Leaders’ Voices in National Crisis

In his 1936 acceptance speech at the Democratic national convention, Franklin D Roosevelt rallied the nation in the midst of the Great Depression with these words:

To some generations much is given. Of other generations much is expected. This generation of Americans has a rendezvous with destiny.

In today’s COVID crisis, the closing thoughts of a CEO to his board:

“What an engaging time in our history – credit unions and the country. What a chance to see the world change – adjust – evolve – and then decide what to do with it all. At 61, I am as engaged in my career and business design as I have ever been, but at the same time as curious about how life in America works as I have ever been. And that is a perfect place for a cooperative business to be; vested with my community’s future and busy looking to contribute on every level.

I hope you find yourself in the same place – for now is the time for people with a community-heart to engage their brains for solving the riddles ahead.”

Directing Traffic For Essential Service

Access to cash is members’ top financial worry in a crisis. Some are fortunate to have savings, steady income or retirement to draw upon. Others, living paycheck to paycheck, must rely on credit. These two options are illustrated from actual events. In person lobbies are closed. The CEO directs members to one of two “drive-throughs” serving everyone, regardless of circumstance.

Born in a Crisis

In 1932 during the national depression, workers at Wright Field in Dayton, Ohio decided to chip in 25¢ a week to help an ailing co-worker and his struggling family. Recognizing a great idea, they later took a quarter each payday to create a fund for fellow workers who might one day also need help. It was called “The Sunshine Fund.”

That shoebox of money became Wright-Patt Credit Union, Ohio’s largest, with over $5 billion in assets.

Those seeds planted 90 years ago now serve 400,000 members in central and southwestern Ohio during an economic shut down some are comparing to the Great Depression.

Managing a crisis like COVID-19, without any playbook or past experiences to draw from is challenging. The issues that come up are things most wouldn’t have imagined a few short months ago. For CEO Doug Fecher, there are only two rules: “Try to do the right thing as best you see it; and, do those things the very best you can. If we do those two things, we’ll be okay.”

The following excerpts from Fecher’s April 15 board crisis update documents the intensity of added activities undertaken in this “essential service.”

From CEO Fecher’s WPCU Weekly Board Update (with permission)

The big news this week is the government’s release of stimulus funds.

  • WPCU today received and posted about 81,000 ACH deposits for $147MM of government stimulus funds

Lending

  • We’ve processed 10,700 skip-a-pays for about $3.6 million in payment relief.
  • We’ve made 211 disaster relief loans totaling $260K.
  • First mortgage activity, especially refinancings due to lower rates, continues brisk with 240 closed mortgages so far this month.
  • We release full government payment proceeds to members even when members may have a balancing owing or negative deposit account balance with WPCU.
  • As of Friday, April 10th, we’ve processed 128 forbearances on 1st mortgage loans in the WPCU portfolio.

Commercial Lending

  • We have obtained SBA approval on 180 PPP applications for a total of $37MM in funding.
  • The PPP loans approved so far support nearly 4,600 jobs. Loan amounts range from approximately $300K to $2.8MM.
  • An additional fifty PPP applications are in process raising our total to $40MM.
  • About 300 commercial applications are in queue as of April 14th.

Partner Update

  • We have no employees confirmed with COVID-19.
  • Thirteen employees are in physician-directed self-quarantine.
  • We pay COVID-19 medical expenses for employees and family members on the WPCU health plan.
  • Absenteeism has decreased as more Partners have been moved to work from home. For example, member help center absenteeism fell to 1% this week, from 14% on March 30th.

Operating Updates

  • Transaction volume is much higher this week across the board. We received 7,376 calls into the member help center on April 14th, compared to 5,780 calls as of March 30th.
  • Member center and member help center activity jumped this week with the release of government stimulus checks. This is resulting in longer than usual lines in drive-thru lanes and on telephones.
  • We are seeing increased attempts at fraud.
  • Marketing communicates on everything from encouraging use of remote services, to fraud avoidance, to helping members with their government stimulus checks.

Liquidity as of April 13th

Our liquidity coverage ratio is 3.46.

This means we have almost three-and-a-half times the maximum cash draw down in the last thirty days in available liquidity.

