Month: June 2022

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Should Credit Unions Be Offering Bitcoin and Crypto Currency?

Crypto currencies were supposed to be a store of value that would protect owners from traditional market risks as well as inflation.  Based on  block chain technology, they were intended to avoid the historical problems of fiat currencies backed by governments.

Both roles have now been shown to be faulty.  Here are some recent assessments.

Bitcoin tumbled Wednesday to a new 18-month low, spurring a sharp fall in crypto markets sparked by crypto lender Celsius freezing customer withdrawals. The world’s largest cryptocurrency fell to under $21,000. Bitcoin has lost around 28% since Friday and around 70% from its all-time high in November. (Reuters) 6-15-22

Bill Gates is a  crypto and NFT sceptic.  His latest observation is that the whole enterprise is based on the greater fool theory:

On Tuesday, the billionaire Microsoft co-founder described the phenomenon as something that’s “100% based on greater fool theory,” referring to the idea that overvalued assets will go up in price when there are enough investors willing to pay more for them.

A former crypto believer has written an appraisal of his experience with the title Crypto is Dead-Get out Now.

On May 18, 2022 Washington Post financial writer Michelle Singletary posted an article Six Signs Crypto is a Classic Ponzi Scheme.

CU Today reported that consumers lost more than $1 billion in crypto fraud in 2021 according to the FTC in a June 7 article.

Celebrity Hype and a Trillion in Losses

A critique from Jared Brock identifies the issue for why credit unions should be concerned about their involvement with crypto purchases.  He starts with a question in his June 6 article: Should Matt Damon and Reese Witherspoon Go to Jail for Promoting a Ponzi Scheme?

A trillion dollars in losses requires accountability.

But until two weeks ago, all sorts of celebrities were shilling for their favorite coin — or rather, whichever coin company paid them the most endorsement money.

Matt Damon.

Reese Witherspoon.

LeBron James.

Kim Kardashian.

Charli D’Amelio.

Jamie Foxx.

Paris Hilton.

Ashton Kutcher.

Gwyneth Paltrow.

Tom Brady.

Steph Curry.

Elon Musk.

Mark Cuban.

Tiger Woods.

Larry David.

And dozens more.

They made untold millions by convincing the ignorant public to late-join a Ponzi scheme.

Now they’ve all gone silent.

Because now that the industry is crashing back to reality, real people are losing their shirts.

Call me old-fashioned, but I think someone needs to be held accountable.

Should celebrity crypto boosters go to prison for promoting Ponzi schemes?

Two Credit Union’s Announce Bitcoin Purchase Partnerships

Even with this litany of false hype, fraud, documented  losses and ongoing uncertainties around crypto, several credit unions have moved ahead to facilitate the purchase of these “currencies.”

CU Today on June 13 reported Achieva Credit Union’s involvement with a bitcoin exchange:

Dunedin-based Achieva Credit Union is adding a bitcoin exchange to its mobile app through a partnership with New York-based NYDIG, a fintech platform that partners with mainstream institutions from banks to insurance companies. 

According to the credit union’s website, it is charging a 2% fee for any crypto currency purchased or sold.

Tracy Ingram, chief digital and infrastructure officer, told the Tampa Bay Business Journal that Achieva had noticed more of its members were becoming “crypto-curious.”  

The article also listed other CUs offering crypto services to members:  UNIFY Financial CU, Idaho Central CU, Stanford FCU, and Visions FCU.

The Credit Union Times report on Achieva’s new service described how the employees were asked to try out the new functionality resulting in over $2,500 in Bitcoin purchases. The purpose was to make them “trusted consultants” about the process.

Prior to launching, Achieva employees were invited to test out the new Bitcoin function. The employees who signed up were given $10 to purchase Bitcoin and learn the process. NYDIG also kicked in another $5 for the experiment. During the three-week employee pilot, those Achieva team members purchased more than $2,500 of Bitcoin.

