What’s with the Statue?

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. 

Continue reading “What’s with the Statue?”

A Truly Moving Mission

The CEO’s message for the virtual annual meeting in this COVID time opened with a mission statement:

“Our mission is to look for solutions that will take us all to the other side and be better for the changes we’ve made along the way.”

The word that jumped out is ALL. Not mostly everyone, or just the fortunate ones. ALL will make it to the other side of this dual health and economic disruption.

And we’ll be better for it.

A Visual Expression: In this Together

Sometimes a picture captures meaning more powerful than words. I believe a wonderful example of this CEO’s mission is expressed in this 50 second news report . It shows over 250 Amish men, dressed in black, lifting together, and then walking a barn by hand to a new site. All in less than five minutes.

The Cooperative Mission

Might the credit union outcome from this pandemic be nothing less than to become America’s Premier Public Financial-Health System?Isn’t this the mission we were created for? Will we lift all our members so that everyone makes it to the other side?

Where Poppies Grow

In Flanders Field is a battlefield poem composed during WWI by Canadian doctor Lieutenant-Colonel John McCrae. He was inspired to write after the funeral of a friend and fellow soldier who died in the second battle of Ypres. McCrae died of pneumonia in January 1918 near the end of the war.

His image of poppies growing (between the crosses, row on row) in the fields of graves of fallen soldiers resulted in the flower becoming the world-wide symbol in commemorations honoring those killed in combat, including Memorial Day in the US.

The third verse of his poem reads:

Take up our quarrel with the foe:
To you from falling hands we throw,
The torch; be yours to hold it high
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields.

The memories being honored are not only the casualties of war, but also the causes for which they fought. The poem challenges us to catch the torch and keep the faith for all who’ve died.

An American professor and humanitarian, Moina Michael, in the spirit of Flanders Fields elevates the poppy’s symbolism in her poem We Shall Keep the Faith (1918). She first proposed that the poppy become the enduring symbol of remembrance.

We cherish, too, the poppy red
That grows on fields where valor led;
It seems to signal to the skies
That blood of heroes never dies,

May the personal sacrifices and the duties answered, be a blessing that will again inspire you on this day.

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A Graduation Address: Entrepreneurial Skills in Pandemics

While this graduation address was written for a specific set of students, I believe his points are especially relevant for credit unions. The times require risk-taking, but the human instinct is to hunker down. Excerpts follow.

Nurturing — and Celebrating — Next-Generation Innovators in Uncertain Times

(Jim Chung, the Associate Vice President for Research, Innovation & Entrepreneurship at George Washington University-May 5, 2020-excerpts)

The coronavirus pandemic has upended the educational and career prospects for the most senior members of Generation Z. Millions of college students are finishing the academic year through online classes, and soon-to-be graduates face the daunting challenge of finding a job in the midst of a global economy in turmoil. While the outlook is intimidating, the students most prepared and able to succeed in these uncertain times maybe those who have embraced entrepreneurship during their college careers.

Innovation and entrepreneurship training programs at the George Washington University (GW) and other institutions across the U.S. provide students with a methodology and mindset critical to operating in resource-constrained and challenging environments. These environments are often defined by high stakes problems with highly uncertain outcomes.

Problem Solving Approach

Our approach to solving problems through innovation is to treat it like a scientific experiment: Identify the problem, break it down into component parts that are solvable, test your hypotheses and assumptions, ask the right questions and understand the outcomes. Often, students run into inconvenient or unexpected answers that force them to change course entirely. If anything, the current pandemic encapsulates the type of environment we are working to prepare our student entrepreneurs for.

Virtual Competition

It’s against this backdrop that we decided to forge ahead with a virtual version of our GW New Venture Competition even as much of the university’s co- and extra-curricular activities have been canceled or postponed. Going virtual enabled us to still honor all the hard work and fascinating ideas of our student and faculty participants. But perhaps even more importantly, our decision to pivot amidst the sudden onset of COVID-19 has also served as an invaluable object lesson: Being forced to adapt quickly is something innovators must do.

This year, our competition venture winners and runners up sought to confront a diverse set of challenges, everything from a lack of innovation in the global supply of blood to nocturnal asthma attacks in children. They developed educational platforms to help adults with autism spectrum disorder achieve career and other goals and devised inspired ways of capturing and harnessing the kinetic energy produced by opening and closing doors. One of our runners up even devised an app that consolidates the tools needed for songwriting.

Innovation in Hardship

. . .history has shown that periods of economic downturn and hardship can ignite the most ingenious companies. Walt Disney started his company in 1929 at the start of the Great Depression, as well as aerospace pioneer United Technologies, now merged with Raytheon earlier this month. Closer to our times, WhatsApp, Instagram, and Uber all started during the Great Recession.