Taking Time for Bipartisan Laughter

President Ronald Regan, House Speaker Tip O’Neill, and Senate Majority Leader Baker and their wives are sitting together in the front row of Ford’s Theater.

The comedic juggler Michael Davis is at his deadpan best. His timing and interactions with this high-powered front row are showmanship at its finest.

The most fascinating scene clips for me are the total joy shown by the three political families sitting together. One of the reasons they were able to work together in their political roles is because they could laugh together.

So, enjoy this 9-minute excerpt of a memorable performance, both on stage and off.

(https://www.youtube.com/watch?v=n6mbW-jMtrY)

Words of Wisdom During the Pandemic

  • I started life with nothing and still have most of it.
  • In our house we have done so much walking that the dog has lost ten pounds.
  • The stay-at-home orders are going to accelerate the digital revolution in society by at least ten years.
  • The reason for my hope is the re-creation of an overriding common purpose.
  • “We shall not cease from exploration, and the end of all our exploring will be to arrive where we started and know the place for the first time.” – T. S. Eliot

NCUA’s Leadership In a Crisis

NCUA’s actions in a crisis matter–for good or ill. So far, its efforts have ranged between two poles. On the one hand there are moves to lessen regulatory and compliance restraints to enable credit unions to respond to member needs with innovative, non-traditional practices.

This instinct is excellent. For it recognizes two realities:

  1. Effective responses for members’ problems occur locally. The discrete, granular circumstances of each member are resolved best, on site, credit union by credit union. No national policy can substitute for the speed and wisdom of local responders.
  2. Nothing of consequence in a crisis can be accomplished alone. When NCUA has taken over credit unions through conservatorship or examiner dictates, this principle of collaboration is nullified. Cooperation and patience are uniquely credit union strengths.

One credit union veteran described effectiveness this way: “Government is too far away and too late to help one’s neighbor. Right now, it is our neighbor to neighbor approaches that auditors, regulators, and bureaucrats need to template. This is what makes future government responses relevant, or even come close to working. We, the citizens and community actors, must be the template for the approaches we hope to have and live with from government .”

The Second Response, Also Instinctive

The other extreme of “we’re all in this together” is the inevitable bureaucratic reach for more power and money. This has resulted in two legislative suggestions by board members at opposite ends of the ideological spectrum: Harper and McWatters.

Both endorsed new NCUA authority to examine third party vendors, a request rejected repeatedly over the past decade in Congress.

The second was to expand the cooperative system’s CLF liquidity options. Although unclear, the suggestion appears to be that liquidity should be on call, solely at NCUA’s behest. The current mixed ownership structure requires credit unions to subscribe capital shares to create the 16 times borrowing capacity at the Federal Financing Bank. Now, credit unions are the direct funders, agents and users of the system.

Contrary Crisis Response

The go-it-alone, we’re in charge approach, was disastrous in the Great Recession. NCUA’s unilateral actions destroyed the CLF’s three-decades long role as the cooperative system’s liquidity safety net. NCUA requested a special $6 billion borrowing line from Congress at same time the CLF had an unused $49 billion capacity.

In the 2009 crisis NCUA took over the daily management of $100 billion dollars in corporate assets without a plan or knowledgeable leadership. Today the $6 billion AME surplus from the liquidations of five corporates, shows the catastrophic misjudgment which NCUA estimated would cost credit unions $13-16 billion dollars.

The misjudgment was not just a dollar and cents forecasting error. Rather the fundamental mistake was that NCUA took over total control. They failed to work collaboratively and respect the expertise and experience in the corporate system. Instead NCUA bought plans from outsiders who failed to understand both cooperative strengths and the crisis itself.

Chairman Hood’s Silence

One reason for Chairman Hood’s silence may be he recalls his past tenure on the NCUA board. And he has reflected on the lessons from that time.

The beauty of the cooperative model is when consumers and leaders believe they can be owners of solutions and get to it. In any crisis we must use that spirit to be first to respond, solid in our belief we can overcome, and hopeful in the fact that things that work will be documented as historical markers for future actions.

Leadership in a crisis offers the chance to build a better system. This occurred in the 1980-1984 transition to deregulation. For that outcome to occur, the NCUA board must work collaboratively with those who man the front lines with members.

