By Robert H. Halleck
You Can't Have too Much Capital
Of all of my lessons (so far I've covered bad loans, balance sheet blunders, bad branches, portfolio management and bad people), this may be the one that does not transfer as easily from the banking-mutual savings and loan world where I spent my career to the credit union world. Extremely high levels of capital in a credit union may mean you are not serving your members. Givebacks in the form of expanded facilities, new services, better rates, etc. may be in order. Yet, give me my due.
During my first 20 years, I operated in the world of a mutual savings and loan. Our capital was the only cushion we had to absorb mistakes in lending, economic hard times and adversity in general. It sometimes made return on equity anemic but it sure helped quiet the nerves in stressful times. We lived on borrowing short and lending long. I expect that may be the credit union trend in the future as the automobile lending market changes.
In my past, how much capital was too much? It all depended on the individual organization. It's a question you and your board of directors need to ask and answer within the context of your credit union.
Robert H. Halleck, who retired in 2002 from a 35-year financial services career, remains vicariously involved in the industry through his wife, a credit union CEO.
Read an opposing view.
Read Lesson 7.
