Chip Filson
The Seated Boxer, an iconic ancient Greek work of art, shows a grizzled veteran of the ring, equal parts resigned and ready to spring into action.
What I like is a sense of respite from competition, the powerful athletic physique and the tiredness that surrounds his humanity. Is he a winner this day? Are there more fights to go? How will his efforts be remembered?
These are questions that all of us encounter, in literal or figurative ways, in our daily efforts.
(by Marit Hoyem, a junior at Williams College)
Last summer I interned for Callahan and Associates where I wrote blog posts about my generation’s financial outlook and spending habits. As a Gen Z and local Credit Union member, I provided a perspective how credit unions can better serve their next generation of members.
Currently I am studying abroad in Edinburgh, Scotland where I faced new financial challenges and learned valuable lessons about spending, budgeting, and saving money.
During this time, I found myself reflecting on a prior post, “Hello Venmo (Goodbye, Checking Account)”. This discusses how Gen Z sees P2P payment services as de facto checking accounts, sharing money back and forth without ever using their credit union account. Please see that piece for information on Venmo and how phones facilitate Gen Z spending.
I first got Venmo in high school. What started as a way to split the cost of movie tickets or dinner through my phone has gradually evolved into a form of social media with friends. On the app we can see who our friends are paying and leave little messages with our payments that appear on a Twitter-like feed.
As I have gotten older, I have continued to do more transactions with the app, for much more money. Next semester I will split groceries and utilities as well as pay my rent using Venmo.
While I have done my fair share of splitting costs using Venmo while abroad, what has resonated during my experience in Scotland is how digital money affects how I budget and spend.
In Europe cashless payments are becoming the norm. In restaurants, grocery stores, and pharmacies, to make a payment all I do is double-click my power button and let Apple Pay do the rest.
After my first month in Scotland, I checked if I was sticking to my expense budget I was shocked to see I had gone way over the amount of planned spending. One of the issues was that I was paying in a new currency, pounds, and wasn’t always doing the mental math to see the amount in American dollars.
Although there are ways to check my payments daily on my credit union app, it was difficult for me to follow just how much was leaving my account while paying for food, bedding, and other necessities. I see the issue now–growing up in the era of digital money, I never had to take cash out of my wallet, physically count out dollars, or go to the ATM when I ran out.
This isn’t to say that my generation is irresponsible with their money or careless spenders and borrowers. Rather, our perception and experience of money is fundamentally different from older generations.
We grew up using phones, cards, and apps to pay for things, not cash. Credit Unions should note this difference in spending habits and offer money management solutions for digital transactors.
Something that helped me understand my budgeting issue was to go on my credit union app, look back at my recent transactions, and add up how much I was spending each week on necessities (such as groceries) versus indulgences (like eating out with friends).
I think a great service for Gen Z members would be to make this categorization easier. For example, splitting up purchases on a mobile app by month, by location, or by dollar amount to help members track their spending habits.
In a world of cashless transitions, seeing the money available and visualizing the cost of something is harder for everyone, especially those who only make purchases with their phone.
Credit Unions have an opportunity not only to be a checking account, but also to serve as an educational and budgeting resource for their members.
Empower and encourage members to track spending. Give them an opportunity to learn from moments of spending exuberance (as I did).
One of Austrian-American economist Joseph Schumpeter’s descriptions of capitalism was called “creative destruction.”
This refers to a competitive economy’s relentless efforts to innovate for advantage and market dominance. He described the process as: “the old way of doing things is constantly getting destroyed or supplanted as it is replaced by a newer, better.”
Some would suggest that business failures in a competitive economy are an inevitable and necessary event, even when they cause local hardship or dislocations.
The cooperative system is supposed to be immune from some of these economic forces. Credit unions are owned by their users, they have no traded stock, cannot be bought and sold as private firms, and reflect the values necessary for a communal, versus for-profit, enterprise. Their founding, focused on a ”local” constituency with a common bond, is intended to improve the welfare of a community, not just individuals.
One example of this “creative” process is in neighborhood across the street where I live. There is no home sold for less than $1.5 million and when offered, most list for at least twice that amount.
Even with this going-in price tag, Edgemoor is not a place for old homes. No matter the asking price, every purchase becomes a tear down. Here is an example from across the street this past week.