Dual Pandemics

About this Cartoon

On Monday I showed a Norman Rockwell inspired illustration We Can Do It from the Vermont News Guide.

I contacted the artist, Noah Regan, to ask if he might create images that show credit unions’ unique roles during this pandemic crisis.

He said yes. Believing that a picture is worth at least a thousand words,  we intend to bring you periodic illustrations capturing the themes of the times we are going through.

Noah is accomplished in many different artistic genres: cartoons, portraits, illustrations and graphics. He lives in Iowa and is a member of Veridian Credit Union. His interests outside of art include cycling, listening to podcasts and audiobooks, writing in the third person, and discovering music (both old and new) on Spotify. More of Noah’s work can be found at ArtHouse Illustrations: https://www.arthouseill.com/about

We are seeking photos of credit unions doing the right things for members to inform Noah’s compositions.  Please email your ideas to me.

Art for Our Time

A combination of Norman Rockwell and Rosie the Riveter.

Illustration by Noah Regan and Joshua Sherman as it appeared in the Vermont News Guide (vtnewsguide.com)

(C) Joshua Sherman Productions, LLC.  2020.  All Rights Reserved.

For the story behind this illustration, the business pivot of Vermont Glove to making medical masks, click:  https://vermontnews-guide.com/recent-emails/

CLF: The One Thing Necessary

As of December 2019, approximately 1,468 credit unions with total assets of $1.4 trillion reported membership in the Federal Home Loan Bank (FHLB) system. These totals represent 27% of credit unions by number, and 88% of total assets.

By comparison, there were 278 credit unions that were Central Liquidity Facility (CLF) members holding $115 billion or about 7.2% of assets.

While numbers for Federal Reserve membership are not readily available, since NCUA requires by rule that all credit unions over $250 million be members of either the CLF or Federal Reserve, one can presume the overwhelming majority have opted for Fed membership.

Why this choice? If the Fed and CLF are both “lenders of last resort” why is the CLF deemed so unappealing? How is the FHLB system so much more relevant for credit unions then their own liquidity backstop?

NCUA’s Appeal for Credit Unions to Join the CLF

In its April 2020 meeting, the NCUA board approved final rules to make the CLF more attractive to join. Some changes were the result of the CARES legislation. They included opening membership to Corporates directly while changing their agent roles, expanding lending purpose, and increasing the borrowing multiple based on contributed capital from 12 to 16 times.

Regulatory rule changes eliminated the six-month waiting period after joining to borrow, the ability to withdraw membership upon demand versus the current 6-24 months delay, easing collateral requirements, and allowing corporates to borrow for their balance sheet. Staff also outlined improved loan processing capabilities.

The three Board members made individual appeals urging credit unions to join up now. They explained that the CLF, as is, could be inadequate to the crisis even at a multiple of 32 times capital shares; or, NCUA needs the liquidity for use by the NCUSIF; and borrowing from the Federal Financing Bank is a unique source of funding in a crisis.

The One Missing Element

The CLF is a “mixed-ownership government corporation” managed by the NCUA. The credit unions supply all the capital upon which the borrowing capacity is determined. Funding is direct from the government’s financing bank, unlike the FHLB system which raises its borrowings in the open market. If the CLF is to be relevant in the future, the “mix” of the credit union and NCUA roles needs to be assessed.

After the historical agreement in 1983 between the CLF and the corporate system to fully fund the capital requirements for all credit unions, the CLF never moved forward to become an integral partner with its credit union members. The FHLB system is credit union’s preferred lender because they are member-centric in their operations. Members buy capital stock to borrow in good times and bad; they elect the board, and individual banks proactively develop products and services to serve their various members’ needs.

The CLF has been used solely as a regulatory tool by NCUA. In the Great Recession, the primary borrower was the NCUSIF which forwarded $10 billion to the balance sheets of WesCorp and US Central. An effort designed by leading credit unions to create a “protracted adjustment credit” program to help credit unions refinance members’ mortgage loans became stillborn when NCUA staff took over the initiative.

Not Routine Borrowings

Credit unions seeking liquidity assistance will almost always be under some form of financial stress. This can be from assets mispriced due to market dislocations, share outflows, or other earnings pressures such as increased delinquency or absence of sound growth options.

