The Cooperative Leadership of Ralph Swoboda (1948-2021)

(Editor’s note:  The following remembrance of Ralph’s leadership at CUNA was contributed by several of his colleagues.  CUNA’s announcement on September 14 of his passing  can be read here.)

A uniquely talented executive, Ralph successfully led the Credit Union National Association (CUNA) during a critical period of credit union modernization in the 1980s and 1990s. Modernization required transforming the movement’s structure that had remained unchanged since passage of the Federal Credit Union Act in 1934 and soon thereafter, the creation of CUNA. Modernization ensured credit unions’ viability into the twenty-first century by enhancing their capabilities to compete in a deregulated market. It is this historical transition that best captures Ralph’s contributions.

His credit union work began when he joined the Credit Union National Association (CUNA) in 1974 just as the movement recognized the need to change. It lasted through his untimely death while working on behalf of Irish and British credit unions through the nascent Centre of Community Finances Europe that he cofounded.

He initially served as CUNA’s general counsel and then as CUNA’s CEO from 1987 to 1995. He had an innate set of skills that included the foresight to anticipate new challenges before they appeared and overcome the unexpected but inevitable obstacles every endeavor confronts.

By any measurement of the qualities necessary to be a leader, Ralph met them all. He possessed vision, steadfastness, empathy, resilience, and compassion. Those traits – blended by his splendid intellect and indefatigable personal energy – defined Ralph as an unusually gifted executive.

The Forces for Credit Union Modernization

Ralph was at the center of the credit union movement from the early 70s on. The number of credit unions reached a high near 23,000 in 1972. However many credit unions lacked a too narrow a base from which to grow. Chartering new credit unions became challenging.

CUNA embraced the new regulatory era initiated by the National Credit Union Administration that allowed credit unions to accept small employee groups in their membership so long as each group had a common bond.

Ralph’s leadership during this transformative period is incalculable. Playing an instrumental role in ensuring credit unions had the tools to compete and thrive, Ralph advocated changes to the structure of the credit union system that served the movement since the 1930s.

Organizational Change

Among the reforms led by Ralph was the creation of new movement entities that enhanced the competitive capabilities of credit unions by leveraging their ability to collaborate.  It required a transformation of CUNA’s Governance structure. Formed initially as an association of state associations, CUNA’s Governance needed to blend the role of both credit unions and their state leagues.

CUNA Service Group, a CUNA and league subsidiary, was created to enable credit unions to become full-service financial institutions. Through partnerships with reputable financial-service companies, credit unions were able offer a range of new services beginning with a form of checking called share drafts that new legislation had enabled. As an attorney, Ralph played a prominent role in creating the share draft program from its successful pilot to the national rollout.

Within a few short years and under Ralph’s leadership, additional partnerships were formed to enable credit unions to offer members credit cards, mortgages, and a new service called individual retirement accounts (IRA’s)created by Congress to improve retirement savings options for consumers.

Ralph helped create U.S. Central Credit Union that functioned as a corporate credit union for natural-person credit unions.  It then evolved to become an integral part of a new Corporate Credit Union Network providing a full menu of wholesale services to credit unions.

Under Ralph’s leadership, the CUNA Foundation progressed from supporting credit unions  responding to environmental disasters into the influential National Credit Union Foundation. In addition to CUNA’s president and CEO, Ralph was president for each of these organizations.


While modernization reduced the number of credit unions, the number of members and assets grew exponentially.  Their growing operational independence created different relationships between credit unions and their associations. The CEOs of large credit unions sought greater direct input into their national organization.

Under the movement’s original structure, credit unions belonged to the state leagues and the leagues belonged to CUNA. Ralph initiated the first steps of revamping this ownership structure. He created a task force of credit union and league executives which proposed recommendations that led to a significant changes and new association bylaws.

Called “Renewal,” the process provided a combination of credit union and state league representatives on CUNA’s governing Board. For the first time credit unions became members of CUNA. Elections to the board were regionally based.   Divisions representing credit unions of differing asset sizes ensured fair representation among an increasingly diverse movement, while still including a membership category for leagues.

Modernization and the growth of large credit unions required more sophisticated educational and training services for the growing numbers of professionals joining the industry. Credit Union marketers approached Ralph to propose the creation of a Marketing Council run by the marketers themselves with CUNA providing support services. This first council led to more organized around the professionals now employed in credit unions—finance, lending, technology, human resources and operations. The councils now have a multi-decade record of sharing their knowledge among over 6,000 members.

