Important credit union priorities for the new year

As we turn the corner on 2020 and head into a new year, we will have taken a well-deserved pause in our work lives to spend time with family and friends at the holidays. Undoubtedly, we will have reflected on our many blessings, the daunting circumstances that we lived through in 2020, and then re-charged and re-energized ourselves for the year ahead.

And what a year it was! As we look back, here are some highlights that marked the end of another decade:

• The third impeachment trial in U.S. history resulting in the acquittal by the U.S. Senate of President Trump.
• The George Floyd and Breonna Taylor murders and other examples of racially driven police brutality vaulted racial justice to the forefront and cast Black Lives Matter as a significant social movement impacting professional sports, the arts and corporate communications.
• Space X launched the first-ever commercial flight of astronauts to the international space station.
• The U.S. presidential election delivered a win for President-elect Joe Biden and vice-president-elect Kamala Harris, after what seemed to be a year-long election process.
• The US Supreme Court ruled 9-0 that states can punish members of the Electoral College who break a pledge to vote for a state’s popular vote winner in presidential elections.
• President Trump cast a long, dark shadow over the reliability of the nation’s voting system, challenging this in numerous courts, only to find that his own attorney general and the courts, including the US Supreme Court failed to find any widespread voter fraud.
• COVID shut down large sectors of the economy and resulted in over 300,000 U.S. deaths.
• Politicization of masks, social distancing and COVID in general, exacerbated the already fragmented approach of state governors and the U.S. government to confront the pandemic.
• President Trump and several of his cabinet members and family tested positive for the coronavirus and later recovered.
• The stock market plummeted 23 percent in the first quarter, only to rebound to finish the year up by about 20 percent.
• The U.S Congress approved an enormous $2 trillion stimulus package in March, followed by two additional rounds later in the year.
• COVID-19 vaccines won FDA approval with hope for a Spring 2021 return to normalcy
• Ruth Bader Ginsburg passed away and the Supreme Court swung to a 6-3 conservative majority
• The revelations of sexual harassment and assault by, and conviction of, Harvey Weinstein made sexual harassment challenges in the workplace more visible and acute.
• A record-high number of hurricanes and tropical storms hit the Atlantic and Gulf coasts
• High-level convictions and pardons and cabinet changes associated with the Trump administration brought scrutiny to the effectiveness of the executive branch.
• All major professional and college sports implemented creative solutions for shortened seasons and largely empty stadiums for sporting events.
• Americans hunkered down for the holidays with CDC guidelines discouraging travel and large gatherings as incidents of COVID-19 spiked during the winter months.
• Congress passed a $2.3 trillion funding bill that included $1.4 trillion for government continuity and $900 billion for COVID-related provisions including enhanced unemployment benefits, stimulus checks, rental assistance, school funding, PPP loans and assistance for COVID-19 related public health programs.

And that list is just a short snapshot. But importantly, dramatic events seem to fall into categories of racial tension, the COVID health and economic crisis, and hyper-political stress due to the presidential election and succession process.

Accounting and Advisory firm, Deloitte recently published its 2021 banking outlook and while the broad brush applies very differently to global banks vs. small community institutions, there are many great insights that help us look to the future as credit unions and their support organizations.

Deloitte’s over-arching theme encouraged the strengthening of our resilience, acceleration of transformation and the re-defining of the “art of possible” in a soon-to-be, post-COVID-19 world. Of course, that is something that we all long for.

Fortunately, credit unions and banks entered this latest crisis with strong balance sheets that included high levels of net worth and very low delinquency rates. That fact, coupled with the federal government’s willingness to authorize trillions of dollars of stimulus funds and the consumer confidence that came despite the pandemic, all contributed to a more favorable outlook for 2021.

But as Deloitte points out, the COVID-19 pandemic served to reshape the banking industry including the creation of a new competitive landscape, growth in traditional products such as core deposits and mortgage loan refinances, a new wave of innovation, a re-casting of the role of branches and an acceleration of the digitization trend.

