Peter Pan and Captain Hook in Credit Union Land

James Barrie’s children’s play Peter Pan has become a staple of holiday presentations since it was first staged in 1904 in London. It just opened in Washington. Wendy, Tinker Bell, Peter, Captain Hook, Tiger Lily and the Lost Boys’ feats in Neverland are alive for those who have only seen the TV or movie versions.

The conflict between Captain Hook’s pirate band with Peter and the Lost Boys seems at times too real (walking the plank, if captured) and at other moments simply fantasy.

Peter Pan is the boy who doesn’t want to grow old. Tinker Bell’s pixie dust powers ordinary children to fly to the stars. And Captain Hook while trying to capture the Lost Boys, is always listening for the tick-tock of the alarm clock swallowed by the man-eating crocodile that bit off his hand.

Audiences both young and old are asked to imagine. Moreover, the play’s tension derives from the threats of mortality should the boys be captured, or what would happen if the crocodile sneaks up on Hook unawares.

Plays endure because they embody truths transcending the theatrical story. Who really wants to grow old? Has not a shadow of death crossed every person’s mind at some point? Does the lure of adventure, the dream of flying into the sky, ever end?

Do these theatrical insights have parallels with characters in credit union land?

Captain Hooks Abound

I confess to seeing many Captain Hook figures in credit union land. They hear ticking clocks and spend their lives running from a vicious crocodile. They warn others to flee also. For it is their desire, similar to Hook’s, to subdue the optimism of Peter Pans, and to assert control over their part of credit union land. Here are some recent tick-tock warnings:

A CEO:

“In our industry there is such a short runway—we’re all going to face challenges. . . You have to be aggressive because there’s big changes in banking coming. You have got to get bigger and do it at a decent pace, and you have to look beyond your borders. If a credit union is anti-merger, they’re probably burying their head in the sand. The financial services industry is going to be facing some headwinds in the future and you have to be ready.”

A Board to its Membership:

Your FCU Board of Directors . . .has approved and is seeking a merger . . .It is the role of the board to look ahead and make decisions that we believe place our credit union in the best position to serve you. As we look to the future, we recognize the potential for economic challenges ahead. The last recession was very difficult for our credit union and we are not confident that we could remain well-capitalized through another economic downturn. We believe the time to take this step is now while our credit union remains financially strong.

Two NCUA Board Members:

“To me it’s always interesting to note the credit union community is now approaching $1.5 trillion in assets and we have an insurance fund with $16 billion, $17 billion in it. This is razor thin. There is not a lot of leeway here. (McWatters)

Or,

Harper called out the NCUA for tolerating “an uneven regulatory field. After the Great Recession, the FDIC and other banking regulators moved promptly to update and implement their risk-based capital standards, yet the NCUA wants to delay implementation for a second time. . . We know that a recession is coming. We just don’t know when and how severe it will be. That’s why we should fix the roof before it rains by implementing this (RBC) rule at the start of 2020.”

For Captain Hooks the end is around every corner. They preach negativity. It sounds expert, especially when facts don’t support their claims of future insight.

The Peter Pan World View

Like Peter Pan, credit union leaders have a different vision from the Captain Hooks of their responsibility. This is not a world where worries don’t exist; but rather one that believes in the radical, disruptive capabilities of cooperatives. Especially its focus on member well-being.

They know that the work of helping members is never ending and that hardships sooner or later come to one or all. But rather than looking for ways out of credit union land by giving up their charter, or outracing market growth, or emulating competitor’s models, or even hoarding more for future uncertainties, these leaders instead rely on one premise: how credit unions serve members will be the difference that sustains, whatever the economic or competitive climate.

As year-end nears, look for the many stories celebrating the sharing of credit union successes with members, communities and those in need. As the Hooks of the world continue predicting crises if one does not heed their ticking clock, recall the most dramatic moment in the play.

Tinker Bell appears to have succumbed in a fight with Hook and her spirit ended. Whereupon Peter appeals to the audience, breaking the theater’s fourth wall and asking “Do you believe in magic? Let me hear you.” And every time the audience shouts and claps, Tinker Bell recovers and the Lost Boys and Wendy make it home safely.