Regulatory modernization, credit union growth, and the rise of professional staff led to concerns that the movement would lose touch with the cooperative philosophy of its roots.  In response Ralph supported a program called Development Educators so credit union personnel could be ambassadors to explain the cooperative tradition of service over profit and the importance of credit union’s historical role.

Leading In an Era of Change

Ralph’s tenure during this era of multiple modernization forces was in many ways equal in importance with the founding years credit union development. Ralph’s leadership role was as vital to credit unions today as those achieved by the movement’s founders.

Leaders earn respect by combining a commitment to the execution of strategy with sensitivity for the people with whom they work.  Ralph understood that compassion does not dilute a leader’s strength. It complements it. Humility is not a weakness, but it is a sign of confidence. All leaders make unavoidable difficult decisions.  Ralph made many, but he never lost sight of such decisions on people.

His recent death in Dublin, Ireland while continuing his credit union work with Irish and British credit unions was stunning. It is difficult to conceive the loss of such a vibrant individual who played an instrumental role in credit union modernization. To those who worked with him through his long commitment to the mission of credit unions, he will always be remembered with great fondness and deep respect as an exceptional person and an astoundingly skilled leader.

These personal attributes made him a leader who earned the admiration and respect of credit unions worldwide. He will be missed.

NCUA’s 2021 Year End Forecast for Credit Unions

At the September Board meeting, CFO Eugene Schied presented the forecast for the NCUSIF’s year end NOL.   The ratio he gave was 1.28%.    The slide showed the outcome  and the formula, but not the numbers used to calculate the ratio.

NCUA’s public affairs officer Joseph Adamoli has provided that data.

Large Slowdown in Share Growth Last Six months of 2021

NCUA staff projected yearend insured shares totaling  $ 1.597 trillion.  This would be an 8.8% growth from 2020’s yearend total of $1.468 trillion.

Since we know the midyear insured shares were $1.580 trillion, this indicates NCUA believes credit unions will add just $17 billion more in the second half of the year.

The 2020 yearend share growth was 20.9%;  the 12-month growth at June 30, 2921 was 15.4%.    Therefor NCUA foresees a significant decline in new deposits from these actual double digit  trends.

Net Income for the NCUSIF

The yearend retained earnings are estimated to be  $ 4.701 billion which would be a decline from the NCUSIF’s  July report of $4.739 billion.   In other words, NCUA projects an operating loss for the final five months of approximately $38 million versus a positive net income through July of $118 million.

There was no information to explain the decline in net income. Since monthly investment income more than covers all operating expenses, the agency must be projecting an increase in  the insurance loss expense.

2021 NCUSIF Equity Ratio

NCUA’s two yearend forecasts of $4.7 billion of retained earnings and insured shares of $1.597 trillion, results in the fund’s equity ratio of .294%, or almost at the 1.3% historical NOL level.

This forecast shows the importance of the NOL cap.  For if retained earnings exceed the NOL, then any overage must be paid in dividends to credit unions.

If instead of negative net income for the final five months, the NCUSIF were to report a gain of just $52.8 million, the equity ratio would be right at .3%.   Even that result would be less than half the net reported in the first seven months.

Transparency and Responsibility

No matter how close NCUA’s estimates prove to be, the first conclusion is that this will be a good year for the NCUSIF, even if share growth ends up higher than the forecasted 8.8%.

The estimates also demonstrate the importance of resetting the NOL based on actual historical performance versus hypothetical scenarios with no objective validation.

We don’t know if there will be an NCUSIF update during today’s Board meeting.   If there is, the credit union owners have the data necessary to track performance which is one of credit union’s most important responsibilities.

For if the owners and contributors of the 1% perpetual underwriting show little interest in the NCUSIF’s performance, the prospect of a dividend or effective use of the fund’s investments, then the  accountability for oversight built into this unique  co-op model will break down.

The transparency from NCUA is helpful, but only if credit unions use it to monitor the fund and provide comments  to the board.   For the next big NCUSIF decision will be setting a new NOL level (currently 1.38) at one of the two monthly board meetings remaining this year.




Would Your Competitors or Peers Invite You to Talk to their Senior Management Team?

Yesterday Kelly Evans, a CNBC host, reported a meeting last week between Elon Musk and the senior management team at Volkswagon.  And no, it had nothing to do with merger or buying technology.  Here is the opening of her story:

Here’s a headline that should stop you in your tracks: “Tesla’s Musk dials into Volkswagen executive conference.” My first thought, when I saw this, was that it must have been either some kind of quirky Elon Musk prank or a weird fluky accident.

