By: Norm Patrick, VP, Advisors Plus Consulting
Over the course of the pandemic, credit unions have seen their balance sheets grow at an accelerated pace. This has been fueled by COVID-related policy response, including multiple stimulus payments and a sustained period of low interest rates.
This impact can be seen in the number of $10 billion credit unions in the United States, which has nearly doubled in the 18+ months of the pandemic. In December 2019, there were 10 credit unions above the $10 billion mark, while as of the June 2021 Call Report data, there are now 19 credit unions above the threshold. More and more credit unions are on track to surpass it, with 18 credit unions in the $7.0–$9.9 billion range and poised to reach the mark within the next few years.
The $10 billion threshold is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which was signed into law in July 2010 and aimed at implementing go-forward corrections following the financial crisis and recession over the preceding three years. The threshold is a trigger to invoke heightened risk management, regulatory oversight and scrutiny, including direct supervision from the newly created Consumer Financial Protection Bureau (CFPB). Surpassing the threshold unlocks aspects of certain regulations that impact credit union revenue generation.
As such, reaching and surpassing the $10 billion threshold brings about very significant implications for credit unions in terms of complexity, increased costs and pressures on revenue, all of which impact the entire organization, from the Board to front-line staff. Preparing to surpass this threshold is a complex undertaking requiring multiple years of commitment.
Advisors Plus recently published the Credit Union Guide to Crossing the $10 Billion Asset Threshold that was created to help credit unions prepare for this process. The guide provides an overview of what to expect, as well as considerations and recommendations as your credit union approaches the threshold. Below are our high-level recommendations, and more details can be found in the guide, which is available for download.
- Network often with your large credit union peers, National Credit Union Administration (NCUA) contacts and other industry partners. Incorporate their best practices into your particular approach and planning process.
- Enlist assistance from an advisor with expertise and experience in risk management, capital planning and NCUA/CFPB regulatory oversight for credit unions transitioning to the $10 billion+ asset range. Do this well ahead of the event.
- Conduct a full current- and future-state assessment of technology, infrastructure and talent that will be required in order to manage risk and achieve compliance. You will need to invest significantly in these to support the new regulatory demands of a $10 billion institution. Plan for higher levels of operating expenses.
- Effectively plan out your timing in reaching the $10 billion threshold. You will have a choice of managing your balance sheet below the threshold for a period of time or accelerating it through the finish line.
- Create an initial financial analysis to quantify expected impacts to revenue, cost structure and ROA, based on the current- and future-state assessments. Remember that debit card interchange revenue impacts will be significant, with regulated rates around 50% of unregulated rates.
- Begin addressing talent needs for the future at all levels of the organization, including the board. Recruit board members and senior leaders with large financial institution experience, but be mindful as to not cause disruption of your mission and culture. Examine new or expanded roles, such as a Chief Risk Officer, Chief Compliance Officer, data analysts, in-house compliance personnel and technical writers.
- Determine an optimal organizational structure. Do you need a formal risk organization or an expanded compliance organization? Does your credit union have the right data warehouse, governance, analytics and modeling in place?
- Consider what technology investments will be required. Do you need to invest in data warehouse and analytics/modeling systems, a risk management system, a capital management system or other information/data security upgrades?
- Work proactively with the NCUA. Start building the necessary infrastructure to achieve $10 billion requirements.
- Enhance your current member complaint review process in anticipation of CFPB oversight. Move to a more formalized tracking system.
- Develop a plan to mitigate revenue pressure and added costs that will occur as your credit union surpasses $10 billion in assets. Ensure optimal performance of credit and debit programs. Consider expansion into new verticals such as wealth management or commercial services. Evaluate growth opportunities quickly and actively manage your operating costs across the credit union.
If your credit union is on track to surpass the threshold, start the preparation process now. Aim for at least two to three years prior to the anticipated crossing. Download the complete guide today and discover more insights into preparing for your credit union to surpass the $10 billion threshold.
Norm Patrick is vice president of Advisors Plus, established in 2004 as the consulting arm of PSCU. With nearly 25 years in the financial services industry, Norm founded the Debit & Checking practice area in 2007 based on his experience in managing one of the largest debit card portfolios in the U.S. For more information, visit AdvisorsPlus.com.