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Message to Credit Union Leaders: The Emperor Has No Clothes

Credit union people are like family to me, but, like family, sometimes there is a need to have a heart-to-heart talk.

Credit union people are like family to me, but, like family, sometimes there is a need to have a heart-to-heart talk. There is a crisis in our industry, but very few of the people associated with the industry publicly acknowledge it. The traditional credit union model no longer works and will never work again. If we do not take steps to transform the model now, credit unions run the risk of marginalization or elimination.

Since the founding of credit unions, the business model is for credit unions to exist off of the net interest margin. In 2005, the credit union industry’s average net interest margin dipped below the operating expense ratio. When a business makes less money than it costs to operate, you can only stay in business as long as the capital holds out. In 2009, the NCUA began to take an additional bite of that capital to pay for the losses to the share insurance fund caused by the meltdown of the investment portfolios of the corporate credit unions.

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Peter Westerman

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