But it was neither. It was, in fact, an invitation by the CEO of Volkswagen for Musk to address a meeting of 200 top Volkswagen executives in Austria, in order to “galvanize [their] top brass for a faster pivot to electric vehicles,” according to Reuters. I’m sorry, what?! Can you imagine, circa 2015, “Microsoft invites Adobe CEO to talk about transitioning to the cloud,” or today, “Facebook invites TikTok CEO to talk about their success in short-form videos and algorithms.” Or maybe, “Jacksonville Jaguars invite Patrick Mahomes to talk about success on offense.”

Anyhow, Volkswagen’s CEO, Herbert Diess, confirmed his invite and Musk’s “surprise” Thursday video appearance on Twitter and LinkedIn. “Happy to hear that even our strongest competitor thinks that we will succeed [in] the transition if we drive transformation with full power,” he wrote. You have to give Diess credit. He sounds like a disgruntled CEO who sees the future but can’t pivot his company fast enough, and is now pulling out all the stops to get there–including inviting his “strongest competitor” to give his own employees a pep talk.

How did this happen? How could the CEO of the world’s largest automaker for much of the last decade be calling a company that won’t even deliver a million cars this year his “strongest competitor”?

The Credit Union Analogy

Would your credit union’s success be such that a bank or other financial institution (mutual fund, insurance  firm or broker dealer) would invite you to share your vision for the future of financial services?

Or, is the bank just inviting you over to see if you would like to buy them out at a multiple of book value?

Unfortunately, banks are unlikely to ask for an Elon-Musk kind of briefing thinking they there is little to learn from credit unions.  They believe coop success is due to an uneven playing field, especially the tax exemption.

A good test of how your competitors, local and otherwise, view your effectiveness is not the dollars they spend lobbying, but rather whether they seek to emulate your credit union’s perceived advantage.

Unlike Volkswagen, I have not heard of any banks trying to become credit unions in practice or by conversion.   But I read a  lot about credit unions buying banks.

Which model do you think has the real competitive edge? And which is most likely to transform financial services as they exist today?

When competitors respect you, then you know you are doing something special in their eyes.

Even when interest in your business initiatives are only from your co-op peers, that is one indication that your credit union could be “driving transformation with full power” using Elon’s criteria for strategic advantage.







What Can We Learn from the Oldest FCUs?

An S&P 500 company was projected to last for more than 60 years in the last half of the 20th century. Today that lifespan is down to  18 or fewer years.

Many believe this shortening  of business’ existence is  merely the accelerated playing out of economist Schumpeter’s theory of creative destruction, i.e. the free market at work.

However there is another way of looking at business sustainability by asking which are the oldest business still operating today.  What can their stories tell us versus the inexorable extinction  that seems to be the market’s dominate outcome?

Several articles trace the origins of these Methuselah-like firms that have existed for centuries.  Their commonality is that they provide products or services that people always need: wine making or breweries, inns and hotels, weaponry/foundries and mints,  and personal services such as Shore Porters or an Istanbul Turkish bath.

The Oldest Federal Credit Unions

NCUA’s June spread sheet of all 5,032 federally insured credit unions gives everyone the chance to analyze FCU charters by longevity.  The latest financial performance information is laid out in charter number order. Starting with charter #1 Morris Shepard Texarkana to # 24,927 Credit Union of New Jersey, a conversion from a state charter founded in 1943.

While some FCU’s conversions from states are much older than their indicated by their fed charter order, the vast majority listed through the early 1980’s are an accurate indication of institutional longevity.

While most credit union adherents know the first charter was from a state, St Mary’s Bank in 1909, the evolution of the federal charter is less documented.

Of the initial 100 charters granted by NCUA, 22 are still active. These are listed below.

These initial charters were granted in 1934/5 during the Great Depression, immediately following passage of the 1934 Federal Credit Union Act. These startups have persevered through nine decades of economic cycles, WWII, financial deregulation, competitive reconfigurations, and technology changes unimaginable by their founders.

Their survival rate, 22%, is almost double that of all FCU’s which is 12.6% (3,146 active charters and 24,927 issued). What can we learn from these long- serving charters? How can their stories provide insight for today’s credit unions? Is there a reason they have twice the sustainability as FCU’s generally?

Initial Observations on Sustainability

I am not familiar with any of these credit unions, however reviewing the data here are some initial thoughts along with questions that might be interesting to  pursue.

The 22 are diverse in size, number of members and geographic location. From $2.4 million to $5.3 billion in assets, they demonstrate the diversity and flexibility of the coop charter.   It serves all institutional sizes, towns and cities and geographic regions.