By “normal” operating criteria, credit unions needing liquidity will be under financial strain and often under examiner constraints and directives. NCUA practice is not to assist workouts with problem credit unions via NCUSIF 208 and CLF assistance. Rather NCUA prefers to direct the credit union to downsize to fit its reduced capital position. This was not the model when the CLF was used to alleviate the stress from the non-earning receivers’ certificates issued by the FDIC after the Penn Square failure in 1982.

NCUA has not sought credit union input for changes that would enable it to readily fulfill its legislative purpose to ”encourage savings, support consumer and mortgage lending, and provide basic financial resources to all segments of the economy.” If credit unions are going to be asked to fund the CLF more fully, they must be part of the conversation about the CLF’s future.

Reversing an Historical Catastrophe

At year-end 2011 and until October 25, 2012, the CLF was fully funded and covered all credit unions for membership. At the 2011 annual CLF audit, it had an estimated draw of $49.8 billion from the Federal Financing Bank. Total credit union assets at that time were $974 billion.

Here is how NCUA reported what happened in the following audit in 2012: “Neither USC bridge nor NCUA were able to secure the transition of USC’s products and services to a successor entity, thereby leading the Board’s decision to wind-down and liquidate USC Bridge’s operations as of October 29, 2012.

Accordingly, USC Bridge discontinued its role as the agent group representative for CLF and CLF redeemed USC Bridge’s capital stock on October 25, 2012. The result of the liquidation of the agent group representative is that as of December 31, 2012, CLF membership comprised solely regular members and no agent membership is in place.”

NCUA controlled both USC Bridge and the CLF. NCUA unilaterally shut down the CLF’s thirty-year history of covering every credit union in the cooperative system.  

Today US Central’s asset management estate (AME) reports a positive balance of $1.7 billion, a significant portion of the over $3.0 billion surplus in four of the five liquidated corporate estates.

The Challenge of This Time

Two of the three current board members were involved in these prior events. Rodney Hood was on the NCUA board that conserved US Central in April 2009, even though it was solvent and fully reserved for losses. From February 2011 Todd Harper was NCUA’s Director of Public Affairs and senior policy advisor to Chairman Matz when the CLF was effectively closed in October 2012.

If the Board can learn from these previous events and seek out a true partnership with credit unions about the design, structure, and role of the CLF, they will be able to rectify one of the most unfortunate actions ever taken by NCUA.

Credit unions’ strength is their ability to collaborate, work for shared purpose and exercise patience when resolving problems. If the Board reaches out and truly listens, real change can be made in the next covid congressional package that will be coming down the pike. Such a re-design could make the CLF central to the future of the cooperative system and enhance the role laid out for it by Congress. That would be a tremendous opportunity from this crisis that could reverse past shortcomings. Is the Board up to the challenge of this time?

Singing Affirming Community

The TV is filled with instances of persons singing during the pandemic. An opera tenor from his balcony in Italy; students from their dorms in Princeton NJ. Clapping, pot banging and yes singing, on the streets of New York for health care workers.

Singing comforts and transcends the moment. It creates and affirms the communities we all belong to. And it can inspire.

Down In the River

For Mennonites, music is integral to their religious services. Their a cappella four-part harmonies of familiar tunes effortlessly engage the listener’s full attention.

An example is this three-minute video recording of Down In the River.

The five verses invite first sisters (women singers) followed by brothers, mothers, fathers and finally all “down in the river” to pray. The swelling chorus walking to the stage adding voices and parts with each verse, repeats the same question. The white, plain headdress on singers and audience reinforces the simplicity of the music’s message.

Going IN the River

But how does going down IN the river relate to now? When uncertainty causes each person’s fate to be more contingent than ever, deeper questions of meaning arise. This reflective instinct is heightened when walking to water-streams, ponds, rivers, ocean fronts. There is a double meaning in the “reflecting pool” in front of Lincoln’s monument in Washington D.C.

In the opening pages of Moby Dick, Ishmael declares, “Yes, meditation and water are wedded forever.” Is covid-19 this generation’s white whale?

For me, this gentle folk tune invites us (show me the way) to go down IN the river and asks: “Who shall wear the starry crown” in this moment?