The builder, entrepreneur, risk taker and innovator.
The destruction phase.
The front view.
This home built during the depression was sold as is for $2.0 million. About five or more large white oaks were cut down before the demolition started. The land and location are so valuable that the builder will put up a mac-mansion of enough square feet to justify a new sales price at least double his cost.
Obviously, whoever buys this new home will believe this is progress, just what they were looking for. This is the free market at work.
We can debate the social and political implications of tear downs to build back bigger and more expensive homes, office buildings or condos. But the example is not limited to real estate. It happens in credit unions. It is called mergers.
The key question is whether mergers are helping or hurting the credit union system–to be more precise, the mergers of sound, well capitalized long standing credit unions which have served their markets for generations.
Everyone undertaking a merger believes their new creation will be bigger and better. Any downsides will be temporary. Mergers are just a way of getting to the future faster especially when asset size is believed to be THE essential for competitive competence.
Now to be fair, the house across the street had not been well maintained. The owners had lived there for four or five decades. The yard and landscaping were totally neglected. The 80 foot tall oak trees made the property look like an unkempt urban jungle.
So whatever goes up after this tear down, will certainly be a visual and living enhancement-except for the missing trees.
Similarly, some sound credit unions have not been well maintained. Leadership is just holding on until retirement; the board has given up leadership responsibility. Selling out looks like an easy way to take care of members when the motivation has gone.
It becomes time for a new generation of leaders to take over the credit union’s legacy and continue serving members in the future.
These easy-exit examples are becoming more numerous. Personal advantage, not member value, appears to be the motive.
The systemic risk is creating an “existential vortex” where all credit unions, not just the small, the poorly led or even the ambitious, are caught up in a system that is increasingly circling the drain.
There are no new charters. Industry assets are more concentrated. The leadership purpose is more and more institutional growth and success. The members, are not owners in any sense of the term, but merely customers used as the means to greater financial glory.
Credit unions competitive advantage has been collaboration and interdependence. This is how the cooperative system was created, their regulatory institutions were differentiated, and why purpose justified a tax exemption.
Creative destruction destroys legacies, whether buildings, companies or credit unions. New brands emerge. Old locations closed. New markets and business models tried.
Credit unions are not rebuilding on their old foundations. Instead large mergers are just the age-old, typical financial market strategy of buying up competitors to become more dominate and survive.
I don’t think the merging of well run credit unions is sustainable. It will take over two years before the new home is ready on the now demolished site and the new owners move in. This is also about the operational transition timeline of a large merger when members start to look for other options.
Unfortunately the creative destruction in credit unions is not putting new homes in place of the old; it is just moving all the occupants into the existing one.
Schumpeter believed that capitalism would gradually weaken itself and eventually collapse. Specifically, the success of capitalism would lead to corporatism and to values hostile to capitalism, especially among intellectuals.
In an historical irony, cooperatives intended as an antidote to the excesses of capitalism, are instead succumbing to the allure of free market takeovers.
Everyone wants to own a bigger house.
The following are three examples of a slowing economy.
In a call this week a CEO said he had budgeted 5% share growth and 3.5% loan growth for 2023. For the first quarter share growth is negative; loans increasing slightly.
The following is a message from the Vestry of a local church about their budget challenge
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At Disney: Recently reinstated CEO Bob Iger announced plans for 7,000 layoffs that will take place in three “waves.”
Sometime in June, the Supreme court will announce its decision whether President Biden has the legal authority to forgive up to $400 million of the approximately $1.8 trillion outstanding federal student loan debt.
Whatever the decision, the three-year payment moratorium on payments and interest accruals begun during the Covid lockdown, will expire.
Regardless of the legal outcome on Biden’s debt cancellation proposal, millions of borrowers will find their monthly income reduced by payments that must now be made.
A segment from the March 14, Marketplace daily report on NPR follows. The interviewer is host Kai Ryssdal and the guest commentator is Daniel Tarullo who teaches at Harvard Law School.
Between 2009 and 2017, Tarullo was on the Federal Reserve Board of Governors; specifically, he served as oversight governor for the supervision and regulation committee.
Silicon Valley Bank (SVB) analysts are looking for situations where there are balance sheet or business model parallels that could lead to more bank failures. Tarullo asserts that management will always be first in line when blame is assessed.
