The on-again, off-again commentaries about whether the banking industry’s challenges are over is the context for an important NCUA board update on Thursday.
The only agenda item is the state of the NCUSIF. As context for this report NCUA also summarizes the state of the credit union system as graded by its on site examinations.
Did the proportion of CAMELS ratings deteriorate from previous quarters? What do these supervisory in-depth contacts report on the financial health of credit unions? As interest rates have risen, has credit union performance gone “wobbly”?
We know from Callahan’s May 17 Trend Watch call from March 2023 data that share growth has slowed to just 2.2%. Almost all other macro indicators are positive.
Are Credit Unions Different?
In many operational respects the $2.2 trillion cooperative system appears very similar to consumer banks. So does the cooperative design make a difference especially when it relates to the system’s resilience?
The 100+ years of cooperative history suggests that this industry based on communal ownership, not private profit, is more stable. There is another important difference versus banks. The direct market oversight of all public banking companies creates incentives for financial players to “short” troubled firm’s stocks or even aspire to takeovers when market value is much below book.
Even as some transactional activities appear to be whittling away at the differences with banks, the coop model has developed a unique market ”space.” This “space” relies on long traditions of self-help, self-finance, and self-governance. The focus on member well-being vs institutional performance is also a powerful heritage.
Rallying the Believers
Is it possible that the cooperative credit union model is the best alternative design for resolving the obvious financial uncertainties and internal contradictions of stock-owned depository financial institutions?
The industry’s cycle of severe losses requires the FDIC to always increase premiums on the survivors following the failures of their peers.
This cyclical bout of problem losses is not the cooperative experience. In theory and principle the motivations and incentives are different. However coops are managed by humans, so they are not always a veil of purity.
That is where NCUA’s role comes in. This Thursday we will hear NCUA’s report of its examiner evaluations. Hopefully it will be a rallying cry for the industry during a time of multiple economic and national uncertainties.
Will it demonstrate the power of member ownership and coop uniqueness? Will it highlight the NCUSIF’s special design to give back to its credit union underwriters their share of collective success at a time when banks see only increasing premiums?
The board meeting report can be an affirmation of the future of the cooperative model based on NCUA’s experience and expert field exams, not just the quarterly 5300 trends.
It will hopefully deliver a message that rallies all observers to see clearly again the credit union difference. In performance, in consumer focus and most importantly in leaders’ belief that the most critical competitive advantage is cooperative uniqueness.