By Henry Wirz SAFE Credit Union faces a $7 million expense (maybe more) for the U.S. Central bailout. That expense will wipe out any net income for 2009 and most likely cause us to report a loss. SAFE has advocated restructuring the corporate system for a long time. We use Wescorp to invest most of our liquidity and we depend on WesCorp for share draft processing and as our banker's bank. We believe it is time to restructure the corporate system. We believe any restructure of the credit union system should have the following elements: The corporate system is a three-tier system. Members deposit their money in a natural person credit union that invests some of those dollars in a corporate like WesCorp which in turn invests some of its dollars in U.S. Central. There are 28 corporate credit unions. Many of those corporate credit unionss pass through most of their assets to U.S. Central. Each level of the corporate system maintains capital and takes a cut of the spread on the assets they manage. In my opinion we have one too many levels and too much capital and too much overhead. We don't need three levels. Many of the corporate credit unions should be consolidated. It would create more efficiency and better returns to the natural person credit unions. Some of the corporate credit unions have fewer assets than the natural person credit unions! Ironically NCUA has been a key impediment to consolidation of the credit union system by rejecting mergers of corporate credit unions (Volunteer Corporate Credit Union and SunCorp Corporate Credit Union). U.S. Central's board of directors is not directly accountable to the rest of the credit union system. We need to change that. The members of the board are elected by corporate credit unions or by ACCUL. I feel that our bailout of U.S. Central should give natural person credit unions the right to elect the board of U.S. Central.
I would favor a corporate system that mirrors the Federal Home Loan Bank System. The corporate system should be consolidated into five or six regional corporate credit unions that have the ability to raise funds thorough bonds that have the full faith and credit of the U.S. Government. The Federal Home Loan Bank System provides liquidity to support home ownership. We should create a Federal Consumer Loan Association that provides liquidity for consumers. Consumer spending represents 70 percent of GDP. What could be more important than supporting consumers?
The problem in the credit union system is that there is no tangible ownership. We have to change that. We have to give members ownership interest in their credit union and we have to give credit unions tangible ownership interest in their corporate credit unions. Owners pay attention to financial results and hold management and boards accountable. We have little or no accountability for what corporate boards are doing. The reason for that is that we have no tangible ownership equity in our corporate credit unions. We need to change that. We should get a dividend for our ownership interest and we should have a direct vote for all board members. We should not see board members run unopposed. There should be dividends paid based on the net income of the corporate. That would create a laser-like focus on the quality of management.
- There must be consequences for poor performance. Who is accountable for $1 billion of losses at U.S. Central? Is this just business as usual? I suggest that when a baseball team loses more than they win, we get a new manager. I expect the same results in the credit union system.
Henry Wirz, a CUES member, is president/CEO of $1.3 billion SAFE Credit Union, North Highlands, Calif.
Read another post from Henry.
CUES members, tune in for a free Webinar, "NCUA's Corporate Stabilization Program: What Will it Mean to Your CU?" Feb. 5 at 1-2 p.m. Central.