However that is not the full story. He believes the proximate cause is closer to home–a regulator with a light touch.
I believe his last comment highlighted below describes NCUA’s approach to supervision. How else do you explain a credit union CEO and Chair giving themselves a $10 million fund under their sole control or $1.0 million dollar credit union CEO bonus upon merger, among other abuses?
Interview Excerpts:
Ryssdal: All right, so look, that’s why we got you on the phone. You ran, among other things you did at the Fed, the committee on supervision and regulation. And I am not the first person to ask, nor will I be the first person to ask, where were the regulators? Why did this come out of the blue?
Tarullo: That’s a huge question, isn’t it? There are two places to look: One is to supervision and the other is to regulation. Now, of course, we’re stipulating that there’s a management failure, but I think everybody would agree with that. So in terms of the government, the debate publicly has been, “Gee, were the 2018-2019 changes in the [Dodd-Frank] law and Fed regulations respectively to blame?” And, as I think you know, I was opposed to both the [rollback of the] law and the changes in the regulations.
But I don’t think there’s that direct of a connection between those specific changes and Silicon Valley. And so what that tells us is the failure was in the oversight by supervisors — people who were supposed to be watching whether things like the proportion of uninsured deposits was creating some unusual risks for that particular bank.
Ryssdal: That’s not terribly reassuring, I gotta tell you.
Tarullo: No, it’s not. And I think that the review that the Fed has launched — and it’s significant that it’s headed by the vice chair for supervision, Michael Barr, who is, you know, relatively new — I think the significance of having him run that rather than staff is precisely because they want to find out where the supervisory failures lay. Were they with the specific team that had responsibility for Silicon Valley? Or were the failures more widespread in the sense that Washington was providing kind of a light touch supervisory direction to them?
Ryssdal: What do you think?
Tarullo: I suspect that it’s a combination of the two. But given the signals that the Fed was sending, you know, in the last several years, I believe that part of it is just the “don’t be too tight in your supervision, you need to find legal problems before you tell the banks to change what they were doing.”
In talking with a retired CEO who still follows credit union events, I asked how his perspective had changed.
“I don’t feel the intensity or nuances from the grind of the day to day. . . or the tactical lust for short term passions.”
Without an organization’s boundaries, the retiree tends to be more observant of general trends.
An example of this capability is John Tippets, who retired as CEO of American Airlines FCU in the first decade of this century. In retirement he continued to consult in strategic planning sessions and speak at credit union events. During the 2008/9 financial crisis he was the interim CEO for three years at the troubled North Island Credit Union, which he saved from a regulatory closure.
Before his credit union roles John spent about 25 years in the for-profit world of American Airlines. Most of that time he was an Officer with Sky Chefs, an American airport restaurant and concessions, and airline catering, subsidiary.
He has had multiple retirements and career involvements. He and his wife Bonnie have written a book, Hearts of Courage published in 2008, the story of his father’s survival from a plane crash in Alaska in 1943. The story behind the book is in this 2009 article.
There have been two CEO’s since John at the credit union. The airline sponsor has gone through much turmoil including bankruptcy, mergers and leadership changes. The relationship of the credit union and its sponsor has continued strong even through numerous board changes.
The one strategic change John made as CEO was to take advantage of the TIP field of membership option. This permitted the personnel of other employers, co-workers at the airports, to become members of AAFCU. Airports in many ways became the credit union’s communities.
A favorite topic for John is his Principles of Leadership which he developed into a 50 slide presentation to the Aerospace conference in 2018.
The speech summarized his multiple professional and personal interests in a diagram similar to the UCLA basketball coach John Wooden’s nine principles of leadership. Here is John’s organizational template using a similar framework for credit unions.
The slides develop each of the nine points using examples from his numerous life experiences. The speech summarizes his approach to leadership. It also characterizes how he sees meaning in his multiple organizational and personal responsibilities.
John is now working on a book about his 25 years in credit unions. His activities are just one of multiple examples of credit union leaders who have stepped down but continue to follow credit union events. For many, these professional years are the most satisfying responsibility they have had.
Look around. There are examples of professional experiences and resources in every community, often like John, willing to provide perspective and an occasional assist. They see the world differently, often with more clarity than incumbents might assume.
