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What CUs should do in 2011--CUNA economist
MADISON, Wis. (1/7/11)--The Credit Union National Association’s (CUNA) 2011 Economic and Credit Union Forecast reflects expectations that the economy will improve, but the level of growth associated with the rebound will be lower than what is typically seen in an economic recovery. This has implications for credit unions’ actions, says a CUNA economist. The underpinnings of the CUNA forecast are that that the job market will continue to recover slowly and the unemployment rate will remain elevated. Credit union savings balance growth is expected to remain at 5% this year, while loans are expected to increase to 4%. To see CUNA’s complete 2011 economic forecast and how it will affect the 2011 financial results at credit unions, use the link below. Given the forecast, what should credit unions do in 2011? “One thing that should definitely be on credit unions’ to-do list is to stay involved in the political process,” Mike Schenk, CUNA vice president of economic and statistics, told News Now. “There were a boatload of laws and regulations introduced last year. Those laws and regulations come at a cost. Credit unions can either pass costs along to their members or eat them--but then credit unions can’t grow as fast, and members will suffer down the road. So continue lobbying lawmakers and regulators to soften the blow of the new regulations.” Another area that will require credit union involvement will be capital reform. At the beginning of the recession, 91% of credit unions had net worth/asset ratios exceeding 9% (e.g., well-capitalized with a two-percentage-point buffer). Today, only 75% of credit unions have this level of capital, Schenk said. “Most of those institutions that saw the decline in capital saw that decline through no fault of their own,” Schenk explained. “They were collateral damage--suffering simply because local real estate markets imploded. It’s important for all credit unions that those affected credit unions be given the chance to restore net worth quickly through access to alternative forms of capital. “Don’t forget, Congress painted all financial institutions with a broad brush, and credit unions--while not contributing to the mess--are being saddled with many of the same laws and regulations that were imposed on the bad actors,” he added. Helping CUNA ensure that the two-tier interchange system is effective will be an especially important undertaking in 2011, Schenk said. Credit union members should go to the top of the home page of the CUNA website under “Operation Comment” to submit comments to the Federal Reserve Board regarding its interchange proposal, he said. Savings growth at credit unions has been very strong, and loan growth has been weak--which means that investment portfolios have been growing rapidly, Schenk said. “In the current environment, investment yields are close to zero, which indicates that the changing mix of credit unions assets has put significant pressure on credit union bottom lines,” he said. “Credit unions should--if they haven’t already done so--re-evaluate deposit pricing to ensure that they can afford the growth.” “On the other side of the balance sheet, it makes sense to redouble efforts to steal loans from other financial institutions,” Schenk said. “While members’ appetites for new debt are low, it may be possible to entice those burdened with higher-rate bank loans to come to credit unions.” While CUNA expects the economy and labor markets to improve, there definitely will be unusually high levels of bankruptcy filings in 2011. So proactively helping members to avoid that situation and/or managing that process will be especially important, Schenk said. A final key action is collaboration. “It would probably make sense--given the financial challenges--for credit unions to begin steps to redouble efforts to engage in more cooperative endeavors, and collaborate to reduce costs and eliminate redundancies,” Schenk said.


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