The President’s Perspective

Where are we headed with another big bank collapse, and could this trend trickle down and impact credit unions and local community banks? 

Well, it’s “Déjà vu all over again.” Funny how that famous quote from Yogi Berra keeps popping up from time to time. Remember “Too Big to Fail?” I sure do. I remember sitting in Senator Elect Heitkamp’s campaign office after the 2012 election. We were discussing things like the regulatory burdens coming out of the Dodd Frank Wall Street Reform and Consumer Protection Act. Somewhere in that discussion, someone made the statement that the government’s response meant the opposite of “too big to fail,” and what we are facing is a “too small to succeed,” scenario. I’m not certain who said it, but I remember when it was mentioned how everyone in that meeting looked at each other and agreed. I also remember the Senator Elect saying that she was going to use that line as Congress continued to look at “one size fits all” type regulatory rule making.
 
Where are we headed?
Like me, most of you were paying close attention to the First Republic situation over the weekend. Their collapse is the second largest ever in the U.S. Even as JP Morgan is assuming all of First Republic’s Deposits, insured and uninsured, and taking over the bank’s $173 billion assets, the FDIC fund is going to take a massive $13 billion hit. So, it’s fair to ask, how will this impact credit unions and community banks? We know that the FDIC will have to assess banks and their depositors for high premiums to cover the losses caused by these recent bank failures. Like SVB, First Republic’s troubles started when customers pulled over $100 billion of deposits out of the bank (just in the first quarter of this year) and put them into larger banks. It's nothing short of a bank run, if you will, because of how the government responded after the financial collapse in 2008. Depositors are feeling more confident that their savings would be better off in a “too big to fail” institution.  
 
I am one that likes history. It was a subject that I thrived in during high school and college. In fact, I took so many history electives in college, I could have (should have) minored in it. People study history for many reasons. One important reason is that we can learn from the past and avoid the same traps and missteps other great societies experienced. That’s really a form of natural progression; the survival of the fittest applies here. If we don’t learn, evolve, and properly adapt, we won’t survive. So, here we are, staring down two of the largest bank failures in our country’s history just a little over a decade from the financial collapse in 2008. What did we learn, and why is it happening again?
 
According to Thomas Sowell, an economist and social commentator, there isn’t such a thing as trickle down economics. It’s a made-up term that no one can prove exits or even happens. But rest assured, if consumers don’t trust how the government is handling the economy, they will continue to pull their savings from institutions and put them where they think they will be fully protected or backed. One can clearly claim the government’s reaction and response to inflation with interest rate hikes is to blame, which leads to the question we need to consider: Will this trend trickle down and impact credit unions and local community banks?
 
Meanwhile, we are on one of the fastest rate-raising cycles in 40 years as the Federal Reserve is on track to increase interest rates yet again. As I write this, Treasury Secretary Janet Yellen is warning that the U.S. Government may not be able to pay all its bills on time as soon as June 1st if Congress doesn’t raise the debt limit soon. This is worrisome, as this is a much shorter timeline than forecasters had previously expected, indicating the U.S. is potentially just a few weeks away from our first-ever default on U.S. debt.  
 
Last minute Summit reminders
A few last minute reminders for Summit next week. If your credit union is donating an item for the GAC Silent Auction, please be sure to register the item in advance so participants can see the items ahead of time. If you plan on bidding on any of the items, you may want to register in advance as well. If you need assistance, contact Lindsey Hefta.

Also, the Foundation’s Vacation Sweepstakes is still accepting donations from credit unions to help fund the prize purchase cost. You can also enter to win by making a $25 donation (or more for more chances to win) by 7:00 p.m. on May 10.

And finally, don’t forget to refresh your DakCU Mobile app. Spotty wi-fi at the hotel may cause disruptions in downloading the app, so we encourage you to download, refresh, and familiarize yourself with the app prior to Summit. Our entire staff is looking forward to seeing many of you next week in Fargo!

In the news.
North Dakota credit unions’ lawsuit to reclaim assets held by NCUA from the U.S. Central liquidation received some attention last week. Two credit union trade outlets featured a story about the issue: CU Times and CU Today. Locally, it was also extensively covered by Minot Daily News, the Fargo Forum, and the Wahpeton Daily News. We will be sure to keep interested parties informed as we progress through this process.
 
Aspire CU Names Incoming CEO
In February, Mindee Kohlman, President/CEO of Aspire CU (Minot, ND) announced her retirement effective near the end of May. Last week, the board of directors of Aspire CU announced the incoming CEO. Please join me in congratulating Kevin Vigested. Kevin is a North Dakota native with strong ties to the Minot community. He has years of experience in the banking industry, with a history of promotions, achievements, and recognition. No doubt, he will be an asset to Aspire CU as well as to our credit union network in the Dakotas. Please join me in welcoming Kevin to the credit union family; he can be reached at [email protected].

Have a great week, and we will see you soon! 

DakCU President/CEO