A lot of hard work goes into the cooperative model, but in the end, success depends on what you believe. The Captain Hooks? Or the many Peter Pans going about their work joyfully, knowing good works are never finished?

P.s. If you want to read about one leader whose tenure embodied the ageless power of Peter Pan’s optimism, read my article on Olan Jones.

A Voice-over Message from a Credit Union Video

“Over the past hundred years, and many generations, credit union owners have built credit union value. Each owner through contribution, volunteering and stewardship has helped create credit unions worth over $120 billion and a credit union industry worth over $1 trillion. Every day new generations join these credit unions. And every day, the value of each credit is passed freely from one generation to the next. One owner to another.”

The close:When you join a credit union, this value is given to you. You are not only a member, you are part of a community of credit union owners who share this value.”

A timeless message. Makes one want to see the video. Or to join and own a credit union today!

A Thought from Paul Volker for the Season, or Anytime

On December 8th Paul Volker, the former Chairman of the Federal Reserve under Presidents Carter and Reagan, died.

The economist and regulator was a person of strong character.

The story is told of a friend who dropped by his New York office. The colleague began to brag to Volker about his son who worked for a hedge fund, was making a lot of money and living the good life.

Volker commented, “I have one thing he doesn’t have.”

The friend, curious, asked what that was.

Volker’s one word reply, “Enough.”

Olan Jones: Born, Educated and Locally Grounded

Each year end brings the retirement of credit union leaders who have served a generation or more expanding the cooperative legacy. One such exit at Eastman Credit Union in Kingsport, TN is especially noteworthy.

Olan Jones is leaving an institution he guided for over 20 years. Today it is $5 billion in assets versus $600 million when he arrived. Its 820 employees serve 230,000 members at 30 employer and branch locations throughout the country.

 A Person of Purpose

The first two decades of Olan’s professional career were with Eastman Kodak and Eastman Chemical in corporate finance and human relations. Then came the switch to cooperatives.

While it would be important to single out the over 20 years of Eastman Credit Union’s sustained financial performance as CEO, what makes Olan’s contribution so special is his leadership qualities.

Even with 20 years in the corporate for-profit world, Olan believed in the unique contribution of the cooperative model. In our conversations he was curious about all things credit union. His final question in a call to me would be, who else might he ask about a topic such as “Are any credit unions actually utilizing big data analytics to improve their core understanding of their firm and make better decisions”?

“To Thine Own Self Be True”

In all my interactions, Olan’s “southern gentleman’s” personality was prominent. He was always courteous, calm and thoughtful. He welcomed all comers and made people feel at ease. No air of authority, but rather someone you want to have lunch with.

Olan calls it a “Southern Appalachian” manner. Born in Kingsport, TN, he is a life-long, all-in participant in numerous community educational institutions, economic development efforts, theatrical groups, and church and professional organizations in the east Tennessee and southwest Virginia regions of his FOM.

He always saw his responsibilities as much more encompassing than leading the credit union. One initiative he undertook was to deploy a community WiFi network in downtown Kingsport in the early era of the Internet revolution. Ultimately this community effort was ended when WiFi became ubiquitous.

He was active in many Tri-Cities community leadership roles and in financing public development projects. In the credit unions system, he served in volunteer roles with Filene, CUNA, NASCUS and the Tennessee League, to name a few. He also served on the Thrift Institution Advisory Council of the Federal Reserve Board.

A Manager’s Manager: A Service Culture

His combination of human resource and financial background propelled a multifaceted approach to organizational change that resulted in an 800% asset growth during his two-decade tenure.

He was an advocate for quality improvement processes (Deming) and project management. He sought 5-10% annual growth in the field of membership (FOM) as the area’s population was declining at 0.5% per year and the economy growing at only 1%. The company sponsor since 1936, was downsizing employment. By adding groups and counties to its field and becoming a one-stop shop, the credit union enjoyed strong annual earnings with double digit balance sheet growth during his stewardship.

He believed that empathy was key to effective customer service, not just great products. Creating a service culture, he realized, takes time and continual measurement. Once implemented, the credit union has achieved a net promoter score of 81-87% for over ten years. Better service creates better financial results was his operating logic.