According to Achieva’s Chief Digital and Infrastructure Officer Tracy Ingram,  the employee trial achieved two things: Employees learned how to use the new app and how Bitcoin works in order to help explain everything to members.

“Achieva employees are trusted consultants for members and it was vital that our team learn how this new Bitcoin functionality works so that they can answer questions for members,” Ingram said. “We always want to note that there is risk involved in investing in any cryptocurrency, and we want our members to feel comfortable accessing the trading services.”

Stanford FCU: a “Trusted Institution”

The Stanford FCU press release contained another important issue in its description of its partnership with NYDIG:

NYDIG is proud to partner with Stanford FCU to power its Bitcoin services in a secure and compliant way,” NYDIG Head of Banking Solutions Rahm McDaniel said. “A trusted institution like Stanford FCU wants to ensure the Bitcoin services offered to its clients meet the industry’s highest regulatory, audit and governance standards, and that is exactly what NYDIG provides. We are excited to partner with them to ensure their members have access to the opportunities associated with this emerging technology.”

According to Stanford FCU, the credit union saw nearly 25,000 buy and sell transactions by its members to and from crypto exchanges in 2021.

The Central Issue for Credit Unions

NCUA’s May 2022 letter in essence approved these types of partnerships but did not address one of their most frequent functions-purchasing crypto currencies.

Instead NCUA obfuscated the issue by talking about Distributed Ledger Technology.  For example:  As with the development of any new product or service, when deploying a platform, product, or service using DLT as part of the underlying technology, credit unions should find an appropriate balance between the opportunities and the risks.

DLT is not the same as crypto currencies which are based on this technology.  NCUA approved a practice of questionable purpose and uncertain value because of the underlying technology.  From many perspectives, purchasing crypto currencies is nothing more than gambling.

If NCUA did not understand the import of its letter, than how can credit unions avoid the marketing hype and celebrity marketing of this form of financial entertainment?  Not to mention the “crypto-curious” members?

In both credit union press announcements. NYDIG, the exchange and fintech partner, is relying on the trusted relationships and reputation of these two credit unions and their employees to not only offer, but also promote Bitcoin transactions.

I would just repeat the observations of Jared Brock above:

Call me old-fashioned, but I think someone needs to be held accountable.

Should celebrity crypto boosters (insert credit unions) go to prison for promoting Ponzi schemes?

In a future blog I will describe block chain, or distributed ledger technology, and how it might be useful for other purposes, not NFT’s and crypto currencies.

 

 

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When the Music Stopped for VyStar

On May 2, 2022 the $12 billion VyStar Credit Union celebrated its 70th anniversary with a ceremony at its founding location, the Naval Air Station, Jackson, FL.

The press release included the following announcement:  VyStar is also leading a digital transformation that includes a new website and online & mobile banking platform.  But then reality set in.

The Music Stops

On May 14,2022 the confetti hit the fan. The conversion to the new online and mobile platform failed.  As of the following Friday there were more than 13,444 comments posted on the VyStar Facebook page about the outage.

The situation as described in a CU Times story on May 22:  The brief outage, as explained to members, was planned to last for two days. As May 20 rolled around, seven days later, the $12.3 billion credit union’s 822,000 members still were offline and furious.   One Facebook posting:  “How in the Hell Does a Credit Union go a week with its online systems completely DOWN in 2022???”

The CEO Returns

Brian Wolfburg, CEO had been  on vacation overseas.  Upon his return he was interviewed by a reporter Jim Piggott for the local TV station, NEWS4 JAX.  The complete  18 minute interview is here.  The on air report excerpt  was just six minutes.