Yet, even before this pandemic and looming economic crisis, the U.S. has been losing ground in the global innovation race with the number of startups declining domestically and capital investments moving to entrepreneurs in other countries.

The All-Purpose Antidote

In order to promote innovation post-pandemic, universities will have to redouble their efforts to teach and encourage entrepreneurship among their students. Innovation training has value for everyone, not just students studying business or engineering. Those of us who lead innovation offices and programs have a responsibility to recruit students across disciplines, backgrounds, and life experiences.

. . .Indeed, many of challenges of the current pandemic and looming, complicated issues like climate change, the future of work and, yes, another global public health disaster, ensure that uncertainty and high stakes will be undeniable features for much of this generation’s — and successive generation’s — lives.

Our students need to be ready to think on their feet, to analyze, adapt and ultimately act with confidence. Spurring the next generation of entrepreneurs may be just the antidote we need.

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Merger Math in Credit Unions: A Deeply Flawed Process   

Many credit unions profess a growth strategy based on merging other credit unions. Simple math shows this is a dubious strategy.

Simple Merger Math:

1 credit union + 1 credit union = 1 credit union

The facts are straight forward.

A merger of two sound, well-run credit unions does not grow anything. It changes no market share, initiates no new community relationships and invariably results in new costs and lost members.

Most importantly, real choice for members is lost. Frequently the merging members were eligible to join the surviving credit union. If the surviving firm was indeed a better deal it should be winning over these members. But an unspoken reality is mergers are initiated to eliminate unbeatable competitors.

By cancelling charters of long serving, independent institutions, generations of member goodwill and community relationships are ended. Career opportunities for employees are compromised. Leadership within the communities served and in the industry by the board and senior management is, if not totally eliminated, shifted to senior staff already engaged. Rarely does the surviving leadership team have the local connections of the merged credit union.

Finally, from a cooperative system standpoint, as resources are concentrated in fewer and fewer organizations there is less diversity in risk management. Fewer organizations remain to innovate and develop business strategies.

A Flawed Democratic Process For Members

These issues were again raised in a Facebook post this month about a recently announced merger.

From a member’s point of view, this long-time credit union executive posed vital questions about the explanation  for combining two long serving, multi-billion, very sound charters. His concerns included:

  • Weak, “boiler plate” business justifications;
  • Failure to fully disclose all costs incurred by the transaction;
  • The loss of distinctive institutional cultures and professional career opportunities
  • The destruction of an organization’s unique heritage and its hard-earned legacy of generational relationships with members;
  • The absence of specific, quantifiable and immediate member benefits;
  • The elimination of member choice when the options from a well-run credit union are eliminated.

The post asked if the generalized assertions of potential future institutional gains were sufficient to offset the added costs and real losses incurred by the members of the cancelled charter. His conclusion was the transparency of this transaction is woefully insufficient.

Properly Informing Members

To my knowledge, members have never voted against a proposed credit union merger. A few announced mergers have been withdrawn before reaching the member vote.

While information presented in merger proposals today may be legally compliant, it does not provide the facts for members to make an informed choice.

Rather these votes succeed because they are predicated on trusting relationships even as that confidence is used to ask members to give up their unique institution.

Unintended Consequences

Mergers completed without member benefit as the foremost criteria are a suspect foundation for a cooperative. It presumes that success depends on the accumulation of greater institutional resources, not the relationship with the member-owners. Seeking greater market power is a classic recipe of for-profit firms. That is not why cooperatives were created.

If these deeply flawed, problematic merger processes continue then the future math of credit union mergers may be simply:

1 credit union – 1 credit union = 0. No member-owned coops are left.

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A Critical New Data Tracking Need

Now that the recession is 100% certain, we know the traditional performance dashboard will light up with all the downward trends. These include rising delinquencies and net charge offs, falling or negative ROAs and capital levels.

Most credit unions expect these trends. They are using their capital to show that the credit union is there for members even in the most pressing of economic circumstances.

The Analytics of Recovery Tracking

Data analytics routinely captures on an ongoing basis hundreds of facts about members’ activity, product/service utilization, credit/debit transactions, and in some cases next most likely financial need.

But the numbers that will really tell the story of credit unions’ role in this crisis are the underwriting of member recoveries.

The data analytics challenge is to identify the segment of members most at risk during this crisis. Once established, then to focus assistance programs to help them return to a stable financial position.

If one third of American households are credit union members, and the unemployment rate hits 20%, it is reasonable to assume a high percentage of members will immediately suffer loss of income. Monitoring assistance and recovery trends of these members could include:

  • Number of members who were laid off, unemployed-and their work return over time;
  • Number who received unemployment-and then returned to employment;
  • The number and amount of loans rewritten to reduce payments-by loan type;
  • The $ amount of fee reductions extended;
  • The $ of new, low cost loan advances to navigate changing economic fortunes;
  • Foreclosures and repossessions halted; recovery status of these members;
  • The $ refinancings of loans at other firms to lower the members’ rates and payments.