He believed so strongly that lending was the critical credit union role that he once appeared at a staff meeting in a “Hair on Fire” wig to stress this urgency. Since the 1990s, the credit union was a pioneer in a non-government guaranteed, private student loans. He refocused lending on middle-class blue-collar members, not just higher paid senior executives. He introduced business lending and financing municipal development projects resulting in a $350 million portfolio.

The credit union shared its success with its member-borrowers by paying out $130M rebates over a 20-year period. Some business clients were so surprised with annual interest checks in the tens of thousands of dollars that they sent them back thinking there had been an error.

His Credit Union Spirit

Having lived in the corporate world of quarterly earnings-per-share expectations, Olan believes that serving members, not maximizing profits, is what undergirds credit union success. ECU found that the higher the annual member service rating, the stronger the financial performance. To everyone’s surprise, almost everything else that matters to financial performance got better as well.

He preached that ECU’s strategy of “maximizing service to members” both differentiates and gives the credit union a huge competitive advantage.

The smartest investment he made was in the credit union’s hiring and training program to maximize this service quality focus. He wanted to keep goals clear, simple and understandable. An employee bonus program of up to 20% of salary, is based 50% on loan performance and 50% annual member satisfaction rating.

Service quality excellence was recognized in the staff bonus combined to create the organization’s decades-long superior outcomes.

The yearly bonus dividend paid out more to members than the credit union would have paid should it have been subject to federal and state taxes. Instead these funds were reinvested immediately to enhance member’s lives and their communities.

Not Changing of the Guard, but Drawing from a Pipeline

Credit unions are unique in their ability to capitalize on local relationships. Olan’s leadership accomplishments stem from his deep, caring loyalty for his people, his community and his region.

His successor, Kelly Price, is from the credit union’s executive ranks. Just as Olan himself sprang from the local environment.

On October 14, 2019, Olan’s singular contributions to east Tennessee were recognized by the Speaker of the Tennessee House of Representatives in a formal proclamation reciting his lifetime of service to his home region.

For those who have not had the experience of meeting Olan, this video for his work with Junior Achievement will give you a first-hand picture of his personality.

From the Field: A Sentiment Binding Cooperatives

Email from a member: “Thank you so much for the Patronage Dividend Bonus. We appreciate all the hard work from you and your team. Have a great holiday season.

CEO reply: Thanks for the message. It takes the mutual appreciation of the players involved in a cooperative to generate dividends. And I am proud to work in a cooperative that highlights the sense of appreciation as one of its main drivers for success. Enjoy the holidays.

The Bard on This Time of Year

These lines from Hamlet, Act I scene I, upon seeing the ghost,  are like a favorite ornament at this time of year;

Marcellus: Some say that ever ‘gainst that season comes
Wherein our Saviour’s birth is celebrated,
This bird of dawning singeth all night long;
And then, they say, no spirit dare stir abroad,
The nights are wholesome, then no planets strike,
No fairy takes, nor witch hath power to charm,
So hallow’d and so gracious is the time.

Horatio: So have I heard and do in part believe it.

The Artist Banksy on Social Purpose at Christmas

Any fan of modern art should have no problem recognizing the name Banksy. He is one of the most renowned street artists of this generation. His pieces push the boundaries of political and social activism. Every new street scene draws crowds making his art a public spectacle whenever they appear. His work is usually a “call-out” of current society or a send up of a political taboo. He is a revolutionary with a spray can.

Every Christmas season he issues a new holiday street card. They evoke familiar images and invariably provoke response. His many seasonal efforts can be found on Google.

His December 2019 work “God Bless Birmingham” can be viewed here: https://www.bbc.com/news/uk-england-birmingham-50715803

I enjoy his painting commentaries as they communicate so readily with viewers. Those who visit his pop up sites, feel he is on their side. Whatever the topic, a painter for the people.

NCUA Board Member Harper’s Uninformed Stance on Risk-Based Capital (RBC)

It is one thing to be uninformed on a critical issue of public policy. It is another to open one’s mouth and remove all doubt. And then compound the folly by writing a public editorial after losing a 2 to 1 vote at the most recent NCUA Board meeting.

