The Great Recession: 10 Years Out And Looking Ahead

Jay Johnson, Chief Collaboration Officer, Callahan & Associates

June 2009 marked the official end of the Great Recession and the beginning of an outstanding period of economic recovery. The Great Recession was the biggest economic downturn since the Great Depression, and the decade since has been the strongest period of growth in the history of the American credit union movement.

So, what’s next? No one can predict exactly where the economy will go; however, markets and economies run cycles, and economists agree a recession is likely within the next couple of years.

Credit unions have thrived during the past decade by capitalizing on what they do best: delivering competitive rates and superior service and, in many cases, lending to those turned away by for-profit institutions.

Now, the industry is facing a new set of imperatives. The competition has grown, both in numbers and intensity, and credit unions can no longer rely simply on their cachet as non-banks.

Fintech disruptors are gobbling up significant chunks of the market, and member-owned financial cooperatives need to invest in evolving their delivery channels in addition to continuing to offer competitive rates for lending and savings products. And they have to do this while ensuring they provide member value, every day, via outstanding service, community commitment, and offerings that convey that value on a very real level.

There’s a lot to build on. A lot has happened since the government bailed out Wall Street and many Americans bailed on big banks.

ANNUAL LOAN ORIGINATIONS

FOR U.S. CREDIT UNIONS | DATA AS OF 12.31.18

Callahan & Associates | CreditUnions.com

The Great Recession was no match for credit unions, which continued to lend to members as the credit crunch hit.

Lending In The Lurch

According to a Feb. 24, 2010, article in the Wall Street Journal, in 2009, banks posted the largest decline in loan balances in 67 years. Not since 1942, amid the post-Depression grip of World War II, had banks posted such a drop. Credit unions? Well, after a dip from 2007 to 2008, they reported an annual spike of 7.1% in originations in 2009.

Some of those loans were undoubtedly more critical than others. While headlines documented massive layoffs and home foreclosures including by banks and investment houses that sometimes couldn’t prove they actually owned the property credit unions were saving homes in numbers that skyrocketed through 2009 and 2010. Real estate loan modifications peaked at $8.88 billion in the fourth quarter of 2010 as credit unions helped more than 50,000 members stay in their homes.

REAL ESTATE MODIFICATIONS

FOR U.S. CREDIT UNIONS | DATA AS OF 12.31.18

Callahan & Associates | CreditUnions.com

Credit union real estate loan modifications immediately after the Great Recession helped more than 50,000 members stay in their homes.

MEMBERSHIP AND ANNUAL GROWTH

FOR U.S. CREDIT UNIONS | DATA AS OF 12.31.18

Callahan & Associates | CreditUnions.com

Credit union membership increased 31% from 2008 to 2018.

Those years were a key pivot point for the movement and, more broadly, for consumers. There was a growing awareness that bank practices didn’t always work in the best interest of the customer. Conversely, when the going got tough, credit unions had the backs of their member-owners. So, customers signed on in record numbers to become members.

A Look At The Numbers

If this sounds hyperbolic, even self-congratulatory, the numbers bear out the story. There were 89.9 million credit union members in 2008. Membership growth dipped slightly in 2010 and the rate of growth was flat in 2017 but it otherwise has climbed pretty consistently in the past decade. As of Dec. 31, 2018, there were 117.8 million members an increase of 31% in 10 years.

PRODUCT PENETRATION

FOR U.S. CREDIT UNIONS | DATA AS OF 12.31.18

Callahan & Associates | CreditUnions.com

The number of members at U.S. credit unions has expanded in the past 10 years. So have their credit union relationships.

Roughly one-third of all Americans now belong to a credit union. And they’re engaged members.

Share draft penetration hit 57.6% in the fourth quarter of 2018, continuing an unbroken 10-year rise from 45.9% in 2008. This is particularly notable because share draft penetration is a key indicator that members are using their credit union as a primary financial institution. Credit card and auto loan penetration also have hit new highs. Real estate penetration has dipped slightly over that time, but the total dollar amount held in home loans has steadily increased.

As more members have signed on for more products, the average member relationship defined as the average consumer loan and savings balances a member holds at the credit union has grown, from $13,777 at year-end 2008 to $18,775 at the same point a decade later.

A household with baked-in financial resilience will better withstand the next downturn. So will the credit union that serves such a household.

So, where does this leave the credit union industry now? Complacency can be a trap when things are going well. The good times are not going to stay good forever, but the movement is prepared for a downturn. As players in a values-based industry, credit unions know how to work with the underbanked and financially comfortable alike. And, the industry balance sheet, on the whole, is pretty sound.

An Infrastructure Of Service

The impetus to serve is baked into the DNA of credit unions. So is collaboration. How can the credit unions use that as a benefit to overcome challenges in product and service delivery, fair pricing, and overall market evolution.

Consumers take for granted the ubiquity of responsive digital apps that provide the interface for services such as automated loan approvals and expedited account openings. Chat bots powered by artificial intelligence and machine learning are now making these apps even more intuitive and responsive. And the exploding field of analytics is uncovering methods to target marketing that delivers key messaging to the right member, for the right product, at the right time.

But these advancements are member-agnostic. In and of themselves, they don’t help or harm anyone; it’s up to credit unions to employ these technologies in service of the member. Targeting consumers with a loan offer is one thing. Framing that offer and delivering it in a way that improves the financial lives of members that’s the credit union way.

That’s collaboration in action.

That’s collaboration between vendor and credit union. More importantly, that’s collaboration between credit union and member. A household with baked-in financial resilience will better withstand the next downturn. So will the credit union that serves such a household.

Technology will advance the movement’s capacity to deliver on its member-centric values, but only if the cooperative principles underpin the implementation of today’s tools in service of the greater good, one member at a time.

That’s how credit unions helped millions of members make it through the Great Recession. And that’s how the movement, and its members, will thrive even through the next one.