Thanksgiving Settings in 2021

Nature’s fashion change brightens our autumn.

History remembered for those who welcomed the first newcomers to our shores. This blog was written on the land of the Piscataway peoples.

People living in temporary shelters.  The unhoused on the grass circle in front of Union Station in DC.

A gift of thanks for a life well lived and hope in the future. (Nun danket alle Gott)

What the Pilgrims Gave Coops

The Pilgrims did much more than inaugurate a national holiday.   They set up the first civil authority in the New World.   The full agreement is a single paragraph.   It was called The Mayflower Combination (November 11, 1620):

IN THE NAME OF GOD, AMEN. We, whose names are underwritten, the Loyal Subjects of our dread Sovereign Lord King James, by the Grace of God, of Great Britain, France, and Ireland, King, Defender of the Faith, & c. Having undertaken for the Glory of God, and Advancement of the Christian Faith, and the Honour of our King and Country, a Voyage to plant the first Colony in the northern Parts of Virginia; Do by these Presents, solemnly and mutually, in the Presence of God and one another, covenant and combine ourselves together into a civil Body Politick, for our better Ordering and Preservation, and Furtherance of the Ends aforesaid: And by Virtue hereof do enact, constitute, and frame, such just and equal Laws, Ordinances, Acts, Constitutions, and Officers, from time to time, as shall be thought most meet and convenient for the general Good of the Colony; unto which we promise all due Submission and Obedience. IN WITNESS whereof we have hereunto subscribed our names at Cape-Cod the eleventh of November, in the Reign of our Sovereign Lord King James, of England, France, and Ireland, the eighteenth, and of Scotland the fifty-fourth, Anno Domini; 1620

Historian Bradley J. Birzer describes this effort as follows:  “what incredibly and pugnacious audacity these Pilgrims had. Ruling themselves with a simple agreement, a single paragraph, and a deep and abiding faith.

“I wracked my brain trying to remember an example of another, earlier assertion of self-government. Had the Greeks done it or the Jews? No, they had already relied upon a law giver. The Romans asserted something in 509BC, but I’m not sure it had quite the same texture as what the Pilgrims did in 1620.

“I really couldn’t come up with a significant example. For all intents and purposes, the Plymouth Combination is the first real assertion of the right to self-governance in the modern western world and one of the most important in any time or place.”

The Right of Self Governance

The unique elements of cooperative design are all in this founding document.

Words familiar to any cooperator include:  mutually, covenant and combine, for better ordering, and acts, for the general Good of the Colony.

The document was an agreement to work together to further everyone’s well-being.

We remember the Pilgrims for many historical reasons.   But the legacy that may be most consequential  to America’s history is this commitment to self-government.

Credit unions are the embodiment of this ideal in their design for community financial services.

As we give thanks tomorrow, add the credit union model to the Pilgrim’s legacy for America.



GAO’s NCUSIF Study Omits the Most Important Data Point

The GAO  released a report in October analyzing the causes of credit union failures from 2010-2020.   The news stories and report lead with two facts:  145 credit unions caused $1.55 billion in losses to the NCUSIF in these eleven years.

The full report  took 16 months to complete and contains appendices full  of math correlations and sophisticated looking analysis.

However it omits the most important fact about these losses.  That is the NCUSIF’s 1.30 Normal Operating Level (NOL) is 93 times larger than the rate of insured losses for this period.  That is a critical actuarial finding.

The GAO failed to put its analysis in any context or perspective.  Any loss is too much.  All credit unions operate in a competitive market.  As noted by Ed Callahan when Chair of NCUA discussing deregulation, “Some credit unions will do better than others.”

The most important issue is the financial impact of losses on the NCUSIF and credit unions.   Using the GAO’s $1.55 bn total, this results in a loss rate on insured savings in this eleven-year period of 1.4 basis points.

