By Louis Hernandez, Jr.
Credit unions have a long and rich heritage of serving as trusted financial intermediaries for Main Street America. They also have exceptional member satisfaction rates and membership growth. Yet, despite such enviable qualities, America’s policy-makers seem determined to destroy the credit union industry in the United States and, in the process, dismantle the very engines of the American dream.
Ever since the financial crisis, we have witnessed a series of broad-stroke financial regulations with compliance requirements and costs that have severely threatened credit unions’ ability to do what they do best, which is to drive economic growth and stability in local communities, and to support the fundamental tenets of the American Dream--home ownership, getting an education, starting a business and achieving financial security.
It’s a simple equation: 70 percent of the U.S. economy is consumer spending, which is strongly correlated with jobs and employment; 65 percent of new jobs are created by entrepreneurs and small business; and 60 percent of the loans to small businesses come from Main Street banks and credit unions. Main Street institutions also disproportionately provide loans for houses, autos, education and the basic credit that supports the national economy.
But recent polices, which were supposed to de-risk the banking industry, stabilize the economy, create jobs and protect the consumer, have instead undermined all these areas while creating a growing disconnect between the needs of our Wall Street and Main Street financial institutions. Instead of doing more to support our credit unions and rebuild the American Dream, these policies are crippling them.
Part of the reason is that policy-makers are oblivious to the disadvantages credit unions face in complying with the demanding regulations introduced since the financial crisis. Historically, the cost of regulatory compliance as a share of operating expenses is two-and-a-half times greater for small financial institutions than for large ones. Additionally, while large banks have extensive access to capital and numerous sources of income to cover increased compliance costs, credit unions have limited access to capital and considerably fewer sources of income, as they focus on the basic needs of their communities.
Along with this, every dollar spent on regulatory compliance at a credit union means one dollar less is channeled back to member-owners or used to provide loans that help consumers and small businesses. And every minute spent on compliance means one minute less is devoted to serving members, which is what credit unions are supposed to be doing. It’s no wonder that we have seen record mergers in the credit union industry in recent years, and a dwindling number of new credit unions being started.
The unfairness of recent policies seems hard to miss. What isn’t hard to miss is the fact that credit unions and other community-based financial institutions entered the financial crisis better off, with higher capital, lower charge-offs and lower default rates than Wall Street banks, and exited worse off because of reactionary policies that reduced their income and raised their costs--placing the viability of many credit unions in jeopardy.
It is time to take our cause to America’s leaders in a single voice that Washington cannot fail to hear, which is why I started a movement and petition to build awareness and strengthen support for our Main Street institutions at SavingTheAmericanDream.org. I ask everyone to take part in this movement and to sign our petition, so that we can press Congress and the President to end the legislative threats to our Main Street businesses and community financial institutions, and work to rebuild their strengths in the interests of preserving the American Dream.
We can no longer ignore the significant differences between Main Street credit unions and Too Big to Fail megabanks and need polices that address these differences. To preserve the unique role credit unions play in supporting the financial needs of individuals and small businesses in their communities – in short, in supporting the American Dream – policy makers must be mindful of the unintended consequences of our current regulatory requirements and the harm they are inflicting on the national economy.
Louis Hernandez Jr., is chairman and CEO of CUES Supplier member Open Solutions Inc., as well as author of Too Small To Fail and the recently released Saving the American Dream: Main Street’s Last Stand.