Of the eleven states where these credit unions operate, four are in Connecticut. Why? Was there not a state charter option, and therefore the initial credit unions were all federal?

Many of these initial charters served persons working in the public sector: firemen, postal workers, teachers, state employees and a university. Even Morris Shepard, charter #1, initially served the city employees of Texarkana. These public sector sponsors still exist and in many cases have expanded.

Is the relative stability of their public employment a key to credit union sustainability? For example, Long Island Postal Employees reports only 244 members and $2.5 million in assets. But it is still supported by these  members with an office in the basement of the Post Office.

Credit Union History Still Present For Us

Understanding credit union history is about more than honoring longevity. Their experiences can be instructive for present day prognosticators.

Cooperative design is intended to be perpetual.   Privately owned firms rarely transition beyond their initial founders.  Public companies including banks can be bought and sold in the open market at any time.

Coop capital is paid forward to benefit future members.  While every credit union is subject to the forces of a competitive market, outright failures are rare.

However there are a number of seers who routinely offer their view that coop design is not sufficient for longevity.  In their foretelling what is required  is size (scale), the latest technology and  “innovative” strategies which emulate their competitors.

While several of these long-timers might validate these tactics, most do not.   Rather the common factor that seems to sustain is what created the credit union in the first place:  the  service to and loyalty from the members.   Morris Shepard FCU’s origin statement on their website says it  clearly:

As a member-owned, not-for-profit financial cooperative, Morris Sheppard Texarkana FCU will continue to uphold its fundamental responsibility to actively serve people within our field of membership, which consists of the employees of the City of Texarkana TX, City of Texarkana AR, Bowie County and their spouse, children, and grandchildren. We will continue to deliver a range of low cost products and services to the diverse economic and social makeup of our members and potential members.

They continue to celebrate their first in the country creation:

Our History

Morris Sheppard Texarkana Federal Credit Union was named in honor of U.S. Senator Morris Sheppard, who represented Texas in the Senate from 1913 to 1941 and was one of the credit union movement’s greatest supporters in Congress. Senator Sheppard drafted several pieces of credit union legislation in the early 1930’s. But it wasn’t until 1934 that the passage of a Federal Credit Union bill appeared likely, thanks to the efforts of Sen. Sheppard and another Texan who had become convinced of the bill’s importance, Congressman Wright Patman. Our local credit union chapter, an affiliation of credit unions, is named after Congressman Patman.

What These 22 FCU’s Help Us See More Clearly

I’m not sure what is in the cooperative DNA of these credit union managers and boards.   But it might be worth learning more about.  For if their attitude and efforts had been shared by the entire FCU system, the could be as many as 2,338 more credit unions active today.   They would not necessarily be a State Employee or a Long Island City Postal, but they would be serving  a perpetual need human need with an institution they own.

Today credit unions rarely close due to external forces or financial failure.  Rather leaders of sound institutions  at the close of their tenure merge their credit union to reward themselves with an additional cash payment.  Unfortunately, credit unions are not exempt from personal cupidity.

One of the lessons these 22 and the oldest commercial companies provide:  the needs for these services does not go away.  That alone should be enough to keep the lights on when the harbingers of combinations issue their predictions of inevitable consolidation.

And the enduring need for values based, honorable leadership of these organizations.



Needed: More Inter-coop Marketing Alliances

A response to my post last week on Marketing: A Critical Credit Union Advantage promoted a broader view of the situation.
Leo Sammallahti, Marketing Manager for the  Coop Exchange in Finland suggested a different framework.   Specifically he believes coops serve individuals who would have a natural interest in knowing about other cooperatively owned business.  Here is his idea.
I’m not familiar enough about credit union marketing in the US, but have some thoughts more generally about marketing within coops.
I recently talked with a friend who helps run a food co-op. He mentioned that they have 2000 people on their email list. A while later, another friend told me about a retrofitting (housing) coop that is raising money through an equity crowdfunding campaign.  The UK has a special financial instrument called “community shares” tailored for coops to raise capital through crowdfunding.
I believe there is an opportunity for a simple website with a directory of coops (in communities or a state) that want to promote other coops through their email lists. I sent a survey to 10 small and medium sized (SME) coops asking if they would like to promote other coops in their email list. Every single one of them said yes.
This interest caused me to realize this is an advantage coops have in marketing – coops (at least small and medium sized coops) want to promote each other.
Had I sent a survey to traditional publicly owned stock owned firms asking  if they would like to promote other businesses because those businesses have stockholders, they would have found the question absurd,  “Why would I do that?”
My suggestion is that the platform allow co-ops to make different type of arrangements to promote each other in their email lists. They can set up cross-promotions (I promote you if you promote me) and “cross promotional circles”–I promote another co-op every month in my email list and my co-op gets promoted in another co-ops email list every month. In addition, they can  require the coop to put out a coupon code or some similar special offer for them to promote.
What’s the relevance to credit unions in the US?  Not sure, yet. But if we create an ecosystem of many coops promoting each other, that can be powerful for credit unions as well. The US credit union movement has over 100 million members.  Credit  unions communicate via newsletter or social media regularly.
If they would systematically promote other coops in their messaging, and other coops would systematically promote credit unions, this could a create virtuous cycle.
From the point of view of a customer, when they become a customer of one coop and receive their communications, those  would include promotions of other coops. As a result, they learn about other coop possibilities and could become patrons.
This effort  could be more even more practical if regulations that limit investing in coops and promoting such investment opportunities were more encouraging.
Once the market for coop financial funding in an area reaches a critical mass, it could possibly lead to common funds that enable ordinary people to make recurring, low-cost, passive, diversified investments across small and medium sized coops.
This community investment evolution is being developed in the UK and could be a model for the US. Here is a recent report:  Understanding a maturing community shares market – new report | Co-operatives UK