The loss  trend is also declining as noted in the study.  Of this total, the report (page 13) says $831.7 million was from the failure of three taxi medallion credit unions in 2018.   That means the 142 remaining credit unions lost $718 million for a loss rate of only .65 of 1 basis point.

In the context of a $20 billion insured fund with total capital equal to 1.3% of insured savings, the fund is 200 times larger than the insured losses if the disruptive event of the taxi medallions is not included.  If counted, the fund as noted, is 93 times larger than the eleven-year  insured loss rate.

Reasons for Failures

Figure 7 on page 19 is a table labelled: Top Material Loss Review Causes or Contributors to Failure by Number of Times Mentioned.

This is the list of the six causes from most to less frequently cited:

  1. Credit Union Board or Committee Oversight
  2. Failure by NCUA examiners
  3. Weak or missing NCUA Guidance
  4. Fraud
  5. Management integrity
  6. Lack of timely and aggressive NCUA action

All of these six areas are why there is an examination of every insured credit union.  These “causes of failure” should be covered in every exam.

The report does not cite economic circumstances or external disruptive events, as in the taxi medallion credit unions, as reasons for losses.  The report began after the Great Recession with losses in 2010 when the economic recovery was well underway.

What the report makes clear is that NCUA’s exam program has much room for improvement.

At yesterday’s November board meeting, the CFO commented that the positive NCUSIF AME recoveries from prior loss estimates has continued into November.   So the net loss reserving expense for 2021 is, in effect, negative.   This means the two most recent NCUSIF loss ratios cited above should be even lower when this year’s results are added to this study’s total.




Showing the Way by Thought, Word and Deed

These brief examples represent  the ideals, principles, and qualities desired and admired by persons,  communities and nations.  The three persons apply these principles in their daily efforts.

In their individual areas, they rise, or rose, above self-interest and seek to bring out the best in others.

A 20’s something woman coach’s philosophy

Building the character of the rower is just as important as developing the skills of the athlete.   Diligent training on respect, resilience, and the outcomes of hard work is rewarded with improved teamwork and an overall love for the sport.

Every word spoken is intentional to create a positive learning environment and consistently progressing rowers. 

An author seeking appropriate use of words

Maybe we need to delete the word ownership from our vocabulary and certainly from our legal contracts and sales agreements and land deeds. Instead, let’s use the word stewardship — and introduce a raft of legislation that defines stewardship as “leaving something better than you found it.”

Steward it or lose it.

An Example of Selfless Generosity  (excerpts)

What made Aaron Feuerstein famous was not success but his attitude in the face of catastrophe. When a fire destroyed the textile mill he owned, he faced the decisions of whether to rebuild and whether to continue to pay his 1,400 workers, who were left destitute in the dead of winter. His decision became a model of how employers should treat their workers.

Standing By His Employees

Mr. Feuerstein won where it matters most. As a business leader, he captured the hearts of his employees and the imagination of Americans everywhere.

What made Aaron Feuerstein famous was not success but his attitude in the face of catastrophe. He became a model of how employers should treat their workers.

In December of 1995, a fire raged through the Malden Mills complex, destroying almost everything. He faced the decision of whether to rebuild. He also saw that the plant’s 1,400 workers were left destitute in the dead of winter. He could have collected the insurance proceeds and walked away from the disaster.

However, he decided to stand by his workers. He took a risk and retained all 1,400 employees on the full payroll for three months. He extended their health benefits and began rebuilding the plant so that they could return to work.

In a 1997 speech, he explained that if the worker felt he was “treated the way he should be treated,” he would go the extra mile and make quality products for the company. He was right.

Here is the link to his interview on 60 minutes (6 minutes):

Doing the Right Thing

How will your stewardship be remembered by your credit union’s members?  Who is showing the way for others on your leadership team?











Are Credit Unions Democratic? Does it Matter?

On paper and as a long standing, unique cooperative value, the best answer is,  “Maybe.”  After all for federal and many state charters the member-owners have one person, one vote in elections, and no proxies allowed.

