2011 acted as a wake-up call to what is happening in our nation. The very fabric of the American Dream is being unwoven by globalization, public policy and even consumer behavior.
As manifested in the Wall Street/Main Street opposition, this truth will persist until policymakers work to restore the tenets of the American Dream. While economic indicators seem to suggest sluggish improvements, Main Street doesn't agree.
The recession officially ended June 2009, but survey after survey reports that consumers aren't buying it. Raddon Financial Group recently reported that 69% of consumers see no evidence the recession is over and 39% believe the economy will worsen over the next six months. Most upsetting to consumers is the lack of jobs, the loss of value in their 401(k)s and the seeming lack of any end to this economic debacle.
Consumer pessimism can devastate small businesses. Raddon also reported that 68% of businesses do not expect sales growth in 2012, and 26% expect sales to decrease. With small businesses as the only "net" creators of jobs, the prospects for a meaningful rebound seem grim. We need small business to recover and grow again.
The regulatory environment is not helping. The unintended consequences of recent regulations, like the Durbin amendment, are starting to impact small businesses and consumers. TARP has become a rallying cry for politicians and an albatross for the financial services industry. The bailouts continue to influence Main Street's perception of financial institutions as a whole. While many of us recognize that TARP was necessary, the regulatory policies enacted to address "too big to fail" banks are damaging local economies and credit unions in particular.
Clarity On Dodd-Frank? Don't Hold Your Breath
Regulatory complexities will continue to hamstring CUs by increasing costs, decreasing revenue and limiting much needed loan growth. Credit unions are being handcuffed by unnecessary compliance costs when they were not responsible for the subprime mortgage crisis. This only magnifies the existing pressures on a credit union business model being eroded by margin compression, fee erosion and channel proliferation, all the while unregulated "non-traditional" players will continue to pick off the edges leaving CUs with less and less of the value chain.
Unfortunately, I do not believe we will see much needed clarity from regulators in 2012. Dodd-Frank will likely remain unwritten in 2012 as policymakers will be more occupied with ensuring their reelections rather than proposing regulations of any significance. While this ongoing regulatory uncertainty has the potential to immobilize many CUs, now is not the time to be overly cautious. It's the time to act.
This intense adversity will create a tremendous market opportunity for aptly-positioned CUs. They must focus on what differentiates them in the marketplace. Winners will make their differences more obvious. This is not the time to go into hiding or be risk-adverse. We all need to embrace change, or risk being left behind.
One does not have to any look further than the enthusiasm around Bank Transfer Day-no matter what the final tally was-to know consumers are starting to see credit unions as a preferred alternative to mega banks.
Now is a time to go back to basics and rethink what they are good at-to think about their competitive difference, and make that difference more obvious. It is time for credit unions to reinforce the fact that they are lubricants of their local economies and they can be the catalysts to help consumers, entrepreneurs and small business owners achieve the American Dream-one community at a time.
This is also an era of profound collaboration. Credit unions are tapping their long-standing cooperative spirit to uncover new opportunities for reducing costs, improving efficiency and even growing new non-traditional revenue sources.
How Real Leaders Will Succeed
Not everything is a differentiator; not everything is experienced by members. Look for opportunities to collaborate in areas that don't make you unique. Individually, most CUs lack the scale to compete toe-to-toe with our nation's monolith financial institutions, but collectively you can be a dominant force.
Despite pessimistic outlooks and unintended consequences of misguided regulations, 2012 will still present opportunities. The leaders will succeed by making their differences more obvious, being the trusted financial intermediary, stimulating their local economies and supporting the tenets of the American Dream.
Louis Hernandez, Jr., is chairman/CEO of Open Solutions, Glastonbury, Conn.
