions to continue to offer debit-card programs, the effect that price controls may have on efforts to protect confidential data, are all arguments that resonate with members of Congress. More than one lawmaker has commented that they are only interested in how the interchange issue affects credit union members. Clearly that's the basis of any winning argument.
Owning The Grassroots Is Vital
• The bankers, particularly community bankers, believe they can beat credit unions on the grassroots front. Let me say right up front that I think the bankers are wrong. There is no more effective force on Capitol Hill than motivated, passionate and informed credit union activists. But there is ample evidence that community bankers are feeling their oats, and believe that they can match credit unions in this critical area. Their lobby now acts as if they have veto power over the credit union agenda, getting what they want legislatively while stopping credit union initiatives cold.
Look no further than the member business lending issue for evidence. Last year Congress gave community banks $30-billion in repackaged TARP money, ostensibly for small-business lending, while rejecting a bill to enable credit unions to help small businesses through more MBLs. Why? Because, in the words of one league president following a Capitol Hill meeting, "our senator said credit unions have great arguments on this issue, but he would have to check with the community bankers back home before he could support the bill." That's like asking the Pepsi salesman what he thinks of Coke, and it's got to stop.
The Agency As Cheerleader Myth Debunked
• Credit unions and their federal regulator don't get along all that well. That's OK.
Despite the best efforts of the banking industry to paint NCUA as a "cheerleader" for the industry, I think it's safe to say that there is tension between credit unions and their federal regulator, particularly in the aftermath of the corporate situation. This state of affairs causes a great deal of angst among credit union leaders, as well as some within the agency. Guess what? The rest of the world looks at the friction and shrugs.
The view on Capitol Hill and in the media is that the regulated and its regulators aren't supposed to be buddies. There should be a natural, healthy and dynamic arms-length relationship. So when credit unions complain to Congress about NCUA, most lawmakers are going to figure that things are working pretty much as they should. Or, as a senior Senate Banking Committee staffer said to me recently, "I hear a lot of complaints from back home about NCUA. Good. "
• If you think the financial crisis has distracted the banking industry from its assault on credit unions, think again. A case in point involved an undercapitalized credit union last year. When the credit union posted its financial statements, a local newspaper ran a particularly inflammatory and negative article about the institution's safety and its uncertain future. It also included quotes from a local banker and a bank lobbyist, crying crocodile tears about the turn of events. The bankers speculated that the credit union ran into difficulty because it "moved away from 'traditional' credit union practices," and did exotic things like make home mortgages. In other words, it got into trouble when it did anything that a credit union didn't do when the Federal Credit Union Act was signed in 1934.Well. The reporter, when asked, acknowledged that she had received no less than five calls and e-mails from bankers encouraging coverage of the beleaguered credit union. Since I was working for NCUA and not the credit union industry, I restrained myself from commenting that bankers would know what a failing financial institution looks like, since almost five times more banks than credit unions have failed since the crisis began. I'm not restraining myself anymore.
Credit unions must be on alert that stones are being constantly cast in their direction, regardless of the bank-owned glass houses from which those stones emanate. Be ready, and defend yourselves.
None of these observations points to fatal problems for the credit union system. But they do suggest a changed and potentially dangerous political environment.
I've been on or around Capitol Hill for 26 years, and I've concluded that one of the first things any successful lobbyist must be able to do is make sense out of whatever has just happened. In this case, what just happened is undeniable: The market meltdown, of unprecedented shape and size, has shuffled the political deck for all financial institutions. The sooner the credit union industry understands this, and realizes that the banking industry has redoubled its anti-credit union efforts, the sooner we will adapt and win.
John J. McKechnie, III, is senior vice resident with Total Spectrum, Washington, D.C. Mr. McKechnie can be reached at email@example.com