By Sheryl S. Jackson

Surprisingly, the COVID-19 pandemic resulted in a continued increase in deposits, which meant credit union leaders found themselves looking for ways to manage growing assets in 2020 and into 2021.

“Our trends are similar to the trends seen in all credit unions — deposit growth due to people saving more and spending less,” says Gina Seibert, assistant vice president of finance for PSECU. “As we have watched savings grow, we also wonder when the pent-up demand for spending is going to be released?” When people begin spending, lenders also wonder if they will use the cash they’ve saved or use credit or loans, she says. “I believe that we’ll all look back on 2020 and realize that this is the year that changed our members’ behaviors, as well as our industry.”

While many people point to stimulus checks as the reason the level of savings for individuals exploded in 2020, the trend toward higher savings levels started before COVID-19 economic impact payments were issued, according to Brett Wheeler, CFO of USALLIANCE Financial. People were not spending as much due to concern about what might happen with their jobs and the fact that travel, entertainment and restaurant industries were either shut down or restricted by pandemic rules.

Addressing Share Growth Challenges

Wheeler does point out that USALLIANCE is different from many other credit unions because, as a low-income designated credit union, the use of non-member and wholesale funding can be used as a “release valve” when members’ savings levels move up and down. “This gives us greater flexibility to balance our asset growth.”

“We expect continued share growth across all credit unions as we see members deposit stimulus checks along with a greater percentage of their paychecks throughout 2021,” says Ann Kossachev, director of regulatory affairs at NAFCU. This will be due to continued hesitance to spend money until the economy, the job market and COVID-19 vaccination efforts show positive results, she says. “Meanwhile, credit unions are looking for different investment opportunities to put their money to work for members so they can offer better rates and services,” she says. “For this reason, NAFCU has been talking with the National Credit Union Association (NCUA) about greater investment authority and flexibility, which might be temporary — and invoked in similar situations in the future — or be permanent.”

One example of additional investments opportunities includes the ability to invest in corporate bonds, says Kossachev. “Some state credit unions already have this ability, and the NCUA could set limits on the type of bonds and oversee investments to ensure the credit union investments are diversified — just as they do for other investments,” she says. “This particular change may require legislative approval, but conversations with NCUA have been positive.”

Preparing for Uncertainty

As advocates work with the NCUA to identify strategies to improve credit unions’ ability to manage the stress and strain presented by unusual circumstances, such as a pandemic, it is critical that credit unions conduct stress tests as a component of planning for changes in deposit levels, loan repayments or other facets of business that can be affected by different factors.

“We have incorporated stress testing and scenario planning in our planning process since 2008,” says PSECU’s Seibert. “The act of going through a hypothetical event and identifying gaps we would need to shore up or decisions that would mitigate risk is a valuable part of preparing leaders throughout the organization to handle a variety of situations.”

A challenge that must be overcome is garnering buy-in to the value of stress testing, admits Seibert. “It’s important to make the session engaging and not to get caught up in the details and let the numbers drive the discussion,” she says. The value of stress testing and scenario planning is the focus on strategy and how decisions will affect the organization and each department. “One best practice is to use a third-party facilitator to run the meeting — someone who can stretch and challenge everyone’s thinking in order to keep the conversation moving forward.”

Although no one could have imagined a worldwide pandemic and the resulting effects on the economy, Seibert points out that the experience that credit union leaders gained throughout the years working with hypothetical scenarios produced a “muscle memory” that enabled them to quickly identify what needed to be done and how. “We’ve gone through this process so many times, we were able to model a few different situations and identify the most responsible decisions to make.”

USALLIANCE did not have a planning scenario that specifically addressed a pandemic-induced economic shutdown, but they did have plans that could be triggered by high unemployment or steep corrections in stock market indices that resembled the pandemic and helped their team mitigate risk quickly. “We focused on the early warning signs,” says Wheeler. “For example, we saw the likelihood of high unemployment early on and anticipated an increase in loan defaults, and we met to adjust qualifications for loans.” He adds, “It was difficult to predict the effect — or issuance of — stimulus payments and lowered spending, so things went much better than we expected.”

Although stress testing is a requirement for all credit unions, the regulations are not overly prescriptive, says Wheeler, a former case officer and examiner for NCUA. “Every credit union and balance sheet is different, so requirements that are appropriate for one credit union may have unintended consequences for another,” he says.

“The most important part of stress testing is the process of planning so that people know how to evaluate risk and develop strategies,” says Wheeler. He points to one of his favorite quotes by former President Dwight D. Eisenhower, when he was overall Commander of Allied Forces in WWII: “In preparing for battle I have always found that plans are useless but planning is indispensable.”