Charitable Giving by Individuals and Credit Unions

A donor advised fund (DAF) charitable investment account is an option for individuals who wish to support charitable organizations in a more organized manner. The funds are administered by third parties such as a mutual fund or broker dealer.  A person can contribute cash, securities or other assets and take an immediate tax deduction.

The funds can be invested in various investment options for tax-free growth.  Donors  can recommend grants to virtually any IRS-qualified public charity (501C3) they may wish to support at a future date.

The major advantage is that DAF contributions provide an immediate tax benefit while allowing assets to potentially grow tax free in the future.  The flexibility in managing contributions and subsequent gifting versus answering numerous individual appeals  is an advantage along with the tax planning options.

The annual reports of these various funds also provide insights into where this segment of the population focuses its giving.

T Rowe Price’s DAF 2021 Annual Giving Report shows its 1,600 donors made over 29,300 individual grants to 11,100 charities.

The five most supported charities were:

    1. Doctors without Borders
    2. Salvation Army
    3. Maryland Food Bank
    4. American Red Cross
    5. Planned Parenthood

These individual donors are  a very small and possibly elite sample of the population.  However I found the top five instructive because they are well known charities and national in scope.

While I would presume many donations were made to educational, religious institutions and other local charities, it was heartening to see the communitarian spirit indicated by these leading gifts.

Credit Union Charitable Activity

In addition to individual credit union 501C3 foundations, the most popular long term charitable effort has been the Children’s Miracle Network.

However credit unions in 2013 received another  option via Charitable Donation Accounts.  These accounts were approved as an incidental power by NCUA. Multiple credit union organizations including CUNA Mutual, CUES, and Members Trust Company offer programs for managing these special investment accounts.

While limited to 5% of net worth, their advantage is they can invest in securities outside those permitted for credit unions by rule 703. Their only requirement is that 51% of the total return must be donated to 501C3 organizations over a five-year period.

As of June 30, 2021 there were 187 credit unions which had established CDA’s with a total value of $1.084 billion.

The CDA option is established, credit union by credit union, for both fund contributions and subsequent donations. Individual accounts range in size from Pentagon FCU’s $136.4 million to Temple-Inland’s $1,000 balance.

There is no current process for aggregating and reporting these individual charitable efforts as in the T Rowe Price report.  As the majority of these accounts appear to be managed by three providers, it would seem feasible to report collective donations by credit unions on an annual basis.

Credit unions certainly promote their individual donations, often with press releases and photos; however the overall impact is missing.   I wonder what the top five credit union charitable contributions might be?   Whether these are local, national or even international organizations, the message of cooperative community assistance is only being partially told.







Re-examining the Inequity of Risk Based Loan Pricing

Most credit unions today used risk-based pricing when granting loans.  That means the rate paid by each member is tiered from lower to higher based on their FICO or other scoring matrix.

This change from the initial co-op practice that all members be charged the same rate for the same loan was considered a major innovation by credit unions.  Consultants showed how to implement the program in the 1990’s. Compliant scoring models were empirically validated by experts.  One long serving CEO of a top 10 credit union said that implementing risk-based pricing for members was one of his most important contributions.

The practice is defended with two logics.   It expands credit union lending opportunities by qualifying more borrowers at the lower end of the risk scale.   Credit unions also claim they save these members money by charging a lower rate than other lenders would, if the credit union had not made the loan.