The required annual meeting is the recurring opportunity for members to decide who will represent them.  To approve their current leaders or to vote them out.

This is a crucial process in co-op governance.  However, the practice rarely lives up to the theory. One person sent me his summary of board elections with the title:  It’s a scam.

Here is my observation on the subject of Board elections:

1-The credit union board of directors appoint a nominating committee.  The committee are usually directors NOT up for re-election.

2- The nominating committee nominates the incumbent directors.

3-The nominating committee does not nominate any non-incumbents.

4-The ballot is “no contest” – the number of directors up for election is the same number of directors on the ballot.

5-There are no director term limits.

6-Directors arrange to “resign/retire” mid-year so the position can be filled by appointment – by the incumbent board of directors.

7-Once appointed the director will seek “re-election” by way of the nominating committee – composed of the board of directors

If a member seeks to run for the board they need to stand in front of the credit union and solicit signatures on a nominating petition & the number of signatures required is substantial.  

If it is not a scam, contested elections are certainly a rare occurrence.

While cynical, there is more than an element of truth in this former CEO’s observation.

Does the Absence of Director Elections Make any Difference?

Many very large federal credit unions have never had an, open contested board election in this century.   In seven states where proxies are used by state charters, the board itself controls all of the votes even were there to be a nomination by petition.  The result is that boards end up perpetually controlling who serves.

Incumbent directors and CEO’s would defend the process by pointing to the industry’s financial results and member growth.  They would argue that is the real measure of the responsiveness of board leadership.

Others would point out that  credit unions regularly publicize  board nominations when announcing the annual meeting, but never receive any interest from members.

For many the idea that any member might collect sufficient signatures to stand for the board is unsettling.  After all it takes expertise and experience like that of current office holders, to be able to be a director.

If most credit unions succeed without democracy does it matter?

Can this co-op concept of “democracy” succeed if the member-owners never vote?

What kind of leadership culture and responsiveness will exist at the board level knowing that their tenures are never subject to member approval?

How will co-ops present themselves versus for-profit institutions where shareholder rights and activity are frequently used to bring issues to the fore at annual meetings?

Finally, how does one explain the voting manipulation that occurs with mergers of long serving, solvent credit unions where substantial benefits are paid to the merging CEO?

The  merger transaction promises members only rhetorical future benefits. But the person responsible for the merger, who gives up leadership responsibilities, receives significantly more compensation (a golden parachute) than by staying and retiring from the job.

One writer described the outcome when democratic practice is usurped by those in power:

“when you get rid of the democratic oversight of a sector of the economy, it becomes a black market free-for-all, a winner-take-all-loser-dies-in-poverty survival-of-the-fittest dog-eat-dog game.

The masses lose, the commons suffer, individual rights get trampled, and power amasses to CEO’s maximizing their personal outcomes. “

The Most Important Loss

While the erosion of democratic processes, may take time to manifest itself, the failure to cultivate co-op’s unique member-owner design may be the system’s biggest vulnerability.

Recently the Vanguard Group of mutual funds began a new television campaign.   The theme: “You’re not just an investor, You’re an Owner.”

This is only the second national TV campaign in the firm’s history.  As their initial product advantage of low cost, index-based mutual funds and ETF’s was matched by all their competitors, they are now singling out the one difference no other fund can match.

The message: “A rich life is about more than just money. That’s why at Vanguard, you’re more than just an investor — you’re an owner. So you can build a future for those you love.”

The agency which created the ads explained: the campaign was introduced “to celebrate the benefits of Vanguard’s unique corporate structure which makes clients, owners” and that the goal is “to underscore the value that investors can realize by investing through a firm with no outside owners other than its clients.”

More than a Design

Credit unions which fail to practice and celebrate their unique member-owner design, may be surrendering the most important advantage they have.

Democratic governance is not just another organizational option.  It is a critical aspect of an organization’s beliefs and practices for relating to the members who created and own the credit union.