Wolfburg repeatedly references the credit union’s 70 year history to indicate that the credit union will “get it right.”   Members posted their skepticism in comments after the story such as:

Mikey19 DAYS AGO: I think the CEO should resign and the person that is in charge of this mess should be fired. Who is with me on this. Let’s email the Board of Directors to let them know our thoughts. VyStarBoard@vystarcu.org

Members File Complaints with Regulator

A June 6, CU Times article detailed member complaints with the Florida Office of Financial Regulation:

Complaint Filed May 20:  “VyStar Online Banking has been unavailable to members for 7 days now with no date given as when to expect the system to be operational. VyStar Management has been vague and evasive with little to no accountability for the botched roll out of its new online banking system. They have gone ‘dark’.   The story added:

CU Times has repeatedly asked for interviews with VyStar executives and board members. The interview requests have not been granted.

Potential Legal Trouble

A June 8 article in CU Today described the  potential of a class action suit.  Also the credit union would end its fee refund of fees incurred by the outage.

VyStar said that it proactively refunded/is refunding fees that it charged members from May 14 through June 9 as a result of the online and mobile banking conversion, but as of June 10 it will not do so.

Members Leaving

In a June 9 CU Today update, the story described members intentions to leave the credit union:

Action News Jax said it contacted VyStar CU regarding how many members have closed out memberships, but said the credit union did not provide any data. 

Class Action Suit Filed

June 13, CU Today reported on a class action suit:

In an interview with FirstCoastNews.com two weeks after the solutions went down, Attorney Austin Griffin, a partner in StoryGriffin PA, a consumer justice law firm in Jacksonville Beach. Fla., told FirstCoastNews VyStar members could go after the credit union with three possible claims: negligence, breach of contract and fiduciary duty.

Griffin told the publication that since VyStar is a credit union and not a bank, there is “an expected higher standard of care.”

VyStar’s Status Today

The latest update on VyStar’s web site reads:

Online statements now available. Access your accounts and make External and Internal Transfers via your computer, tablet or mobile device at online.vystarcu.org. Please note: We will continue to have planned daily maintenance from 1 a.m. to 4 a.m. EST when system access may be unavailable.

The Credit Union Times latest summary  is as of June 14.  Over 28,000 comments have been posted by members frustrated with their experience.

Context for the Event: VyStar Invests $20 Million in Nymbus

There are more factors to this story than a botched conversion.

In  July 2021, VyStar signed a deal with the Jacksonville, Fla.-based Nymbus as the credit union’s online and mobile banking partner.

This statement by Joe Colca, Seniro Vice President of Digital Experience was part of the release:  “Our previous investment already demonstrated our confidence in Nymbus. We’re now proud to lead by example for other credit unions seeking a trusted fintech partner to implement sophisticated technology, people and processes to offer progressive products and member experiences.”

In October 6, 2021 Credit Union Times reported Nymbus had moved into VyStar’s head office location.  “A fintech with credit union funding is moving from Miami Beach to the campus that houses the headquarters of VyStar Credit Union in Jacksonville, Fla.

Nymbus said in a news release Tuesday that it made the move because of its relationship with VyStar ($11 billion in assets, 778,348 members). VyStar invested $20 million in April to help develop Nymbus’ month-old Nymbus CUSO to better extend its services to credit unions. In July, VyStar chose Nymbus as its new online and mobile banking solution partner.

In September 2019, VyStar created a $10 million fund to invest exclusively in fintech companies. VyStar has said it has supported Nymbus because it provides a way for it and other credit unions to keep up with members’ rising expectations for sophisticated online services. Nymbus’ website said it saves banks and credit unions “decades” in developing such services.”

Two senior managers of VyStar were also  members of Nymbus’s Board. Joe Colca, VyStar’s SVP on the board was quoted:

“Nymbus has proven to be an effective, valuable partner in our efforts to improve the member experience at VyStar and strengthen the credit union industry as a whole,” Colca said.

 VyStar’s FOM Expansion and Bank Purchases

Vystar’s first bank purchase was announced on January 15, 2019 with the  purchase of First Citizens Bank: VyStar Credit Union announced it plans to acquire $280-million Citizens State Bank, a Florida state-chartered bank headquartered in Perry. CSB has four locations: two branches in Gainesville, and branches in Perry and Steinhatchee, Fla.

