Debt of gratitude
To compete with big banks, credit unions need more than your savings
The first credit union on Vashon Island opened in March 2011. But just a year later, employees at Puget Sound Cooperative Credit Union (psccu) were forced to approach members with the biggest deposits with an awkward request. They asked the members to take some of their money back.
Puget Sound Cooperative ceo Kevin Ellisen said the conversation felt strange.
“It’s absolutely contrary to everything I’ve imagined in a credit union,” he said.
But Puget Sound Cooperative didn’t have much choice. Without the proper ratio of deposits to debt, credit unions are undercapitalized. The credit union’s ratio of deposits to debt dipped close to 7 percent, the minimum Washington state requires for a charter.
State law requires credit unions to have net worth equal to 7 percent of their total assets, to ensure that they are not undercapitalized. Capital can only come from interest and fees. Financial institutions need fees and interest from debt to operate.
Credit unions that fall below that ratio face scrutiny from the state Department of Financial Institutions, which keeps a watch list of credit unions that show signs of faltering.
Puget Sound Cooperative is hardly the only credit union in this situation. According to the Northwest Credit Union Association, about 30 credit unions in the region operate near or at this minimum ratio.
That’s due in large part to the growth in credit unions in Washington over the last year, most of which came from new members who opened savings and checking accounts. To survive, credit unions must also issue loans, which provide the credit union with money, in the form of interest and fees that the institution needs to stay afloat.
Now, one of the area’s biggest boosters of credit unions has a warning: If consumers fail to do more than simply move their money, they could overwhelm the very institutions they’re trying to support.
Bill Moyer, executive director of the Backbone Campaign, an activist group, helped open the Vashon credit union in March 2011. He worries that credit unions may be a victim of their own popularity.
“You can harm the credit union by moving too much money quickly if you don’t move the debt as well,” Moyer said.
Moyer has cause for concern, not just in Washington, but around the country.
During Bank Transfer Day in November 2011, credit unions around the nation were undercapitalized, said David Bennett of the Northwest Credit Union Association.
“Every credit union that experienced a significant membership gain during the fourth quarter of last year had some concerns about their capitalization,” he said.
If credit unions can’t bring in more capital from loans, they will have to limit the number of customers they accept.
The slipping ratios of these credit unions caught the attention of the Credit Union National Association, which is pushing federal legislation that would give credit unions more ways to generate capital by allowing earnings from nonmember sources.
Stabilizing credit unions is important, Moyer said, because it will help to remove the vise grip big banks have on the industry.
“We want to starve the beast, but we also want to build the alternative,” Moyer said.
His effort on Vashon Island has inspired others.
Beverly Rose, of Whidbey Island, reached out to several credit unions, trying to get one to open a branch near her in Coupeville.
North Coast Credit Union is interested, she said, but plans to survey the community to determine if there is enough interest in loans to support the influx of many new customers.
Rose’s efforts are a start, but Moyer believes they can’t end there.
When Puget Sound Cooperative opened a branch on Vashon, he insisted the credit union bring Vashon residents onto the board of directors.
“If we merely organize people to take action as individuals, then we fail to capitalize on an opportunity to build power,” Moyer said. “We’re still acting like consumers rather than citizens.”
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