When the advantage is not used, it goes away.   Co-ops become indistinguishable from banks.  Members are just another name for customers.  And leadership progressively presumes its judgments and choices are the primary basis for all decisions-even those ending the charter’s independent existence.  Even authoritarian leaders can survive, for a while.

When democratic practices are habitually circumvented, they are difficult to restore.   Without regular succession processes, the ability to find new leaders, or even generate interest in leadership is squelched. And at any moment, the sirens of self-interest can appear, cancelling the credit union’s future for all members.

Democracy matters, until it doesn’t.    The good news is that this is a fundamental flaw that every credit union has in its own power to fix.


Leading with Competence, Not Position or Authority

On January 7, 1984, NCUA Chairman Ed Callahan spoke to the Hawaii Credit Union League’s Political Action Conference.  This was the predecessor to today’s governmental affairs conference.

He opened by discussing deregulation a term he described as “overused and misunderstood.”  “I was not the inventor, but I gave it a good push.”

He then addressed why credit unions had been so uneasy, even fearful with this radical change that would apply to entire financial industry.  The fear was whether cooperatives could compete.  For on December 14, 1982, in a first step, all rates for all institution’s  money market accounts were removed.

He then presented the evidence. Growth in savings showed credit unions, whose liabilities (shares) had been totally deregulated in May 1982, had increased by double digits for three consecutive years, far ahead of the banking industry’s outcome.

The most important benefit of the change was that credit unions would make their own business decisions not government bureaucrats.  There was no more “follow the leader” putting all our “eggs in one basket.”  He also recognized “some will succeed more than others.”

The Rest of the Story

He then explained the additional changes necessary for this result to succeed.

The agency had approved a “more realistic common bond” which he believed would have the most lasting “real impact in the long run.”

He talked about the agency’s decentralization, putting resources into the field where they were most needed in order to conduct an annual exam program.   “We threw out the old cookbook and created a new exam process so we could be “problem solvers” if required.”

The agency needed to be “more efficient” using the resources provided by credit unions.  One example was “resource sharing” where the agency would compensate credit unions who would lend their personnel and knowhow to assist other credit unions experiencing difficulties.

Finishing the Job

He closed asking support for a new design for the NCUSIF.  The Fund was “not competitive” relying on double premiums to try to meet the 1% of shares objective set in the Act.

The new design would be “less costly, puts control of funds in your hands, and makes the fund all yours when you put up the money.”  This change would “complete the system.”

Leadership Change that Lasts

Ed took questions at the end of the talk replying to attendees’ concerns about “overlapping FOM’s, competition for members,” and the threat of taxation.

He closed with the thought that he did not want to be remembered for what he had done as NCUA chair but rather for “being part of the future.”

His ending rouser challenged credit unions: “You’ve been a model for your members; now become an even better one.”

What Sets a Leader Apart-“Feeling Safe”

Ed did not lead change by preaching fear.  Instead in this speech and many others he directly addressed the “fears” that credit union leaders shared.   Fear of the unknown future, competition from without and within the industry, or the lack of expertise and navigating an economic recovery with members.

Hearing him speak, credit unions “felt safe” with his proposals for the future.   They had confidence not just in current results, but in the way the agency presented the context for change-the transparency, the joint efforts, and the shared belief in the unique value of the cooperative system.

In 1984 credit unions supported Congress’ change of the NCUSIF to a 1% deposit-based system, bringing all the benefits described in the plan.   This was critical for credit unions to have a sound, unique and competitive future in the newly deregulated financial markets.

Ultimately the trust in any organization depends on those who interact with it, “feeling safe” with its leaders.   That belief is real; it is earned not granted by position; and it is the fundamental confidence required for any system’s success.

One of Ed’s gifts was instilling confidence in others and their ability to succeed.  Every coach knows this reality if there is to be a winning team.  An example that is  much needed today in DC.