The article continued that this purchase was possible because of an FOM expansion:

In November 2018  VyStar received approval from the Florida Office of Financial Regulation to significantly expand its field of membership by 27 counties—more than doubling the original 22 counties—to include all 49 counties of Central to North Florida. This expansion included Taylor County, where CSB’s Perry and Steinhatchee offices are located. VyStar currently serves the Gainesville community with two branch locations with plans to open additional offices in Alachua and Ocala by mid-year, the CU said.

Subsequently,  on March 31, 2021 VyStar’s purchase of the $1.6 billion Heritage Southeast Banking group  for $189 million was announced.  The closing has been deferred three times.   This would be the largest purchase of a bank by a credit union.

Largest Subdebt Placement by a Credit Union

To support these bank purchases and rapid growth, VyStar issued $200 million of subordinated debt in the first quarter of 2022.  This is the largest subdebt capital placed in credit unions to date. Arranged by Olden Capital, the issue was sold to 41 investors including credit unions, banks, insurance companies and asset managers.

Without this external capital infusion, Vystar’s net worth would have been 7.9% of March 31, 2022 assets.  With the debt and using a four quarter asset average as the denominator, VyStar reported a net worth ratio of 10.15%.

“Values-centric” brand campaign: “Do Good. Bank Better.”

From an October 2021’s CU Today story  New Branding Campaign:

VyStar Credit Union has launched a new “values-centric” brand campaign, “Do Good. Bank Better.”

VyStar said the multimedia campaign has been inspired by the people, businesses and organizations that it serves, and that it elevates VyStar’s “powerful promise to support its members and communities by offering better banking options and giving back to strengthen the places it calls home.”

“We proudly live by the words, Do Good. Bank Better., and this is just the beginning of our efforts to continue sharing our nearly 70-year story,” said VyStar President/CEO Brian Wolfburg in a statement. “As we evolve as an organization, we remain true to our roots by upholding our standard of leading by example and showing goodwill in everything we do.”

The Member’s Chance for a  Choice

VyStar has been on a very ambitious multiyear growth spurt:  converting charters and expanding the FOM, purchasing whole banks, investing in multiple fintech companies, raising external capital and launching a new public relations and branding campaign.

Members’ reaction to the online conversion failure shows how much confidence has been lost in these many expansion efforts.  The situation calls into question multiple initiatives especially the credit union’s investment and role in Nymbus plus its thrice-deferred bank purchase.

This episode and its background are now occurring in a rapidly changing economic and financial environment.  Investments and other assets that appear sound when the cost of funds is near zero now have a very different risk profile.

Once again the regulators have been on vacation.

The credit union’s reputation is being stained. Its operations, business initiatives and internal capabilities appear strained on several levels.  The net worth ratio is created, not earned.

The best solution may be to follow the advice of the member who posted:  Let’s email the Board of Directors to let them know our thoughts. VyStarBoard@vystarcu.org 

Members are the owners.  They should do more than vent frustration by exercising their power to choose their representatives for the board.  They should take back their “home” if they truly want to see the credit union “do right” for its members and communities.

 

 

 

 

 

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A New Generation of Members from High School Branches

Yesterday’s blog described an effort to open two student branches in 1974 in Burbank California.   Their purpose was twofold: expand the credit union’s FOM and educate students about the credit union model.    The effort ended in 2011.

However high school student-run branches continue today.  CUSO Magazine recently wrote about an example in Texas that is especially successful.  Here are some brief excerpts from that article:

The Credit Union of Texas’s SMART Branch

The Credit Union of Texas (CUTX), located in Dallas-Fort Worth, recognized the significant gap in financial literacy among young people and decided to make a difference. In an effort to bring financial education to students, they connected with leaders of local high schools, creating partnerships through which they could collaborate to tackle the issue at hand. Through their motivation to increase financial literacy among youths, the credit union and its partners came up with the idea to open branches within local high schools and let the students take the reins.