And while global GDP is expected to plummet by 4.4 percent in 2020, or over $6 trillion, most experts predict a rebound in 2021. But even with that economic recovery, global GDP is expected to be over $9 trillion lower than what was forecast a year ago. Both in the U.S. and worldwide, a lot of pain lies ahead. High levels of unemployment, growing poverty and hunger, and a real need for a renewed commitment to social responsibility and mission-driven credit union service.

The U.S. banking industry is expected to provision over $300 billion in loan losses for the next two years, or about 3.2 percent of total loans. However, the categories hardest hit will be credit cards, commercial real estate loans and small business loans, leaving credit unions’ consumer and residential lending portfolios somewhat insulated from these effects. And keeping this in perspective, this level of loan loss provisions is roughly half the 6.6 percent loss rate of the 2008-2010 great recession.

Financial experts, politicians, business leaders and economists had clamored for year-end stimulus legislation in a politically charged fourth quarter and they finally got their year-end wish with the passage of a $2.3 trillion funding bill that included $900 billion for PPP loans, unemployment and stimulus checks, rental assistance and state COVID-related public health programs, notably to help distribute the vaccines.

While the stimulus legislation and the rollout of vaccines should give credit union leaders great hope, the higher loan loss provisions, continued compressed interest margins due to low interest rates, sustained high unemployment and wavering consumer confidence, will make 2021 a choppy and challenging year.

As credit union leaders refresh their strategic plans and budgets, I would suggest that 2021 warrants at least one quarterly reset. And in doing so, some of these issues should be considered. They are also highlighted in the Deloitte Insights article and they relate to two important themes. The first is the acceleration of megatrends and the second is the need for the institutionalizing of important learnings from the crisis.

The first theme is the Acceleration of Megatrends:

1. Digitization of financial services – Credit unions need to continue to invest in new technologies that enable remote service delivery.
2. Virtualization of the workforce – Work from anywhere is a theme that is here to stay and credit unions need to capitalize on the cost savings and the positive impact on staff who can benefit from it.
3. Focus on safety and surveillance – For both employees and for members, safety concerns should be monitored and remedies should be implemented.
4. Corporate social responsibility – As all banks and other businesses gain a heightened sense of the importance to do good, credit unions should not lose their leadership role here. This is in the DNA of credit unions. And financial equity and inclusion should be a continued priority.
5. Focus on cost savings – With shrinking margins and opportunities to use digitizing technologies, thoughtful plans should be put into place to properly balance member experience and service, with opportunities to streamline expenses, especially brick and mortar.

The second theme is the Institutionalizing of our Learnings from COVID

1. Become more agile – Credit unions had to move quickly. We didn’t think we could do it, but we had to. Document what we can learn from that process and be better prepared to move with agility in the future, both to compete and to respond to crises.
2. Develop new talent models – Enable “work from anywhere” talent plans and consider other issues that will help attract and retain top talent. Creating and enhancing organizational culture should be a top priority.
3. Boost productivity, innovation and collaboration – In addressing important elements of a great culture, these should be important objectives. Finding ways to measure success here will be important.
4. Document crisis management plans and update governance and reporting structure – Create a cross-function team to document lessons learned from this crisis. Then update disaster/crisis plans and update important governance policies and reporting guidelines.
5. Commit to financial equity and inclusion – Out of every crisis, credit unions learn more about how to expand their nets to serve those in need. With the increase in economic pain for consumers and small businesses, especially in urban areas, this will be critical.
6. Improve risk management plans, including compliance and cyber risks – Learning from where we were well prepared, and where we were not, can help commit to improving risk management processes using third-party solutions as necessary.

The year ahead in 2021 should bring great hope and anticipation. With a heightened desire to return to more human interaction as soon as summertime, and with perhaps more stability in our nation’s federal government, we may all look forward to a more certain environment as opposed to the very uncertain times we lived in during the year 2020.

As we look with hope to the future, we should all commit to better planning, a new-age approach to leadership and staff development, an enhanced organizational culture and effective management of member and customer experience, investment in technology and collaborative innovation.

The one constant for credit unions in tough times or in better ones is that they are sorely needed by American households who need help with smart financial decisions and paving a path to greater prosperity and security.

Thank you for all that you do as a credit union community to fulfill that mission.