When Words Matter Most

On November 5th, Pomona Postal FCU, founded in 1964, became NCUA’s  fifth conservatorship of 2021.

The Credit Union Times story contained this standard explanation:

The NCUA issued a media release and other information, showing the agency took possession and control of the insured credit union to conserve its assets, protect the National Credit Union Share Insurance Fund, and resolve operational problems that could affect the credit union’s safety and soundness.

At September 30,  this $4.2 million credit union reported a net worth of 6.86%–down .01bps from a year earlier; an ROA of .48, delinquency of $33,184 covered by an allowance of $41,000.

The Critical Question

This action raises again the ultimate question, Why?  The $20 billion NCUSIF had to be “protected” from the deprecations of this $4.4 million monster disguised in tiny sheep’s clothing?

Or, as typical of other small credit union seizures, will we learn from court records (years from now) that there has been a long, on-going pattern of misdeeds in this two-employee firm, overlooked in multiple past annual NCUA exams?

Or, perhaps it is just examiner and regional office frustration that their supervision has been unable to stabilize a slowly declining financial picture?

Both options are troubling. The failure of NCUA to be transparent in the use of its most absolute authority is itself a symptom of the real issue.

If NCUA is unable to supervise this credit union speck in the $2.2 trillion system, how can anyone have confidence in their oversight of a $40 or $400 million, let alone a $4.0 billion entity.

The irony of NCUA’s explanation is stunning.  For if true that this $4.4 million was taken over to protect the insurance fund, the greatest danger to the system is not from credit union malfeasance or failures; rather it is NCUA’s incompetence.

It is time for the agency to drop the bureaucratic doublespeak and start giving straight talk about its actions. For the issue is not what happened at Pomona Postal but why the agency feels so compelled to cover up its most important responsibility.



Veteran’s Day: Honoring the Responsibility of Public Service

A recent news story’s headline:  Sub’s Leaders Fired after Hitting Mountain.

The article described how the USS Connecticut, one of the fastest, most modern nuclear powered submarines had hit an underwater object  described as a “mountain”  in October.

The accident injured about a dozen sailors, but the sub navigated on its own back to Guam for a damage assessment.

One immediate result of the event is that the commander of the fast-attack sub, the executive officer and the senior enlisted Master Chief were all relieved of their duties.  Vice Adm. Karl Thomas, commander of US 7th Fleet, determined that “sound judgment, prudent decision-making and adherence to required procedures in navigation planning, watch team execution and risk management could have prevented the incident,”

The Military and Leadership

From the first day of active duty, every member of the military learns about responsibility and accountability.   From the ordinary tasks of getting up, wearing the uniform, or cleaning a work area, everything is subject to inspection.

All responsibilities come with accountability.   And when performance is above average there are awards and recognition beyond a positive fitness report.  But there is also the reprimand in the file when something goes wrong.   I received both in my four plus years of active duty.

I received the Navy Commendation Medal as Supply Officer during combat support operations:

“His outstanding managerial abilities combines with a ceaseless drive to accept and surmount challenges resulted in the establishment of many services for task group ONE SIXTEEN POINT ONE personal (the Navy Seal Team at Solid Anchor) that were not previously available.  Filson’s leadership and devotion to duty reflected great credit upon himself and were in keeping with the highest traditions of the United States Naval Service.”

Fitness reports recommended “accelerated promotion and augmentation to the regular Navy.”

But there was also the letter of reprimand in the file.   Upon being relieved as Supply Officer to transfer to shore duty, the audit of the ship’s store inventory found a shortage of $1,850.   After repeated recounts, there was no explanation, but the event occurred on my watch.

Many think of military duty as primarily combat.  I was a gunfire control officer.   Several times this meant telling everyone to clear the mount so a sailor can take a 3 inch 50 round that failed fire and throw the dud over the side.  Or the evening the siren’s sounded at Solid Anchor, the phosphorous flares suspended from tiny parachutes to light up the perimeter, the immediate scrambling of the two gunship helicopters, and running in night clothes to the bunkers built with sandbags.