These “SMART” (Servant leadership, Motivation, Active learning, Reasoning, and Technology) Branches are run by juniors and seniors, with one credit union staff member to supervise. The first, located in Allen High School in Dallas-Fort Worth, was opened back in August 2021, the success of which inspired the creation of a second branch merely a year later, which opened on January 10th, 2022, at Little Elm High School of Little Elm, Texas. . .

Students helping students

In order to achieve widespread financial literacy in the school, CUTX developed a financial literacy program that involves student employees of the branch acting as financial literacy coaches to their classmates. In preparing for their presentations, students employees are provided with additional education on the topics, including money management, loans, credit, investing, and more. CUTX permanent employees also provide informative sessions on various topics, including home equity loans, refinancing, and auto loans to Little Elm High School faculty and staff. . .

The full article can be found here.

 

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Starting a High School Credit Union Branch

“The Burbank Teachers FCU in 1974 wanted to grow the membership. This was before HR1151. The credit union was limited to the Burbank Unified School District. Basically, growth only came when someone retired & the new hire joined & brought in family, too.

Peggy Holliday, CEO approached the two Burbank High Schools’ student body looking for students on campus willing to launch the student credit union at each high school. I was in 10th grade (Sophomore) & expressed interest.

Peggy had previously obtained BUSD approval after presenting a business plan, etc. The NCUA approved the FOM charter expansion for high school students.

The BUSD was impressed the business plan included marketing & educational pieces on savings, compound interest, loans, financial money management, check book management, etc.

Each student credit union at the two high schools operated independent of each other. Each student credit union had their own BOD, Supervisory Committee, Credit Committee, tellers, manager, etc. It was fully staffed by the students all volunteer help.

Each high school had a Burbank High School faculty advisor (these folks were also directors of Burbank Teachers FCU). When students graduated high school, their membership would transfer to the parent sponsor credit union Burbank Teachers FCU.

Loans were approved for new/used car purchases, prom date, musical instruments, stereos, etc. We did business loans…some students started pool routes, or carpet cleaning businesses, etc & some became quite successful as we could see the deposit account balances increase!

So the loans could extend beyond graduation from high school. Because most all students were less than 18 – just about 100% required mom or dad to co-sign to make the contract valid. Contracts with minors as you are aware are not enforceable!

Once the student joined the credit union, of course family members became eligible, too.

The high school student credit union was open during the lunch & before and after school. We accepted cash and check deposits. We balanced daily, closed the books at month end, and paid dividends on deposits.

This was all ledger paper accounting.

Remember…pre-in house computers. We had monthly board meetings, and prepared the Balance Sheet & Income Statements. Loans in collection were followed up by the student credit union collectors!

We reported monthly to the credit profile agency (Trans Union, Experian, Equifax).

The student volunteers obtained “work experience” credit – it was considered an elective class. Instead of wood shop, arts & crafts, you got work experience credit for high school graduation. Students could get checking accounts at the credit union.

Some of the students continued career paths from the high school credit union, including myself, Robert Einstein CEO @ Ume FCU ((formerly Burbank Teachers FCU)). There is an attorney at Styskal, Weise, Melchoine – Bruce Pearson – that got his start from there, too, as I recall. Some of these high school students are now on the BOD at UMeFCU.”

This account was provided by Stuart Perlitsh who retired in March 2017 from Glendale Area Schools Credit Union after 22 years as its CEO.

For a current take on the concept, Credit Union of Texas is stepping up by opening SMART branches in local high schools. 

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Thursday’s Thoughts– Within and Outside Credit Unions

Scott Budde, President of Maine Harvest FCU on paying board members, term limits and incubating new charters.