Harper’s Rationale for Implementing Risk Based Capital Rules

The core logic in his December 16 press release follows: (https://www.cujournal.com/opinion/ncua-a-day-late-and-a-dollar-short-after-delaying-capital-rule

After the Great Recession, the Federal Deposit Insurance Corp. and other banking regulators moved promptly to update and implement their risk-based capital standards. Yet the NCUA wants to delay implementation for a second time. Why should it take complex, federally insured credit unions with $500 million or more in assets seven or eight years longer to implement their comparable risk-based capital rule than it took for banks and thrifts to implement theirs? That’s an uneven regulatory playing field

Pursuant to the Basel Accords, which sets international best practices, no modern financial institution’s regulatory system operates without a meaningful risk-based capital component. Not only would the 2015 RBC rule finally bring the NCUA into greater compliance with the Basel framework, it’s required by law in the Credit Union Membership Access Act. That’s why the risk-based capital standard is consistent with the cooperative nature of the credit union system and provides comparability to the other federal banking regulators.

The Argument is Dead Wrong

Apparently, Board Member Harper and his staff have been so busy that they have failed to note that on September 17, 2019, the FDIC eliminated all risk-based capital requirements for community banks with assets less than $10 billion. The policy was supported by the OCC and Federal Reserve.

Banks are no longer required to calculate or to report the ratio. They will be considered well capitalized under PCA if they meet a simple leverage ratio.

This simple leverage ratio is the PCA model for credit unions. The banking regulators have endorsed the credit union’s current and historical approach to capital adequacy measurement.

Harper now wants to impose this failed system on credit unions. The banking regulator’s actions acknowledged that RBC is not only burdensome, but more importantly, it does not work in practice. As one banking analyst Tom Brown observed as early as 2014:

We’ve already seen that the risk-based approach does not work. It’s obvious that neither man nor model can adequately assess a given asset’s risk under all circumstances before the fact. It doesn’t make sense to spend a lot of time trying. It does make sense to have a minimum leverage ratio, but it should be the same for banks of all sizes.”

Source: A Loss of liquidity, not inadequate capital, is what often dooms banks. Bankstocks.com, April 22, 2014

Similarly, Harper’s references in his editorial to Basel, the taxi medallion failures and the role of capital in credit unions are inaccurate. More importantly his reference to an “uneven regulatory playing field” demonstrates a complete failure to grasp cooperative design, its distinctive strengths versus for-profit financial models, and the unique role of the NCUSIF’s pool of credit union capital.

The Failure of NCUA Board Leadership

When NCUA board members appear so oblivious to the realities of their responsibility, other leaders must step up. Call out the erroneous facts and logic. Present reasonable solutions. And if that fails, go to Congress and the press.

This public bumbling undermines the public reputation of the NCUA board and the cooperative system it regulates. It calls to question the ability of the board members to oversee their responsibilities not just for policy but also for basic tasks of examination, supervision and funding oversight.

Read more from the blog:

The track record suggests that the current NCUA board has a long way to go to overcome a growing list leadership failures .

A Poem for Cooperative Designers

I was sitting through a somewhat disjointed lecture. Jeffrey Race was describing his latest book in which he discusses the topic of public policy disasters such as the 2008/2009 financial crisis. That reference got my attention. He stated the issue in his slide as follows:

“The decisions leading to these [public policy] disasters were made by very intelligent people with degrees from top universities, with great staffs and almost limitless information. And they were amply warned. The scientific question is why does this pathological behavior exist and what can we — must we — do about it?”

His answer was not simple. He described filters, rules and feedback loops. But the most interesting reference was his asking the attendees who had read Rudyard Kipling’s poem, The Gods of the Copybook Headings? What was the relevance to his core topic?

This artistic query prompted me to look up the poem. The voice in the poem portrays the fads and fallacies that appear in the “Market Place” and the political arena. These motivations end in inevitable disaster, again and again in human history. Whereas the wise sayings that appear in the children’s copybooks remain viable throughout time.

Selected stanzas that directly cite the insatiable allure of the market include:

As I pass through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all. . .

With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things. . .

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

The Cooperative Question

Are your credit union’s efforts driven by the Gods of the Market Place, or the verities of a children’s copybook?

P.s. His analytical approach to the 2008/2009 financial crisis will be the subject of another blog.

Where is the Transparency for NCUA’s Actions at Municipal Credit Union

In May, NCUA became conservator of the $3.0 billion Municipal Credit Union in New York City.