Many of these individual situations are recorded in the traditional financial reports. But that hides the member impact. It makes the focus institutional financial health, not the members.

Credit union contributions to food banks, community foundations and other corporate forms of assistance are necessary and admirable. From the members’ perspective the real test of a credit union, regardless of size or resources, is were you there when I was most in need?

A Stronger Common Bond

At some future time, the complete cycle of current economic events will be chartered. The credit union system will have survived. The cooperative story should be about what we did for members in their time of crisis. For our institutional recovery depends on members’ achieving and sustaining financial well-being.

The message is that members are better off being part of a credit union. We must back that up with the facts and examples of going the extra mile. Then the rhetoric will be believable and appropriate.

Most important is that the we will have come out of this crisis with a stronger common bond.

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Are Negative Interest Rates In America’s Future?

With all interest rates at historic lows, the policy option of negative interest rates is being discussed openly. The President and economists have opened to the discussion.

CNBC market analyst, Kelly Evans, summarized pro and con positions in a May 12 post excerpted below:

I had *just* gone through a whole thing about the relative merits of the Fed’s corporate bond-buying program versus negative interest rates, when the landscape has shifted again in favor of negative rates.

David Zervos of Jefferies this morning wrote, “If they go negative, they go big.” Zervos is “increasingly sympathetic to the idea” that the Fed will cut interest rates below zero and Congress will support it–why? In part because suddenly the “cost” of interest on our ballooning federal debt goes way down, freeing up money to be spent elsewhere, and who in government doesn’t want that?

I remain highly skeptical. Several countries which have tried negative rates have either reversed it (Sweden*) or stopped at relatively shallow levels, like -0.1% in the case of Japan.

The point of negative rates is to lower borrowing costs–especially for hard-hit companies–and keep the financial system from tightening. But for starters, even with negative rates, the Fed’s corporate bond buying is still necessary–and may prove sufficient–to spur investors to take on credit risk.

The Fed is shrinking the spread between its fed funds rate and corporate borrowing rates already to such an extent that having “negative” official rates may not be necessary. . .

The health of the banking system–along with the viability of insurance companies and large pension funds–is truly at risk here and that’s not a good thing. Here’s how The Wall Street Journal last year described Europe’s experience with the negative rates: “The negative-rate policy’s ineffectualness is a sign of just how weak Europe’s economic engines are, and how vulnerable. The policy threatens pensions, creates the risk of real-estate bubbles and doesn’t fully quell the specter of deflation. European banks struggle with weak interest income and thin margins on loans, putting them behind American peers in profitability and making it harder for them to finance the economy.”

*From the FT article linked above, which offers a good review of Sweden’s experience: “Research published last year by Princeton University economists Markus Brunnermeier and Yann Koby found that many of the benefits of negative rates are front-loaded — such as gains in asset prices on bank balance sheets — while the corrosive side-effects last longer.”

Credit Union Executives Explore the Prospect

An email chain:

From: Exec One

Question-if interest rates move into a negative territory will our dividend calculation process compute based upon a negative interest rate? Meaning my members would pay our Credit Union a dividend for the safety and security of having their money insured by the NCUA.

Pretty extreme—

From: Exec Two

So I saw today on the news that trump is urging the Fed to allow interest rates to go negative.

From: Exec Three

Interesting…….and ludicrous. But on the other hand, an experiment in the development of solutions for very, very, very low probability events. Who knows this may lead to some new schemas for American credit union consumers. Get out the specs for when hell freezes.

From: Exec Four

It just makes lending that much more important. In any event investments going forward will earn only .25 bps or less.

From: Exec Five

Not ludicrous from a certain perspective. Trump as a commercial developer loved leverage. He’s now CEO if the world’s biggest debtor. Loves leverage and salivates over negative rates. Good public policy? Hardly.

Most of us individually are savers, investors, creditors. Trump got rich as a net debtor. From the perspective of the USA as a debtor entity, carrying costs of the debt at a rate of zero is a good thing.

Regardless of whether we agree with it (and I don’t) we will see negative rates sometime soon. I don’t think it necessary to develop ability to calculate negative rates as cus can accommodate via various fee programs.