And sometimes they are even delightful guests for the board, employees and members to hear from when those occasions arise.
In his book, John talks about his father’s recounting his story to youth leaders. Joseph would encourage them to keep teaching the lessons, because even though they might not seem to care, “kids are hearing and someday they may really, really appreciate what they learned.”
Life stories are not just for kids. For the past is never past, but always present.
Part of the job—arguably the job—of good journalism is to expose that brokenness. It’s to shine a light in the dark places.
However by focusing so much on what isn’t working, we sometimes forget what is.
If ours is an era of building and rebuilding, what things are worth saving? What things are worth elevating? What things are worth remembering?
And:
America won’t be saved by politicians
or money
or technology
or celebrities.
It can only be saved across the land by “character.”
This past week’s financial runs show how fragile consumer confidence can be.
A critical distinction in credit union design is democratic ownership-one member one vote.
One of the challenges however is that it is easy to treat owners only as customers. The fact is that many “owners” today are ordinary consumers attracted by a competitive rate or other marketing message. In some cases, the customer is just an indirect loan borrower who had minimal voice in the selection of where the loan was made.
There is a difference between customers and owners in a financial institution.
Customers do not vote for directors at the annual meeting;
Customers do not vote on merger proposals for their institution;
Customers do not have a residual interest in the reserves of their firm.
Ownership is traditionally honored in other communications such as members’ founding stories or recognizing those who have played special roles in the credit union or cooperative system.
Transparency is one critical leadership characteristic that acknowledges the owner’s role.
Without full, continuous and open communications, the default is to treat owners as customers. That unfortunately is the attitude of many in positions of leadership today.
Most importantly lack of transparency on specific credit union commitments means the owners have little or no basis for their responsibility of electing directors.
An example is from last week’s subordinated debt rule approved by NCUA. Every party to the transaction is provided full information: Senior management/boards, the brokers, the consultant, NCUA, and most importantly the individuals and entities (including other credit unions) that buy the debt.
Debt issuance of $100 and $200 million have been completed in the past 12 months. The only persons not provided the details of these events are the owners. It is their loyalty that is the basis for issuing these borrowings that can now extend as far as 30 years.
Without transparency, there is no possibility of accountability. The owners are removed from any role in governance. NCUA presumes its in loco parentis role if something doesn’t go according to plan-a distinct prospect with terms of 10, 20 and now 30 years.
Only state-chartered credit unions are required to file IRS form 990 which discloses senior management and board compensation, political donations and other activities such as grants for all non profits.
These disclosures are essential for owners to know the incentives and circumstances board and management have agreed to in leading the credit union.
Compensation consultants today are plentiful with four part plans and multiple ways to structure payments now or later. There are increasing references to a “change of control” clause which would trigger executive payouts no matter other merger bonus and benefits negotiated by the CEO.
Without compensation transparency there can be no accountability. State charters have disclosed this for decades. The same logic applies to federal charters. This information is an important step in owner oversight, even consumer protection.
In the months ahead, most credit unions will hold their annual meetings-in person and virtual. In preparation the annual audit will be available, a Chairman’s report prepared and other required business conducted including election of directors.
Some meetings will include updates on projects such as a new building or branch expansion, a report by a foundation or community activity. Others will include an educational presentation, an outside speaker and even a meal.
The annual meeting is a primary opportunity for leadership to engage with owners in open and full conversations.
It is especially important in light of recent examples about the resilience of regional and smaller banks. Confidence in an institution is based on trust. Trust is not created in a day or by a special press release about a firm’s financial standing. It is a relationship founded on open communication as both customers and owners over years.
Nothing could be more important this year than showing coop owners that the CEO and board deserve their trust by being fully transparent with facts and open to the members’ questions and points of view.
That is how free markets are supposed to function in a competitive economy. That is how democracy is supposed to work.
Last Friday I received the following email from a credit union’s CFO:
“My CEO and I were discussing the new offering from the Feds, the Bank Term Funding Program (BFTP). We have outstanding borrowings due over the next few months. Liquidity is still tight. I am considering utilizing this program as the current rate offered is almost 65BPs less than the FHLB 1-year term.