In the June call report, 45 days after the conservator took over, Municipal reported a $123 million YTD loss. This appears to have been caused by the termination of a defined benefit plan triggering a required funding of the shortfall. This loss reduced the credit union’s net worth ratio to 3.41%, or undercapitalized, from over 7% the quarter prior to NCUA’s becoming conservator.

The September 2019 Update

The most recent call report implies that the credit union had net income of $10 million as the YTD loss has been reduced to $113 million. Comparing June and September call reports shows total membership declined by 35,000 and total employment reduced by 104 (to a total of 591) in the three months ending September.

The average salary and benefits are $369,000. Total salaries and benefits have increased to $163 million from $62 million for the previous year. This extraordinarily high number suggests the credit union is paying out the terminated defined benefit program.

The professional services expense is running almost three times greater than the prior year: $18 million versus $6.9 suggesting the consultants are well compensated, or is there another explanation?

The credit union’s loan originations are down significantly at $378 million from $615 million in 2018. Shares declined by $76 million in the quarter. Delinquency is .85% and the allowance accounted is funded at 227% of total delinquent loans. Net worth is 3.87%, or still undercapitalized.

What is Going On?

What is the purpose of all of these very expensive charges? Why close out the retirement fund now when liabilities will stretch decades into the future? Why were over 100 employees let go? What is the reason for the decline in lending? Is this tied to layoffs? Who is responsible for these decisions? Is anyone overseeing this rundown of the credit union? What is the plan?

Most importantly, whose interests is the conservator serving. Is it. . .

  • The employees who are taking the brunt of the layoffs?
  • The members whose numbers fell by 35,000, shares by $76 million, and loans by $24 million in the September quarter?
  • The conservator’s reputation and/or compensation?
  • The NCUA’s desire to protect its public standing?
  • The credit union system’s trusted role in New York City and the state?
  • The cooperative option in the nation’s financial system?

No Transparent Goals

No one knows, because NCUA has not provided any information that would give all stakeholders insight into the goals of this regulatory seizure.

Without any goals, it is easy to defend whatever outcome occurs. (“We tried our best.”)

Options are not debated. Critical constituencies are left out of the deliberations. The result is that confidence in the outcome will always be open to question.

Operating in secret will only create further uncertainty. Is the goal a turnaround to return the credit union to its owners and the community? Or is this just a dressing up exercise to sell off this 100-year franchise and branch network to the highest bidder? And thereby let NCUA wash its hands for its responsibility in this situation?

The silence of NCUA board members, some of whom have been before congress twice in the past ten days, is deafening. It is easy to talk about future visions and past activities, but who is dealing with the here and now? Not even Municipal’s website mentions the NCUA’s takeover.

Chairman Hood, this is occurring on your watch. Are you a CEO on the bridge or one sleeping in your cabin?

Who is Affected by Municipal’s Conservatorship?

The field of membership from the web site:

Who Can Join?

You can Join MCU if you are:

      • An employee of the City of New York
      • An employee of a hospital, nursing home, health facility, or their affiliates located in New York State
      • A Federal employee who works in the five boroughs
      • A State employee who works in the five boroughs
      • All students enrolled in a college, university, school, or institution, in the City University of New York (CUNY) education system
      • All students enrolled in St. John’s University who are attending campuses located in New York State
      • An employee working for agencies operating within the City of New York metropolitan area and which are at least in part funded by the City of New York or the State of New York
      • A retiree receiving a pension or annuity from one of the organizations that qualify for membership in MCU
      • An employee of an insurance company that offers health related insurance in the State of New York
      • An employee of companies that produce and/or supply hospitals in the State of New York with medical and other types of healthcare products
      • An employee of the City of Yonkers or Mount Vernon
      • An employee of a private college located in the City of New York
      • An employee of a private or public college in the counties of Nassau, Suffolk or Westchester
      • An employee of the Archdiocese of New York or Brooklyn
      • A member of certain private employers or industry groups
      • A family member of a member or individual who is eligible for membership. Eligible family members include those related by blood, marriage, adoption or living in the same household, including spouse, parent, stepparent, child, stepchild, sibling, stepsibling, grandchild, grandparent, or great grandparent. “Household” means living in the same residence and maintaining a single economic unit.