  1.  I think CU board members should be paid at least something and have term limits. I used to view the long tenures and unpaid work as strengths – and sometimes they are – but there are too many downsides that lead to some of the decisions you’ve questioned. Plus much of it is unglamorous work.
  2.  On small CU’s and new charters, I used to think the solution to new growth in CU’s lay in a better chartering process. But I think there are limits to how much easier chartering can be given the regulatory framework everyone has to live in.

Now I think the solution is to develop some sort of full legal structure for an existing CU to “incubate” a new CU, thereby giving scale, expertise, and resources to allow it to focus on its own FOM.

It would have to come with some sort of indemnification and segregation of capital but that could be figured out. Then a new CU could eventually break off into a separate charter or be folded into the parent CU or keep the same arrangement.

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Blogger Scott Galloway on Tik Tok and its dominance of social media.

Elon Musk’s manic toggling between shit-posting and falsehoods have distracted us from what is the ascendant tech firm of 2022. TikTok now commands more attention per user than Facebook and Instagram combined. Downloaded more often than any other app for each of the past five quarters, it was the world’s most visited site in 2021. TikTok has 1.6 billion monthly active users — more than Twitter, Snapchat, and LinkedIn combined. 

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A reader’s response to the Guardian Score process to monitor examination and other regulatory contacts.

At least four state regulators already survey their credit unions after every exam.   The content is both structured and open ended.  The four states are Louisiana, Arizona, Washington and Connecticut.

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Writer and documentarian Jared Brock on Capitalism.

Rules-free-market unfettered capitalism is a terrible idea.

Capitalism is the private ownership of everything for private profit.

Most people love a good little bit of capitalism; even those brave We Are The 99% Wall Street occupiers owned their tents and bandanas.

I love owning (or rather, stewarding) my own socks and shoes.

Admit it: Most of you love owning your phones.

But I’ve been to North Korea and have seen first-hand what happens when people own nothing, including their own clothes. It’s terrifying.

Capitalism’s biggest flaw is that people love money, and capital quickly becomes sovereign over democracy. It’s like capitalism is loaded with an IED, a handmade dirty bomb that’s ready and willing to blow itself up.

As we have seen time and again, if private ownership capitalism isn’t strictly governed by real democracy, it quickly falls into corporatism, oligarchy, feudalism, or worse.

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The CO-OP Park in Albuquerque New Mexico is now open year round.  Last Friday,  raised garden boxes were put in at the park. The kids from Little Forest Play School  helped plant and had a blast. Is this about the cutest thing you’ve ever seen?  (from Denise Wymore)

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Rating Examiners for a Stronger Cooperative system

Net promoter scores.  Five star yelp ratings.  Uber driver feedback.   Multiple processes measure customer satisfaction.  Especially where consumers have a choice of service.

But there are few examples tracking the interactions between those exercising authority and the public subject to it.  A most critical area for this need is law enforcement policing.

Warrenton Virginia is a small, traditional rural community of 10,000 residents, most of whom are republican.   The community is conservative, wary of government and proud of  its long local history.

It is one of the least likely towns  to implement an innovative feedback process to manage the relations between the police and citizens.   But since the George Floyd murder in 2020 every community has sought out methods to incentivize fair and ethical law enforcement.

Warrenton’s police department of 29 officers and three civilian employees is one of three early adopters of the Guardian Score system of monitoring policy and community interactions.

Guardian Score’s Feedback Process

After every significant encounter with residents, officers are required to hand out their business card on the back of which is a QR code which asks for feedback on the interaction.  The questions use a star-based system to rate officers on their communication, listening skills and fairness.

The feedback is anonymous.   It can be given any time after the event.  It provides the department another tool to evaluate performance beyond data on arrests, fines or other required interventions.  It is similar to an Uber driver rating, yet the power dynamics are much different.

There have been 179 reviews so far in 2022. Guardian provides a score dashboard visible to the Chief.  The officers’ overall rating is 4.94 out of five stars.