“I sat in on an “Ask the Feds” session on Wednesday to learn more about the program. I’m curious as to your thoughts on utilizing this source of funding for Credit Unions. Do you know of any CUs that have received any funding?
“Also, I’d love to hear what you think as far as there not being any negative stigma attached to institutions that do receive funding from this source. Borrowing from the FRB is usually viewed negatively as it is seen as the “lender of last resort.” During the webinar, the speakers assured everyone this would not be the case with this program.”
The follow query was posted by a credit union member on LinkedIn early last week:
I am thinking of transferring all my money. To my 2 credit unions !!! Why is it more secure??
The following are reports by the Fed and the FHLB system to respond to the financial firms’ liquidity needs. From a Reuters report on the FHLB system on March 13, 2023:
U.S. Federal Home Loan Banks beefed up their lending war chests on Monday to provide more liquidity to banks amid continued higher-than-usual demand for funds as the fallout from the collapses of Silicon Valley Bank and Signature Bank reverberates through medium- and smaller-size financial institutions.
The FHL Bank system raised $88.73 billion by selling short-term notes with maturities from three months to one year on Monday afternoon, according to Informa Global Markets, a provider of syndicated bond data. The offering was raised from an initial $64 billion due to high demand.
Bloomberg on the Fed’s lending ;program as of March 16, 2023:
Banks borrowed heavily over the last week from two Fed backstop facilities. Data published by the central bank showed $152.85 billion in borrowing from the discount window—the traditional liquidity backstop for banks—in the week ended March 15. It was a record high and a staggering increase from the $4.58 billion borrowed the previous week. The prior all-time high? It was $111 billion during the 2008 financial crisis.
From press releases by CUNA’s CEO Jim Nussle: “Credit union deposits are safe, secure and insured.” A March 17, CUNA headline: “Credit unions are a safe harbor.”
Chairman Harper ‘s words at NCUA’s Thursday. March 16, monthly board meeting:
“Consumers can remain confident that their hard-earned deposits at federally insured credit unions are safe, just as they always have been, and that the NCUA will continue to act expeditiously, when needed, to preserve the stability of the credit union system.”
Vice Chair Hauptman offered no liquidity initiatives. Rather he lists actions NCUA has taken he believes relevant to the current situation. (emphasis added)
“Even though there’s no analogy to the Silicon Valley Bank and credit union system, previous boards and this board have been urging credit unions to ensure they have appropriate sources of emergency liquidity.
“At the same time, we have urged Congress to strengthen the Central Liquidity Facility, the CLF, by allowing corporates to act as agents for subsets of members. When interest rates started rising, we published guidance on NCUA’s NEV, Net Economic Value methodology – that guidance clarified that credit union management must have an appropriate plan for managing interest rate risk.
“I’ll also note, a little while back, we encouraged the use of interest rate derivatives for exactly situations like this. The events of this past week underscore exactly why we were so concerned about interest rate risk. And this board is very aware that it is fairly unprecedented the rate-hiking cycle we’ve been in. We know it’s not easy to manage, but that is what credit union management is paid to do.”
“I’m grateful for the hard work by credit unions and NCUA to ensure confidence and a safe and sound system. I know springtime is often annual membership meeting season for a lot of credit unions. No doubt, some members will have questions. I hope you credit unions out there will use this opportunity to educate members not only on your credit union, but the credit union difference.” (end excerpt)
His message is clearly a preemptive defense of the regulator’s accountability. “NCUA did all we could. If there is a problem in a credit union, it is not on us.”
Credit unions might wish the NCUA board in is quarterly updates had been more diligent in monitoring the NCUSIF’s interest rate risk. Or that the CLF had been made “shovel ready” versus asking for more resources and authority when existing ones had not been used since 2009. For that’s what the NCUA Board is paid to do.
The two federal “agencies” that credit unions are using (after the corporates) are the FHLB and the Federal Reserve.
The CLF is missing in action , and silent, even though it has the same “protracted lending authority” as does the Federal Reserve.
This is not a credit issue. In each bank failure to date no one has pointed to an absence of capital compliance. There have been other regulatory shortcomings mentioned, but not capital. As one observer noted: The main takeaway is capital is not king; it’s a court jester. Confidence is king. Runs start from lack of confidence, and no amount of capital is enough.