These moments were the exceptions from much of the daily routine.   Nevertheless, the concepts of responsibility and accountability applied to all our activities.   Captain Mann personally signed off on every communication from the ship that I authored. He explained the only way his commanding officer knew how he was doing was from reading the ship’s traffic and whether the we arrived and departed port on time.

Respect for Service

The military gave me the chance to meet some of the most honorable, decent, and effective people I have ever known.    When I left banking to join Ed Callahan and Bucky Sebastian, it was not my thought to seek a government career.  Rather it was seeing in them the same qualities that make the military service special.   They believed that government employees are responsible to the public, that wise stewardship of resources is expected, and that everyone will be accountable for their duty.  Success was always a team effort.

Government service for them was not about political ideology or power.  Rather it was about serving the public.   When Ed announced the three of us were leaving NCUA in 1985 to form an undefined new company, he explained that we had accomplished what we came to do at NCUA, and it was time to move on.   Just like service in the military.

Dishonoring a Heritage of Service

Yesterday I received a member notice dated November 4, 2021 announcing the proposed merger of the $457 million Heritage Credit Union with the $3.7 billion Connexus, both in Wisconsin.  Each is very  strong financially.

The required disclosures say that the Heritage President, a 40-year employee, will retire immediately after the merger.  The additional benefits she will receive for her final action includes a $487,546 payment due as employment contract runs through 3/2/2023; continuing health care benefits of $1,750 per month through age 65; a lump sum payment on her 457(f) in the amount of $425,282; and a merger clause payout  per her employment contract of $326,284.  The total of the additional compensation known amounts is $1.239 million plus the monthly health benefits.

The practice of a retiring CEO selling the credit union as a final effort to create a personal golden parachute is not new.  The most troubling aspect is the leadership failure by both the CEO and board ending all that Heritage had enabled–the shutting down of independent career opportunities for 124 employees, the ending of local relationships in 12 communities, and the betrayal  29,000 members’ loyalty first begun in 1934. This action is the antithesis of  the credit union’s founding story on  their web site-an event that enabled the professional leadership opportunities  the CEO and board have enjoyed for decades.

But it takes two parties to make a deal.   Connexus’ CEO and board agreed to these sale terms, issuing a joint press release.  Merger math is simple:  1 + 1 = 1.  The cupidity of the one side is matched by the morally comatose on the other.   Members are not dumb.   They see the self- dealing and loss of their Heritage.

Moreover employees of both organizations will look past the superficial statements of what’s in it for them.  They will ask is this the kind of organization, leadership and values to which I want to be a part of?

Why We Remember Honorable Service

This additional example of self-enrichment trumping fiduciary responsibility is even more troubling because the regulators-both state and NCUA-routinely sign off on these self-enrichment practices.

The concepts of responsibility and accountability have traditionally been the hallmark of effective public service—professionals in their conduct and expertise and conscientious in their duty.

The military’s example, combining honorable service with accountable conduct, is something we properly salute.   We celebrate the values inherent in this public duty. But these concepts should not be limited to military employees.

The credit union system could stand much taller and be more potent if the traditions of honorable service that created the $2 trillion system today, were followed by those responsible for overseeing its conduct today.

The logic of mergers like Heritage and Connexus is nothing more than simple monopoly capitalism.  Members become the means to growing ever larger, not the reason for the cooperative’s creation.  Management’s self-interest has usurped member’s best interest.

A good first step would be to learn from the Navy example.  There is an obvious regulatory shortcoming  of “sound judgment, prudent decision-making and adherence to required procedures.” There needs to be  “relief of duties.”

But that would take leadership at the top.  Leadership that can distinguish cooperative purpose from corporate capitalism.   And that remembers the values and commitments that created the credit union alternative in the first place.

Veterans Day tributes remind all of us what really matters in life, especially by those who aspire to public service.