A System for Cooperatives

The Guardian Score effort is in the pilot phase.  But the one-sided relationship between those in authority and citizens is not limited to policing.   The credit union system and its regulators have experienced this imbalance which has been the subject of several  recent articles.

As one writer summarized:  Yes, (NCUA) has become an entity that has lost its way in helping small credit unions succeed. Or, They are Coming to Bayonet the Wounded.

NCUA Board member Hauptman has encouraged credit unions to record their meetings with examiners as one way to encourage  open and honest interactions.

The Texas Credit Union Depart has conducted an annual “customer satisfaction survey” of its state charters for the past twenty five years.   The department publishes the complete results and comparisons with earlier years.  The latest report can be found here.

Neither approach enables the comprehensive and timely monitoring possible from the Guardian process.

Why a Dynamic Scoring Process Is Needed

There are times when NCUA and credit unions act as if they are not mutually dependent on each other’s success.  The cooperative model is not the banking model in which  shareholders try to maximize their independent ownership returns.

The coop system’s  interdependence  relies upon collaborative solutions among credit unions and with the regulator, especially when the relationship is working productively.

However  there is no ongoing monitoring of the quality of examiner and regulatory interactions with credit unions. Public speeches and anecdotal news stories are insufficient and irregular.

The Guardian Score process is dynamic, easy to implement and can be tracked daily at both the regional and main office level.   It is ready to go.  It is inexpensive.  The cost for Warrenton is $4,500 per year.

This feedback option would promote a better balance between examiners and credit unions under their oversight.  It  measures quickly the quality of the interactions that take place:  listening, explaining and helpfulness.

Moreover it could be easily extended to other areas of regulatory interactions to monitor the responsiveness of agency personnel.

In Warrenton the initial worry was that negative reviews would affect performance evaluations.  Of the 170 submissions, all have been positive.  The program is even used to celebrate  thoughtful interactions reported in the surveys.

An Opportunity for NASCUS

Where to start?  This initiative is an ideal one for NASCUS as an element in its state accreditation program.   It would provide specific, continuous data on examiner effectiveness-a traditional advantage for state charters.

Innovation at the state level has been a hallmark of the dual chartering system.   This is an opportunity to respond to a growing worry openly expressed  by credit unions. It is a process to raise the quality of cooperative oversight and community trust.

Which state regulator will be the first to step up?

 

 

 

 

 

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“Protecting the Insurance Fund”

From NCUA board members’s statements in Senate confirmation hearings  to the examiner on the street, the most frequently stated goal stated by NCUA staff is  to “protect the insurance fund.”

This goal is repeated even though the NCUSIF is a means and not an end in itself.  The ultimate purpose of NCUSIF is to safeguard member assets.

The primary venue in which Board members demonstrate their responsibility to “protect the fund” is the quarterly statistical report  provided by staff and discussed in an open meeting.

The NCUSIF’s status was the principal topic of May’s board meeting.   I was unable to listen to the live broadcast.  All I have is the  slide deck from the agenda and posted board statements, not the actual live exchanges  that took place.

Questions on the NCUSIF’s  from the March Update

Here are some  initial questions from the  information presented.  I would hope that some or many of these would be  part of the dialogue in the Board’s duty “to protect the fund.”

