Strategy Matters More Than Ever In A Post-SVB World

The fear that drove the run on SVB is a powerful emotion, but at its core, it’s the absence of a feeling of safety and belonging.

Last week’s scheduled third piece about spring strategy work was supposed to set up the board and leadership team for success as they collaborate on strategy management and making strategy operational, but it was overtaken by bankers behaving badly.

When a $200 billion bank with no appreciable credit risk on its balance sheet can fail almost overnight, does it even make sense for a $2 billion credit union to be thinking and planning a decade down the road? And the even more daunting question: When the near universal response from “experts” is that bigger is safer, better, and more rational, do relatively small financial institutions have much of a future at all?

The answer to both questions is yes!

The closer we look at what happened at Silicon Valley Bank (SVB), the better the future looks for purpose-led credit unions. SVB’s failure means it is more important than ever for credit unions to have long-term, big picture strategy grounded in clear purpose, directly connected to the needs and interests of members, and with objectives that involve observable, trackable metrics.

Neither the fear that drove the run on SVB nor the instinct to flee to megabanks are rational. Fear is a powerful emotion, but at its core, it’s a response — it’s the absence of a feeling of safety and belonging.

In a March 21 op-ed for the Washington Post, Theodore R. Johnson, a retired naval officer who works on the psychology of national feeling, argued that “belonging occurs when people feel agency and are socially connected.” He cites a deep vein of psychology research that belonging is “a fundamental human motivation.” No one belongs to a bank … unless, of course, they’re delinquent on a loan.

Members who feel like they belong to their credit union — that they are more than just customers by a different name — are engaged both rationally and emotionally. They use more products and services, they use fewer outside providers, and they stick around longer. They are easier to please and more satisfied, they don’t shop rates and fees, and they’re proud to be members and talk about it. And yes, because healthy human beings can’t develop that level of trust and closeness until they feel cared about and safe, they are far less likely to suffer from the irrational fear that drives bank runs and chases consumers to megabanks.

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Of course, if you’re reading this, you already care about your members, but do your members feel that? Caring is helpful but not sufficient. It’s the perception that matters. Gallup research — validated by results from the consortium of 13 credit unions that Callahan leads in collaboration with Gallup — shows strongly agreeing that “my credit union cares about my financial wellbeing” is the single biggest predictor of a deep, durable emotional connection between members and their credit union.

At the risk of being overly simplistic, this is why the credit unions thriving today are not the ones trying to catch up to banks. They are the ones consciously addressing the needs and preferences of their members.

This is the product of purpose-led strategy. Being a fast follower of banks is not a strategy. It’s a perfectly reasonable approach to pricing, technology, and local market dynamics, but it can’t get you from where you are to what you aspire to accomplish for the people you serve. That’s the essence of a purpose-led strategy, and it’s why SVB puts credit union strategy on the front burner like nothing else.

SVB is being described as a local bank, but it was 30% larger than Navy Federal ($157.0B, Vienna, VA) and nearly four times the size of State Employees’ ($51.0, Raleigh, NC). The lesson here is that every credit union is too small to flourish as a commodity provider. To thrive, credit unions must be different, and that’s a function of strategy, of understanding why they exist in terms that empower them to deliver meaningful, measurable value to the people they serve and in turn create a zone of safety and belonging that keeps those people connected and participating, emotionally and rationally.

In a world where things can change in an instant, where banks with no significant credit risk can go under in a matter of hours, and where money flees to size unless its owners feel safe where they are, sound strategy is a credit union’s best defense.