Today the vast majority of credit union leaders routinely accept these propositions.   Members deserve the rate their economic or past borrowing behavior merits.  Members with perfect credit should get better terms than members who have struggled with their finances.

The Reason Why Some Coops Do Not Follow Risk Based Pricing

The most public critic of this approach to consumer lending is Jim Blaine the retired CEO of State Employees (SECU) of North Carolina.

His reasoning follows:

The issue with risk-based loan pricing based on credit scores is that it imposes a real dollar penalty unjustly on folks in “the lower” credit tiers (tiers are usually A,B,C,D,E).

An easy example would be that say “D paper” with a statistically sound, model-projected 10% default rate might pay 12% for a car loan, while “A paper” folks with a projected 1% default rate pay only 6%. The real world penalty for the “D paper” folks is a 6% higher rate – not a minor cost!

The injustice arises because modeling cannot predict which 10% of the “D paper” folks will actually default. But, a substantial, unjustified interest rate cost (+ 6% in the example) is imposed on the entire D tier! Or in other words, 90% of the folks in the D tier (who the model has empirically proved will not default!) are paying an undeserved up charge – because, again, the model has validated that 90% of folks in the tier will actually pay!

 These folks have been unjustly charged because the model has profiled them into a class.

“Redlining” is an example of a financial “tiering” practice for real estate lending that has been discredited (and made illegal). “Redlining” imposed an unjust penalty on generally African Americans who lived in a particular neighborhood – many of these folks were unable to obtain loans at any cost – effectively a 100% profiling penalty!

Two Reasons To Review This Policy Now

Recent political dialogues have raised awareness of systemic inequalities that can accrue in society in critical areas of life: health care, employment options, education and housing.  These lead to structural inequity passed from generation to generation as accepted wisdom:  that’s just the way things are.

Financial services incorporate these histories when they underwrite members who may need financial assistance for one or more of these activities.

America is in an era of examining many past practices to understand the origins of present inequities.  Historical interpretations and beliefs are being re-evaluated.  New interpretations and additional data can lead to better, more equitable policy today.

Is risk-based pricing locking in systemic bias or is it fairly equating a member’s risk of default and pricing?   Each credit union will make its own decision.  It is far easier in moments of uncertainty to automate judgments via an impersonal model than to take time to understand an individual’s situation.

But shouldn’t every member-owner be evaluated on their character, capacity and circumstance? And if credit worthy, pay the same as other credit worthy members?

Should credit unions be more self-critical of lending practices that perpetuate disadvantages for those who have the least or know the least –and are frequent targets for predatory lenders?

The second reason to revisit this practice is that credit union have many years of portfolio performance from several economic cycles. Just as the impact of overdraft fees on members is now being reassessed, might it also be worthwhile for a credit union to review its risk-based loan pricing results?   Which members pay the highest rates? What is the loss rate of various credit tiers?  What might be the outcome if members in each class of loan had paid the same rate?  Should our policy be modified?

Finally, which members are most likely to need and use the credit union for their borrowing needs?    Is that group one for which the credit union is most able to make a real difference in their lives?

I don’t know the answers.   But if a credit union or analyst has done such an evaluation, I would be glad to share their analysis and any actions they may have taken.


Marketing: A Critical Credit Union Advantage-Lost, Forgotten or Misunderstood?

My initial class at the Navy’s Supply Corps School in 1969 was inventory management.   The instructor opened the first session by passing out membership cards to Navy Federal Credit Union. As new officers, he encouraged all of us to join.   He said that it was an important benefit of being in the Navy.   The credit union would be available no matter where we were stationed-even at sea in some cases.

At that time my wife and I were living in a trailer home.  Base housing was not yet ready.  We lived paycheck to bimonthly paycheck. I didn’t want to split our only cash flow into two separate accounts.  So, I didn’t act.

However I still remember his friendly advice and effort to sign us all up.  Later we became members of United Credit Union in Yokosuka, Japan when needing cash for an R&R trip during an extended deployment.

Traditional marketing practices have an ambiguous history in coops.   The 5300 call report line item under which marketing expenses are listed is labelled “educational.”

One of State Employees North Carolina’s (SECU) contrarian tactics is eschewing all traditional marketing media and advertising efforts. At mid-year SECU reports total “educational” expenses of $185,000 out of a total operating spend of $490 million.   The intent is that SECU’s foundation’s many good works and press releases, plus word of mouth, provided the public messaging necessary to communicate its availability and value to potential members.

