By Ray Birch
LAS VEGAS—The first credit union or community bank that fails due to the economic fallout created by the coronavirus pandemic will “send shock waves” throughout the country, warns one CU leader.
Rick Schmidt, who heads the $184-million WestStar CU, located here in one of the hardest-hit areas of the country with jobless claims, told CUToday.info the government must pay close attention to the needs of financial institutions during this crisis or some may fail.
Numerous government entities around the country have put in place moratoriums on evictions of both renters and homeowners, while others have either required or entered into voluntary agreements on forbearance on all consumer and commercial loans. Members of Congress and other elected officials have also asked financial institutions to reduce or zero-out fees. Given all that, Schmidt said he is unsure how financial institutions will all survive with “very little revenue.”
‘How Long Can We Last?’
“That’s the question; how long can we last,” said Schmidt, who noted his membership is comprised of more than 50% of people directly employed in the gaming, hotel and entertainment industries here in Nevada. “We have 12.5% capital, which are great reserves. But a lot depends on how well the members support us. If the members, who are able, continue to pay on the bulk of their loans, we will be able last for a pretty good amount of time.”
But how long the pandemic lasts, and the its effects likely lingering for a longer period here in a state that relies on consumers having the confidence to get out of their homes and travel to its entertainment destinations, is a huge concern, said Schmidt.
Staggering Numbers
The unemployment numbers have been staggering. Over the past few weeks some 10-million Americans have applied for unemployment benefits, according to the U.S. Labor Department. Nevada is among the worst-hit economies in the nation, with more than 93,000 Nevadans filing for unemployment claims during the week that ended March 21 alone, compared to 6,356 from the week prior.
Schmidt told CUToday.info that in the early days of the coronavirus crisis the credit union was processing 30 to 50 loan deferrals each day.
“If this economic downturn here lasts for an extended period, how deep do I have to cut in order to keep the credit union going?” asked Schmidt. “That means how many branches do we have to close? Will my own staff be impacted? If the government stipulates a lot of requirements for financial institutions to lower charges and defer loans, how can we get by without making much money? I tell you, the first credit union or community bank that fails is going to send another shockwave of fear throughout the economy."
FIs Can’t Be Overlooked
Rick Schmidt
Speaking to the various relief packages Congress has passed for hard-hit businesses such as airlines and hotels, Schmidt said the same consideration must be given to financial institutions—and it would be a mistake for Washington to think financial institutions have an endless stream of money.
“There darn well better be some sort of financial support for the financial services industry to keep us propped up,” said Schmidt. “I'm not begrudging any of the other industries, but how critical is the cruise ship industry, for example, to the economy of the United States compared to community banks and credit unions? If the government has limited resources and they have to put money where it matters most, the financial services industry is probably front and center in terms of keeping money flowing.
“(Washington) is talking about us like we're a utility,” continued Schmidt. “And they seem to think we have an unlimited amount of money. It's frustrating. Yes, we will do everything we can to serve our members as long as we can, but…”
The Big Issues
The big issues, Schmidt agreed, are how long this pandemic will last and then how long afterward it will take for the economy to bounce back, especially in a state driven by entertainment.
“If this doesn't go on for too long, if it shuts things down for four or five weeks, there's damage but it's not too harsh,” said Schmidt, who noted that all WestStar branches are closed to walk-in business.
But Schmidt is paying close attention to unemployment numbers to assess the credit union’s ability to serve members and cope longer term. He noted that during the Great Recession about 14% of workers in the Las Vegas economy were unemployed.
“And that was a nightmare,” recalled Schmidt.
A New & Different World
He said the consumer “bailout” packages, especially funds for unemployment, will have a large impact on consumers’ ability to pay some of their debts and help FIs stay afloat. But those funds are being paid in what is an entirely new environment.
“But back then casinos were still open, the restaurants were still open, the hotels were still open and functioning. You still had 86% of the population here getting a paycheck. What we are seeing now, with all the businesses closed, is something we’ve never seen or dealt with before.”
WestStar has reduced fees, is offering emergency loans and skip-a-pay, and is working with members on an individual basis.
“A lot of what we are doing is on a needs basis,” said Schmidt. “For example, I had one member come in and ask for a deferral and he had roughly $30,000 on deposit with us. And he was still getting a paycheck. But he told me he was concerned about the future.”
Schmidt said that member was not granted a deferral, as the CU is saving its resources for members who are out of work and don’t have the money to pay their loans.
A New World Begins in April
Schmidt said so far WestStar has been able to keep up with loan deferrals, as April 1 had not arrived when he spoke with CUToday.info.
“Before this crisis really hit we had received most everyone’s mortgage payment for March,” explained Schmidt. “So, what we're seeing now, it’s going to get worse after April 1, when a lot of mortgage payments come due again.”
The credit union is not asking for a lot of documentation from members to prove they are out of work.
“If you tell us now you’ve been laid off we are taking you at your word when we process deferrals,” said Schmidt. “This is all just so tough for Nevada right now. Our state’s economy had just finally started to hit on all cylinders after the Great Recession slammed us hard.”
The Silver (State) Lining
What is pleasing to see, said Schmidt, is how people are behaving throughout the early days of the pandemic.
“The inherent humanity in people is still intact,” he said. “You go to the grocery store and people are polite, there is no pushing or shoving. People are not screaming yelling, they’re still behaving.”