Should there be an NCUSIF and a separate "NCUSIF Junior?"
That question provokes some thought as credit unions get closer than ever to at least a vote in Congress on expanded member business lending.
To hear the trade associations tell it, credit unions are pretty unanimous and walking in lock-step when it comes to support for raising the cap for business loans as a percentage of assets to 27.5% from 12.25%. And for the most part they are.
But I have also met with a few folks in recent months at various conferences and fielded a few calls from some others expressing concern over the potential for greater risk to the insurance fund from business lending, and what it might mean to their future insurance premiums. There are still plenty of people who don't need Wikipedia to know that all that remains beneath the grave markers of an entire S&L industry and any number of banks done in by commercial loans that turned deadly is just dust and depositions.
A 'Blip' Worth Noting
You can't make it to lunch on the first day of Credit Union Management School without learning that larger loans mean larger risks. A member turns in his car keys, well, you've got something shiny sitting in your parking lot. But a strip mall or a ski resort or a hotel project that goes south can take the net worth ratio with it. Just ask AEA Credit Union or the former Eastern Financial.
At least one credit union CEO has written Congress urging it not to allow the MBL cap to increase. While one-in-7,000 makes the word "blip" seem generous, it doesn't mean that others don't share some related concerns. And chief among them is that some credit unions will make some big commitments to commercial lending, and when the downturn comes, as it always does, the underwriting sins of the few are going to be paid by the many. And that chafes more than a few folks, especially at smaller credit unions, who feel like they are paying the same health insurance premiums as that three-pack-a-day, overweight chainsaw juggler when they are at their ideal body weight and working in an office all day.
Should the increased MBL cap pass Congress, the law includes a number of safeguards aimed at minimizing risk. But some remain wary, and have suggested that perhaps what's needed is two separate funds. There have been plenty of calls in support of risk-weighted exam schedules; why not risk-weighted premiums paid to the NCUSIF or, in the alternative, premiums paid to the NCUSIF Junior, which would insure those with a more conservative risk profile. Maybe they don't need to keep 1% on deposit, maybe 75 or even 50 basis points would do.
Is it likely? About as much as a Beatles reunion. But it is worthy of some discussion. What do you think?
The Year of the Loan
Now on to something more pleasant, as in some words everyone will want to hear: "We think this is the year of lending."
That's the forecast from Sam Kilmer, VP-market development at Harland Financial Solutions, who sat down with me recently for a few moments to share that company's recent observations.
"The point is credit is being or is about to be extended to more consumers. There could be a significant uptick in lending," said Kilmer. "Yes, there is competition, but there are opportunities and we are arming our clients to do well. You do that by doing the documentation well and the process well."
The bigger issues, said Kilmer, are "how well do you know your business" and are you prepared to "go get loans."
Some of that go-getting will mean being more proactive-in many cases, a lot more proactive-with people who joined as part of the Bank Transfer Day movement.
"Now it's a marketing issue," said Kilmer. "Last year we saw an uptick in sales of our Touche Market Analyzer. Post-Durbin, everyone is looking at their relationships. Credit unions want to put that relationship lifecycle on speed now. The patter for years around MRM has really been elevated as credit unions seek to transform the relationship process. There's been a shift to using tools for a richer conversation. Credit unions must decide to be faster, but simultaneously to also move the needle on revenue."
One development Kilmer said "sounds counter-intuitive" is the number of CUs moving their online account-opening process to the branch, rather than the reverse.
Other Observations
* On payments: "My advice is to stay in the middle of the conversation. Don't let anyone end-run you. What is the new definition of the PFI? We think it's A2A and P2P. You want to be in the middle of the money management process. You can lower the deposit rate and provide value in other ways. It's not price equals value, it's now value equals value."
* On MBLs. "It's not just about the value and the revenue of the loan itself. When you cede that to someone else you cede being in the middle of that valuable conversation."
* On an old favorite: "You've got to bake compliance into your systems. One reason it isn't: some credit unions purchase a smattering of components from a smattering of providers and then they cobble all that together. If they don't work well with one another, you have compliance issues. You need to ask, 'Does compliance flow through this process?' If not, it just takes so much review time."
Frank J. Diekmann can be reached at fdiekmann@cujournal.com.
