CUs That Grew During Past Recessions Took ‘The Long View’

L-R: Filene Research Institute Chief Research and Development Officer Gorge Hofheimer, and Senior Research Director Taylor Nelms
L-R: Filene Research Institute Chief Research and Development Officer Gorge Hofheimer, and Senior Research Director Taylor Nelms

Researchers at Filene Research Institute think credit unions can immediately prepare for the next economic recession whether it happens in two months or two years.

(Join Dr. Robert Eyler for the “2020’s Big Questions: Economy, Rates, and President Trump” webinar on Monday, Dec. 9 at 10 a.m. Pacific)

No matter what “flavor” of downturn the economy experiences in the future, the industry can glean historical lessons from the high performers of the past, according to the recent “Get Your Credit Union and Members Ready for Recession” online discussion.

Chief Research and Development Officer Gorge Hofheimer and Senior Research Director Taylor Nelms discussed the following plans that credit unions can implement today to prepare. Some are strategies that many credit unions are (or aren’t) known for practicing in past years as the economy heads into recession:

  • Preparing for a recession means planning several months in advance (when it doesn’t “feel like a recession”). It means “acting now, going on the offense, and supporting members and staff” early on. Many credit unions should even plan to continue growing their membership, loans and deposits during an economic downturn if they stay true to their philosophy and mission and are prepared for the right opportunities when other financial service providers retrench.

  • Don’t look at a looming recession from a “timing or flavor” perspective. Instead, look at it from a research and historical-context perspective — and in what ways it could impact your credit union’s employees and members. Historically, the U.S. credit union industry has done a fairly exceptional job at managing through downturns compared to banks.

  • Continue investing in your membership and organization when others aren’t. Have a plan, stay the course, act decisively/early, assume a defensive position only when needed — and most importantly, keep lending. “Take the long view, go offensive when others are pulling back, and be more progressive.”

  • Preparing for economic uncertainty means: 1) using “scenario planning” to think about possible future mini-scenarios that lay ahead of your credit union for all aspects; and 2) encouraging deep curiosity and “red teams” initiatives — employee groups that challenge an organization to improve its effectiveness by assuming an adversarial point of view (and apply external lessons internally).

  • Focus on the ability to be flexible and make early decisions. Build this into your credit union’s planning before any slight hint of an economic downturn. Minimize costs and debt before a downturn rather than during a downturn. Take a long-term perspective that recessions are temporary and economic cycles are cyclical by nature.

  • Realize that your credit union, from a historical context, is more resilient than your average bank (loan charge-offs, etc). Credit union industry lending doesn’t usually contract during recessions; instead, its growth rate slows down (or depending on the credit union it actually stays the course or accelerates). Experiment with new ways to support your members’ financial well-being and capability before a recession occurs. Keep in mind your business plan, calibrate your risk, and calibrate your lending.

  • Credit unions that “did well” during the last economic recession: 1) focused on what their “bread and butter” was (what they do the best); 2) utilized market power to be the first-choice lender as other lenders pulled back (took more market share); 3) strengthened their symbiotic product lines and cross-sales (products/services don’t act in isolation); 4) stayed consistent in their loan underwriting (didn’t move too much one way or another); and 5) built service components of what “great lenders do,” such as finding creative ways to refinance existing member debt, as well as investing in sales-processing and data-mining.

  • Consider playing a larger role in the business loan and deposit market. In many cases before and during a recession, there’s an opportunity for credit unions to grow their business/commercial lending and also bring in new business-member deposits simultaneously.

  • Regularly compare your deposit rates against competitors, add core products, and invest in marketing. This approach will increase your credit union’s chances of growing during a downturn. Regularly paying higher-than-average deposit interest rates, adding more product types, and putting more money into marketing/promotion/advertising to discuss how “the credit union is here for you” paid off significantly in the long-term with respect to asset growth for high-performing credit unions during past recessions.

  • Prepare your members by focusing on excellent service, providing financial stability/well-being and coaching, and being an advocate on their behalf in the community. “It makes sense for credit unions to re-focus on these well in advance of a recession, and during one. That focus will reward the institution going forward through increased member loyalty and engagement. In an economic downturn, the people most vulnerable to suffering are lower on the socio-economic spectrum.”

  • Start with supporting the financial well-being and capability of your employees before members. Financial agility with your staff can correlate to better cognitive productivity and physical health, and it will spill over to how they support your members’ financial well-being and capability. Improve financial capability, reduce financial precarity, differentiate yourself as an employer, and turn employees into advocates for your credit union. “It’s more than just literacy, and it’s not just education. Knowledge by itself is not enough — it’s about making it a practice within just-in-time and low-stake environments, and reinforcing those lessons during the ‘good times’.

  • Remember that a growing number of your membership is small-time entrepreneurs working at home, oftentimes with a secondary side-gig job as well. Look at how your credit union can “creatively” serve them today so they will cling to your credit union when they need it most. Many have student loans at different financial institutions or lenders, and in the right recession environment this can have a spillover effect to any other loans they have from your credit union.

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