Rethinking “Marketing” as a Competitive Advantage

In September 2021 Bank of American announced it would eliminate the Chief Marketing Officer’s position.  Henceforth all marketing will be under the head of digital channels.

In a recent analysis by Visual Capitalist, its comparisons showed that Tesla spent $0 on marketing per car sold, whereas all its major competitors expensed from $400 to $660 per car.   The strategic advantage Tesla developed was in R&D.  Tesla spends almost $3,000 per car sold; the closest competitor of the big four, Ford, spends $1,100.

Word of mouth is Tesla’s marketing “strategy.”  The article summarized its market leading reputation as:

And while Tesla technically spends nothing on advertising, the company is a marketing machine that is rated as the world’s fastest growing brand, and Tesla often dominates press mentions and social media chatter.

Two Recent Examples of Credit Union “Marketing”

One of my credit unions recently mailed an expensive marketing package offering free $1,000, no-questions-asked term life insurance, plus the option to buy more at a fixed price.   My only question was why did I receive this marketing message at the age of 77?  Life insurance is not only unneeded, but a waste of money.

A second experience. Terminal C is United’s primary location for gates at Dulles airport.   To get to this outer terminal requires travel by underground, up an escalator and a 200 yard tunnel walk to the next up-escalator and the gates.  Along the walls of this walk are panels maybe 15 feet high and wide completely covered with ads for two products only.

The first is Capital One’s Credit Card.  Panel after panel announces its advantages. The second effort, right alongside,  is for PenFed’s Platinum Rewards Visa Signature Card.  Both offer no fee, initial bonus miles, multiple extra points for certain purchases,  cash back, and other benefits that the moving sidewalk traveled too fast to compare.

Both institutions have head offices close to in each other in Virginia.  The difference ends there.  Capital One has $370 billion in assets, the 10th largest bank in America.  It is the fifth or sixth largest credit card issuer in the US with approximately 75% of total revenue from its card program.   PenFed is $27 billion in assets with a card portfolio of $1.7 billion, or 8% of its total loan portfolio.

It hardly seems like a fair ad fight on the walls of this Dulles corridor by  two firms seeking business from the traveling public.

How do Credit Unions Win? Or Why Market?

The 5300 line item calls marketing “educational” expense for a reason.  Most credit union start with a common bond.  Members were most often employees who knew each other, recognize the board and shared a familiar place of work, worship or gathering.

Marketing was not needed to inform employees  about the credit union.  It was often referenced in new employee orientation as a company benefit. The credit union’s role was to inform members about fair value for financial products (educate) and be convenient to their place of work.

Once credit unions expanded their ambitions to larger areas these personal connections no longer existed.  Credit unions tried to reach these new groups by emulating the public marketing efforts of competitors.  The commonality shared by early groups was often lacking.  It became imperative to find new ways to attract members; so, why not do what everyone else does?

As this evolution continued, credit unions even shied away from  their unique design urging consumers to see them as “better than banking.”  Instead of replacing the competition, credit unions mimicked the institutions with which they compete.   Trying to beat the competition by becoming its shadow.

The challenge is not size, expansion or even growth. Navy Federal has been able even at $150 billion to focus on “members as the mission.”  With an added inference, not everyone can join-which is why you should.

Every organization wants fans, not just consumers who can be wooed away with a better price and slicker commercial.  Members are the roots from which every credit union grows year after year.  When the focus becomes the tree and not the roots, that’s when credit unions lose a critical advantage.

Credit unions will rarely out-market competitors.  The two largest credit unions in the country retain the connection with members as the center of their strategy and messaging efforts.   Their belief is that great organizations create great brands; great branding does not build great firms.


Wise Reflections on Two Topics:  RBC and the Inflation Outlook

Two experienced bank regulators on risk-based capital:

Comment by

What banks perceive as safe is more dangerous to the financial system than what banks perceive as risky. Financial crises are not caused by banks engaging too much in activities deemed risky, but by activities deemed to be safe turning out to be riskier than thought.

Per Kurowski is a former Executive Director of the World Bank for Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Spain and Venezuela who has been on a decade long crusade against risk weighted capital requirements. Recommend googling him – if you come across a YouTube channel with covers of Latin American pop songs don’t be mistaken to think that is not him. It is him, and the channel includes also videos about his thoughts on banking. He also has a blog.  A recent memo on RBC.

As Paul Volcker, the former head of the federal reserve said:

“Over time, the inherent problems with the risk weighted bank capital-based approach became apparent. The assets assigned the lowest risk, for which capital requirements were therefore low or nonexistent, were those that had the most political support: sovereign credits and home mortgages. Ironically, losses on those two types of assets would fuel the global crisis in 2008 and a subsequent European crisis in 2011.”