From: Executive Six

Agree, not likely to happen, but …… credit unions better be the last bastions for the model that doesn’t charge Americans to hold their money in safekeeping if it were to happen. Let’s commit to build strategies that differentiate us from the for-profit competitors. It’s a bold vision, but imagine the market share shift that could occur if CU’s are the only retail and small business deposit option that didn’t go negative. Could we create a new cooperative business model that could successfully manage a shift of billions of dollars of deposits? On the other side of the balance sheet isn’t that what non-bank fin tech lenders have done in just a few short years? Just another case of turning a challenge into an opportunity. Can we hold to our principles and take advantage of a negative interest rate environment or do we just cave in following the crowd?

To be continued. . .

Regulators Report to Congress

I have read the prepared testimonies of the FDIC Chair Jelena McWilliams and NCUA Chair Rodney Hood presented to the Senate Banking Committee.

The FDIC’s response to the coronavirus pandemic was clear. McWilliams’ summary:

“As it became clear that the public health emergency caused by COVID-19 would lead to a significant economic disruption, the FDIC took swift, decisive actions to (1) encourage banks to work with affected customers and communities, (2) increase flexibility for banks to meet the needs of their customers, (3) foster small business lending, (4) protect consumers and increase financial options, and (5) actively monitor the financial system.”

A Missed Opportunity

Chairman Hoods’ remarks listed every action and program that NCUA has undertaken during his tenure. These included not just responses to the supervisory and legislative COVID-19 changes, but also cybersecurity programs, diversity initiatives, the sale of taxi medallion loans and legislative changes the Agency would like to see. Not included in this legislative wish list was a request for NCUA vendor oversight, perhaps a positive indication of regulatory self-restraint.

While the focus on NCUA’s numerous rule making and emergency supervisory accommodations is understandable, I was also looking for a shout out for what credit unions were doing for members. Stories that would illustrate the cooperative difference. Numbers that would demonstrate how credit unions use their tax free capital accumulation to help members. There were only brief mentions of two credit unions’ loan volumes under the PPP program which is on point, but not unique to credit unions.

Crises are a time of heightened attention for financial services because of the vital role credit plays for members, small businesses and communities. Credit is credit unions reason for being. Retelling that story when people are listening, asking for updates, is a special moment to once again explain why cooperatives exist.

The three regulatory functions under the NCUA board are means to enhance safety and soundness. The goal of these tools is to enable each credit union to make a difference in members’ lives. The industry is doing that daily. But it didn’t get reported.

Essential Workers and Essential Work

On the Front Lines

Every day essential workers show up so the rest of us can stay home. We are in this together does not mean we share the same experiences.

On the front lines are those vital to sustaining our individual altered world realities. These workers include delivery drivers, postal workers, police, fire and EMT, garbage handlers and those who maintain public transportation. Most critically are the many health care workers that battle the disease daily, in-person, patient by patient.

Everyone owes them the respect and enhanced standing in society that should accompany these new roles of national service in a crisis.

On the Home Front

For the 30 million-plus who have been laid off, not to mention those home bound but still employed, does that mean our role is not essential? Is virtual education merely a stage of life to be transitioned to? Is work from home just an altered venue of normal employment? Are the contributions of the retiree and volunteer communities momentarily paused only to be restarted where they left off like a Netflix movie?

Or might there be a parallel contribution with those whose work takes them into daily confrontation with the pandemic? I believe the image above captures this opportunity for those of us not on the front lines.

Re-Imagining the Future

The illustration shows a Wilson High School (D.C.) junior working on an erg rowing machine after the spring competition in all sports, at every level, has been cancelled. Nothing deflates the rewards from sports faster than the elimination of competition. Not only have games (spring regattas) been cancelled but also the joys of daily workouts with peers and committed coaches are gone.

This individual circumstance represented includes a deeper disappointment as well. For in the 2019 regatta season, this rower had participated in the ultimate experience for which any competitive athlete could aspire. As a sophomore, he rowed in the varsity 8 boat which unexpectedly won the national high school Scholastic Rowing Association championship. To drop from the pinnacle of a sport to no competitions could shatter the basic motivation that inspires athletes.

However, he labors on alone, to lower erg times and maintain readiness for a reimagined, yet uncertain future. And that is the “essential” opportunity each of us has even though bounded in place by multiple circumstances.

Victory Gardens

In a handwritten change to a speech he was working on the day he died, FDR penned the following close: The only limit to our realization of tomorrow will be our doubts of today.

Each of us can do essential work that will help define the options we will have tomorrow. All, not just those deployed on the front lines, have the possibility to imagine the future they wish to see post-crisis.

The first step is to sow the seeds of our ambition. The victory gardens in WWII were planted to sustain us for an unknown period but were inspired by belief in our future together. Today, “victory” gardens, inspired by the current pandemic, are springing up in yards all over the country.

Sports can be a metaphor for life. Even though our game plans were cancelled this year, we can still prepare for tomorrow’s competition, whenever that moment comes.