By Ray Birch
AUSTIN, Texas—The state regulator here isn’t doing much differently in supervising credit unions during the pandemic, but it will be looking closely at longer range plans to determine their “reasonableness.”
John Kolhoff, Texas Credit Union Department commissioner, told CUToday.info his agency is certainly monitoring how credit unions are managing through the current crisis, but, more importantly, how they are planning for the future as a result of the sharp economic downturn.
“I wouldn't say we're paying closer attention anything this year, because obviously we have always paid attention to credit risk, liquidity risk and interest rate risk institutions are taking…We look at the adequacy of their earnings potential related to that, and the adequacy of their capital related to how much risk they’re taking on,” noted Kolhoff.
But Kolhoff emphasized Texas’ state examiners will also be looking at those metrics with an eye on how each factors into the potential longer-term impact of the economic issues created by the COVID-19 pandemic, and the adjustments being made as a result.
“We will look at the reasonableness of the institutions’ assumptions as they make their changes,” he said. “Well-run institutions are obviously building those things into their plans—not only are they addressing the short-term, such as making sure the staff and members are safe—they are moving on to the longer-term considerations and asking how do these things affect my strategic plan. What are our reasonable earnings potential over the next year, and how much capital in five years are we going to need to support the risk we are taking on? Those types of things.”
About Smaller CUs
Kolhoff said it is his view smaller credit unions are at not at any markedly greater risk than medium or large credit unions from the economic crisis, saying the impact is being felt fairly evenly by all.
“I think all of them are going to be challenged,” he said. “Any time you have an economic environment like we have right now, you're going to see challenges to any financial institution—bank or credit union,” said Kolhoff.
In fact, Kolhoff suggested smaller credit unions may even have some advantages over their larger counterparts during the pandemic. He explained that when offices closed, many credit unions were having to find new ways to work more closely with their members, possibly even meeting them offsite for meetings that require a great deal of consultation.
“Credit unions are having to work around some things with all the restrictions, and I think, in many ways, small credit unions are a used to providing that kind of personal service,” he said.
John J. Kolhoff
Strong Capital
Overall, among credit unions of all asset sizes in Texas, Kolhoff believes there is enough of a capital cushion to weather the pandemic’s onslaught.
“I'm comfortable credit unions are well capitalized to support the risk that they have on the books,” said Kolhoff. “I'm sure, for some institutions, this challenge will be more than they can take. But I am not worried about the number of these credit unions—it’s not large enough to be a systemic issue.”
To help CUs survive the crisis, it will be “imperative” state and federal regulators look at and remove any “unreasonable impediment” to their futures, according to Kolhoff.
“There's certainly going to be a lot of paper losses that are never recognized that could lower the net worth of an institution and raise questions about solvency,” stated Kolhoff. “We are looking at ways to understand the reason behind what is happening at each credit union and determine how far we can go.”
Kolhoff believes there is a long way to go before the state regulator might have to take any formal action against a CU during an examination as a result of the current crisis, and he again pointed to the strength of credit union capital.
The Longer Term
As have other CEOs and regulators who have talked with CUToday.info, Kolhoff agreed many credit union leaders will have to make some difficult decisions—weighing the need to help members during the pandemic against the future of the institution and its staff.
“I think credit unions have done a great job of dealing with the short-term issues,” he said. “I think they're analyzing this situation and getting to the point where considering the longer-term issues and building things into their strategic plans. The last few months have been about looking at how to assist membership and their communities, but now they need to determine how all this translates in the long term.”