The Inflation Tax-an Excerpt

“… So, yes, inflation is here. It’s real. And it’s slowing the economy. It’s like a giant new tax on households and businesses, and wage hikes aren’t a panacea. And now you have a Fed that has partly caused the problem, by overstimulating demand relative to the preparedness of the supply side, and ends up with an economic slowdown anyway. What’s worse, these resulting high food and energy prices hurt low-income households the most–the very contingent that the Fed’s super-easy-monetary policy was supposed to help by letting things “run hot” this time around.

And finally, on the fiscal side, the situation doesn’t look much better. Politico has a piece today about how the stimulus checks and child tax credits aren’t delivering for Democrats; “whatever political benefits were supposed to accrue…have seemingly faded,” they write. “Giving people money may not be the dispositive political winner that they imagined.”

It may simply be that voters are smart enough to connect the dots and realize what all this cash and Fed stimulus has done to the economy–and how little it can fix of the lingering Covid challenges.”

From: Kelly Evans,, The Inflation Tax, October 11, 2021

Columbus or Indigenous People’s Day?

In grade school I learned about the discovery of American with the phrase “In 1492, Columbus sailed the ocean blue.”  An event that was ultimately honored in the Columbus Holiday the second Monday of October.

It became a legal holiday in 1971.  However it was President Franklin Roosevelt in 1937 who proclaimed Columbus Day a national holiday, largely as a result of intense lobbying by the Knights of Columbus, an influential Catholic organization.

The current renaming of the holiday as Indigenous People’s Day celebrates the people who had lived here for thousands of years prior to Columbus’ “discovery.”  The histories of some of these existing populations are increasingly noted in the naming of some of  many natural and new  landmarks in their tribal territories

For example the Anacosta River in DC is named after the Anacostia Indian peoples who live in what is now DC.  There are several dozen geographic features and constructions such as high schools in the areas that incorporate the name.

Is the Issue Historical Truth?

The holiday has been a political issue since Columbus Day was first declared.   In 1892, the 400th anniversary of Columbus’ voyage, President Benjamin Harrison declared a one-time national celebration following the lynching in New Orleans where a mob had murdered 11 Italian immigrants.

Continuing today Italian American politicians walk in parades to celebrate the prior contributions and today’s success of the descendants of these immigrants.

As the injustices of the country towards the native populations has become more acknowledged and patterns  of systemic wrongs better documented, there has been an increased focused on correcting the tragedies and changing the traditional narrative.

One effort is to dishonor Columbus and remove statues or other names celebrating his role.  Last Friday a Philadelphia judge ordered a plywood box hiding Columbus statue for over a year be taking down before the parade today.

Thus another issue is added to the cultural clashes now infecting the political dialogue.

But is it possible that both views could be “truths” and that society benefits from knowing about each historical circumstance and their relevance to current priorities?  And what does this example suggest for credit unions?

President Biden has  proclaimed this holiday will celebrate both Italian Americans and indigenous communities.

Individual Achievement and Society’s Circumstances

America has had a long tense debate between what is good for society as a whole and the celebration of individual enterprise and success.

Individual effort, passion, ambition and fortitude matter.   We celebrate accomplishments in every area of activity from business, to entertainment, to sports to academia.   We honor these superstars with prizes, fame and enormous fortunes.

However much of that success depends on context—the training, the resources, the organizations and the examples that make individual achievement possible.  Everyone benefits from this social infrastructure and the connections that make success possible.

In credit unions this same tension exists.   Current leaders take actions which they believe are in the best interests of their organization sometimes oblivious to the legacy they inherited.  They see a different, more “modern” future than their forebears.   This limited grasp of both history and the kind of future being passed on, could undermine the future of the cooperative system.

Cooperatives were built on human connection.  Every society needs these organizations so individuals can prosper and help each other.  Today when three and four generations of members are separated from their credit union’s roots by merger, the ties of loyalty that bind are broken.

Credit unions need persons who want to build a better tomorrow for their own organization and the entire system.   It is OK to be self-interested.  However that motivation needs to be tempered with honor.

The charge against Columbus is he had no respect for the native people he encountered.  Only the search of gold mattered.  Many Europeans who followed had the same belief in their own superiority and right to ownership of the seemingly open lands.

We can see  issues more clearly with the benefit of history.   But it is an error if in our own lives and responsibility within coops today we believe we are immune from such hubris.    The future of credit unions needs innovation.  But it also requires character that respects the legacies we all inherited to achieve our positions of responsibility.