5 Tips to Develop & Execute a Recession Strategy

The U.S. is very likely to enter a recession in 2023 – real Gross Domestic Product is currently going sideways, inflation has grown significantly in the last 12 months, interest rates are continuously being raised by the Federal Reserve, the pandemic stimulus impact to consumers is diminishing, consumer debt is increasing and consumer credit card delinquencies are rising.

Although better positioned than during the 2008 Great Recession, credit unions should start preparing now for tougher months ahead. Here are five ways they can develop and execute their strategies to keep their institutions strong and help their members during a recession:

1. Get data in order. The ability to pivot during times of change is dependent on having an in-depth view of what’s going on within the institution. When it comes to member relationships, being able to accurately view and report data of current performance is required to optimize for a recession. Modern technologies and processes can combine disparate data, standardize it and curate it, providing credit unions with a more holistic view of each member relationship.

2. Create member visibility. In order to align a credit union’s member-facing employees with the institution’s growth strategy, they need to be able to see the details of the relationships they are responsible for. Having visibility into member relationships will enable credit unions to find opportunities to put management initiatives into action, while also taking better care of members. For example, knowing their top revenue-producers will tell them which relationships they need to protect the most in turbulent times. Or, knowing which members are active or not will indicate who they should reach out to more to increase engagement.

3. Price commercial relationships accurately. For credit unions that have moved into larger commercial lending, next year may present the first time they’re doing so during a recession. Having insight into commercial relationships will enable credit unions to accurately price those products and deals. Being able to adjust pricing quickly as rates change and apply proper credit for deposit balances and service fees will allow informed decisions to be made. When relationships are priced correctly, credit unions can offer lower rates and continue to invest in better products, improving the banking experience and further supporting members during a recession.

4. Build and execute a deposit pricing strategy. For the past 14 years, interest rates on deposits have been low or non-existent, providing an inexpensive funding source. The pandemic stimulus boosted deposits by $4.8 trillion from March 2020 to June 2022, but most of these deposits have remained low interest. As we head into a recession, much of the low-interest deposits remaining will likely transition to higher interest products. This will require credit unions to create and execute an effective deposit strategy. This strategy should include the following elements: Identify where members have excess deposits, implement a deposit pricing process, use tools optimized by member segment and relationship characteristics to price deposits accurately, and educate and train employees to understand and inform members about these changes.

5. Continue lending. Pricing loans accurately will still be important for credit unions, as many members will need loans and lines of credit to succeed in a recession environment. However, executing disciplined portfolio covenant monitoring is pivotal, making sure the returns are worth the risk.

Moreover, lending is often an acquisition driver for credit unions and a gateway to further supporting their communities. For example, new members may be attracted to the low interest rate on loans that a credit union is offering. However, if the lending process goes smoothly, they might decide to move their primary transacting accounts to the institution instead of just opening a $5 share account.

If credit unions can execute on these five points during a recession, they will deliver a steady stream of revenue, which will allow them to continue to invest in better products and additional benefits, leading to even happier members. Credit unions that are proactive about their recession strategy will be better position to withstand the impact of an economic slowdown and better serve their communities.

Mac Thompson is Founder and President at White Clay, a Louisville, Ky.-based provider of data and consulting services to banks and credit unions.