The foundation for system stability is action not words. Confidence comes from seeing those with responsibility being proactive versus reactive; public versus silent; and fact-based versus rhetorical reaffirmations.
Credit unions and their members are addressing similar concerns about their ability to access funds.
What’s going on at the CLF? Where is the initiative shown by both the FHLB system and Fed with actions now to meet liquidity needs? Is the CLF capable of providing same, or even next day, liquidity?
This is the moment to show that the CLF can be relevant, responsive and a vital factor in coop resilience. If the NCUA and credit unions fail to join together in this moment, this week, then why have a CLF at all?
PS: If a credit union can share their experience borrowing from the FED and provide answers to the CFO’s questions above, please post in the comment section. Thank you.
As Bucky Sebastian reminded me many times about this past weekend, “Everyone’s Irish.” St. Patricks Day comes in the middle of Lent because an Irishman could not go for forty days without a drink.
At least that’s one theory.
So I got out my best Irish hat and tried out his thesis with a dark lager and two helpings of shepherd’s pie. There was even a vegan option. Here’s the outcome.
Which reminds us of the great Irishman who believed in his deepest being, the potential for credit unions. This is Jim Blaine’s, March 17, 2016 portrait of Ed.
“Always suspected that the problem with Ed Callahan was that as a youth he was beaten too often by Nuns in parochial school or, perhaps, not beaten enough. Well, whatever, either way the Nuns left their mark – an indomitable spirit!
Ed Callahan was Irish – brash, pugnacious, loud, hard drinking, fun loving – alive! But why be redundant? I said he was Irish!
For over a quarter of a century, we all watched and observed as Ed Callahan created shock waves in the credit union world. No one was neutral about Ed Callahan. His friends were fiercely loyal, his enemies equally committed. Ed inspired many and angered quite a few. Ed had style; he had presence. With Ed, you weren’t allowed to make contact without becoming involved, excited, immersed, engaged.
At Marquette, Ed must have played football in the same way he played life – without a helmet. You had no doubt that Ed Callahan always played for keeps. He had no intentions of losing, that was not one of the options. Ed was very straight-forward; your choices were always clear. The mission was defined; and, there was only one direct path to the goal. That path was either with you, around you, over you, under you, or through you; you could step aside or get on board. It was your choice; but your choice never changed the mission, nor the path, nor the goal.
Some said that Ed was a visionary…
… they were wrong. Ed Callahan was a revolutionary. Visionaries talk about change, revolutionaries take you there. Ed led from the front – a leader of conviction, rather than convenience; principles above posture – courageous. Revolutionaries, by definition, create problems; overturn apple carts; rebuke the status quo. That happened at NCUA. Appointed by President Reagan, Ed arrived at NCUA in the midst of turmoil. Ed defined the mission; he reformed and remolded the Agency. He taught a regulatory agency how to stop working to prevent the last crisis. He explained that a coach never executes a play and that on Monday morning it’s never hard to see what went wrong – but it is rarely relevant. Teacher, coach, lessons in life; hopefully well learned, hopefully still remembered.
But let me celebrate the essence of the man – that indomitable spirit – one last time, for those who never had the opportunity; for those who still have doubts; for those who never fully understood. One of Ed’s harshest critics, noted with much wryness, that even in death Ed “couldn’t get it right”. Why, I asked? “Because Callahan died on March 18th instead of on the 17th, his beloved St. Patrick’s Day.” You know this type of critic – cynical, smug, self-assured without much basis, not really worth the effort, but…
Just for the record, I would simply like to point out one final time that – first and foremost – Ed Callahan was a fully-fledged, fully-flagrant Irishman – body and soul! And, no self-respecting Irishman would ever celebrate the end of St. Patrick’s Day until the last bell at the pub had rung. That would have meant that Ed Callahan’s “last call” would have come sometime after 4:00 am – on the morning of the 18th. Style, presence, courage – true to the last! A shamrock of joyful vigor and purpose!
And one last thought… in the final analysis you can say many things about a great man’s life… some men are admired, some are respected, some are envied, some are feared… and countless other adjectives and accolades. But, in the final analysis, the most important thing you can say about a great man is… he will be missed. ”
And, Ed Callahan will be missed…
