Report
504
Number
May 01 2020

Credit Unions and the Coronavirus: Notes on the Impacts and Implications of the COVID-19 Crisis

In this three-part Special Report, Taylor C. Nelms and Stephen C. Rea provide preliminary analysis of the COVID-19 pandemic’s effects on workers and consumers, and the implications it bears for credit unions. Part one reviews evidence as of April 2020 and describes likely consequences going forward.

Taylor C. Nelms
Taylor C. Nelms
Senior Director, Research
Filene Research Institute
Stephen C. Rea
Stephen C. Rea
Research Assistant Professor
Colorado School of Mines
Report Number 504

Executive Summary

What impact will the COVID-19 pandemic have on consumer and cooperative finance in the coming months and years, and what role will credit unions play in mitigating its effects? The first part of this Special Report presents analysis of the economic and social disruptions caused by the crisis and outlines likely consequences many people will confront going forward. 

Part two reviews how the crisis is affecting financial services, particularly credit unions, and how credit unions have begun to respond. Part three describes the landscape of critical factors credit unions should consider as they revise their longer-term strategic plans and operational models to best navigate post-crisis risks, opportunities, and member needs.

What is the research about?

The United States and the world have, in very short order, been thrown into disarray by the novel coronavirus pandemic. Still in the midst of quarantine, there is profound uncertainty about how long the pandemic will last and what the consequences, now and into the future, may be.

Here’s what we know: there is a deep economic crisis that is unfolding alongside the public health crisis. The financial services industry—including and especially credit unions—are not immune, and from their homes and locked-down branches, many in consumer and cooperative finance are just now beginning the work of understanding what the implications of this double-barreled crisis will be.

Official statistics, like the numbers of those infected with the coronavirus, are lagging indicators. We may not know, in technicolor detail, the extent of the crisis for some time. But with strong enough peripheral vision, by scanning real-time data and linking it up with qualitative reports from the industry, we can see the fundamental contours of the near future come into view.

It is clear that the US economy has already entered a recession. Looking at estimates of the three-month moving average of the national unemployment rate—which has risen by a half-percentage point or more at the beginning of every previous recession—Claudia Sahm, the originator of one of our most reliable recession indicators, writes with certainty that “the reality is we are now in a recession.” Data from a range of sources—job numbers, for example, but also industry-specific data on flights, restaurant reservations, and even foot traffic—all show the same thing: the rapid and dramatic cessation of economic activity. 

Source: https://www.flightradar24.com/data/statistics, accessed 4/24/2020

Writing in the Financial Times, Martin Wolf suggests that the coronavirus recession will be “the biggest crisis the world has confronted since the second world war and the biggest economic disaster since the Depression of the 1930s.”

What are the credit union implications?

It remains unclear what type of recovery will emerge from the recession precipitated by the COVID-19 pandemic. But the “new normal,” whatever it may be, may end up looking much like the world we are experiencing today, in the midst of the pandemic.

At the same time, our imagination is also a force of change in its own right and can therefore also be a force for good. This is especially true in moments like this one, because in unsettling times, what we think shapes what we do, and what we do shapes the world around us.

In Part 2, we will speculate on some of the implications for financial services, with a special focus on credit unions. In Part 3, we will dig into how credit unions should approach longer-term strategic planning, operational adjustment, and business model transformation to best navigate post-pandemic risks, opportunities, and member needs.