Apr 06 '20

Navigating Uncertainty: Next Steps in Recession and Disaster Planning

Paul Dionne
Paul Dionne
Research Project Manager
Filene Research Institute

During previous economic crises many financial services providers pulled back while credit unions surged ahead to serve their members. Now is the time to dust off those contingency plans, adjust forecasts, rally the troops and take action.

Paul Dionne
Paul Dionne
Research Project Manager
Filene Research Institute

For many, that first punch to the gut from the novel coronavirus pandemic has been absorbed, and soon your attention will shift to next steps for managing mid- and long-term economic and financial impacts. Many are forecasting a deep contraction of the economy, and on March 26, 2020, U.S. Federal Reserve Chair Jerome Powell affirmed that “we may well be in a recession” already.

The good news is that credit unions have the capital and the wherewithal to withstand a downturn. During previous economic crises many financial services providers pulled back while credit unions surged ahead to serve their members. Now is the time to dust off those contingency plans, adjust forecasts, rally the troops and take action.

Filene has sourced a wealth of research to help you identify and execute effective strategies to position your credit union for today and into an uncertain future. The following resources will help you serve your members in their time of need while keeping your balance sheet in good standing. 

Are You Prepared? Get Your Credit Union and Members Ready for Recession

Our first stop is Filene’s freshly curated research bundle containing everything you need to act now, go on offense, and better support your staff and members. The bundle walks you through lessons learned from past recessions, provides guidance about leading with vigilance and adaptiveness, and describes how to position your credit union for future success.

Takeaway: Grow through the downturn. During the last recession, credit union loan growth rates rose while those for banks declined. Do not assume a defensive position; take the long view and keep lending.

Exercise Caution 

This policy brief from CUNA’s Chief Economist Mike Schenk argues that credit unions should prepare for COVID-19’s negative economic effects but not to go too far in their adjustments—exercise caution. After all, the current crisis does not stem from deficiencies in your credit union. Avoid the temptation of working to maintain net income levels by further burdening members. Let your capital do its job, which is to absorb losses during a downturn.

Takeaway: “By keeping an even keel and letting capital absorb much of the short-term dislocation, credit unions can once again show both members and nonmembers the unique and substantial benefits of the cooperative structure.”

Oh Shoot! Now What? Technology in a Time of Crisis

Learn from credit unions who addressed wildfires in California and hurricane damage in Florida, Texas, and Puerto Rico. This recap of a past Filene research event explores how technology can be leveraged in times of crises, while also recognizing that human beings will always be your most important problem-solvers. As credit union staff shift to remote work and members migrate to online and mobile banking solutions, investing in your people and addressing your technological needs becomes paramount.

Takeaway: Start with your people. Do not assume the technology will work right away as planned, so care for and empower your staff to make the right decisions. People, and the relationships between them, are the most important resource credit unions have when disaster strikes.

Are you Leading Through the Crisis… Or Managing the Response? 

Harvard academics Eric J. McNulty and Leonard Marcus provide the tools to lead (not manage) your credit union through the storm. Avoid a narrow focus, don’t turn into a manager, and don’t try to control everything. Seek to create order rather than control. Unite people, their efforts, and goals. If your staff are empowered to act, they will perform, and they will better support your members.

Takeaway: “The most effective leaders in crises ensure that someone else is managing the present well while focusing their attention on leading beyond the crisis toward a more promising future.”

You’re Not Powerless in the Face of Uncertainty 

The level of disruption from the Coronavirus has taken most of us by surprise. That has prompted great uncertainty about what the future holds, not only for our families, but for our credit unions and members. In this article, INSEAD Professor Nathan Furr provides frameworks to approach uncertainty in a more productive manner.

Takeaway: “Although part of our capacity to deal with the unknown is innate, a larger portion is learned. Those who develop this ‘uncertainty capability’ are more creative, more successful, and better able to turn uncertainty into possibility.”

Cooperative Comebacks: Resilience in the Face of the Hurricane Katrina Catastrophe

Katrina 10 Years After: Lessons from Credit Unions and Banks

These two reports from Filene review lessons learned from the aftermath of Hurricane Katrina in 2005. Credit unions demonstrated great resilience partly because of strong social capital infrastructures, and credit unions in the areas hit hardest by Katrina still grew their memberships afterwards. Effective and flexible staff and credit unions helping credit unions also contributed to keeping the lights on.

    Through past crises, credit unions have been there for their members—and they will be there again through the current crisis. Our simple cooperative ideal—“people helping people”—persists. In short: Look less in the mirror and more out the window, to your members. Help them weather the storm, and we will all grow from working together.

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    Filene is here to help credit unions support their people and build their business resiliency during the COVID-19 crisis. Filene will be releasing resources in line with what credit unions need most.
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    Filene stands at the ready to get you the support and resources that would help you best serve your members and employees right now. Tell us what would be most helpful.