  1. Since December 2021, total NCUSIF assets have declined by $130 million even after recording $578 million in new capital deposits receivable. The cumulative results of operations (equity) shows a decline of $727 million in the first quarter.  How did these declines occur?  How should users of this data understand Fund performance?
  2. The March report shows that the market value of the portfolio has fallen $806 million below cost or book value. What does this decline indicate about the management of the Fund’s interest rate risk?
  3. The Fund’s yield year to date is only 1.22% What is the required breakeven yield to cover the Fund’s operating expenses?  How large is the revenue loss in the next 12 months as indicated by the current and  continued decline in market value?
  4. How did the Fund’s investment committee modify their approach after  the rise in rates initially forecast last October/November  by Chairman Powell?
  5. How will the investment committee deploy the approximately $4.0 billion in funds arriving in the next 12 months from maturities, new capitalization deposits and interest payments?
  6. The Fund reported net income of $54.4 million in the 1st However Slide 13 shows estimated retained earnings of $4.792 billion, or an anticipated loss of $68 million in the current quarter.  That would represent a $122 million net operating decline for the June quarter.  How was this projected?  What is causing this loss?
  7. Insured savings growth is estimated at 7.1% at June 30, 2022, down from 14.2% at the June 2021 quarter. Actual twelve month share growth was 9.3% as of March 31, 2022. How much additional growth  slowdown is projected for this year?
  8. In Slide 13, the numerator and denominator use data from two different time periods to calculate the NCUSIF’s equity ratio (NOL).  If the same June 30 data were used for both parts of the ratio,  the resulting NOL would be 1.283 % versus 1.25 %.   This three basis point difference is over $500 million at the current level of insured shares.   Shouldn’t this more timely ratio be used in reporting the Fund’s actual financial position?

Fund Performance and Investment Policy

The NCUA’s immediate and ongoing opportunity  to “protect the fund” arises from its  management of its current $22 billion and  ever growing asset base.

The questions above are vital to understanding how NCUA staff implements the Board’s twin NCUSIF investment policy objectives  “To meet liquidity needs” and “To invest. . .seeking to maximize yield.”

The March financial statistics raise critical question of how the NCUSIF responded to the changed interest rate outlook over the past 12 months.  And, more importantly how it will respond going forward.

I will report on Board member’s interactions and assessments to NCUSIF’s   March information  when the May meeting video/ transcript is available.   That dialogue will be a useful example to learn how NCUA board members see their role  “ to protect the fund.”

 

 

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Credit Unions and Consumer Education: An Example from Rhode Island

In response to last week’s bog about the gaps in financial education courses for high school students, I received an example of a credit union effort from five decades ago.

In the 1970’s and early 1980’s Rhode Island credit unions were a source of system innovation. The state had a strong dual chartering option.  State credit unions were authorized NOW accounts (negotiable orders of withdrawal) a forerunner of share drafts and checking.

There was a private share insurance option which was initiated because NCUA would not insure the credit union NOW accounts. That insurance option was also provided to Rhode Island’s mutual savings banks. That dual coverage became an Achilles heal during the S&L troubles in the mid- 1980’s.

The state field of membership options included the traditional employer, community, and associational common bonds.  The community charter included  anyone who lived or working in the state.

Rhode Island’s influence extended to the national leadership where Joe Cugini, President of Westerly Community Credit Union, was serving as  Chair of CUNA when Ed Callahan, Bucky and I arrived at NCUA in 1981.

But an even more unusual leadership role was that of the league President, Bob Bianchini.  While League President, he was also elected and served as a state representative in the Rhode Island legislature.

Here is his account of his focus on consumer financial legislation while in the legislature.

“I was elected in 1978, at the same time I was serving as President / CEO of the Rhode Island Credit Union League.  Serving in the legislature was a part time endeavor (legislators were paid $300 dollars a year) so most everyone who served also had other employment or other sources of income.

“Credit union issues were not often paramount during the time I served. When legislative efforts regarding consumer financial services were proposed, credit unions were almost always included in any proposed legislation.

“I avoided sponsoring any legislation that affected financial institutions, but to be completely candid, when such legislation was proposed, my colleagues often would ask me for an explanation and my opinion. I would often do the same when bills were proposed that impacted other industries. I would frequently seek an explanation or points of view of my colleagues who labored in those particular industries, such as education, legal, automotive, medical etc.

“When I proposed the consumer education, the first legislators from whom I sought support were the teachers who served with me in the House.  My explanation of what I hoped would happen would be that kids would receive information about basic consumer education.  For example, how to balance a checkbook, what types of savings and loan products were available to consumers, the importance of balancing income and expenses. I’m sure there were other topics included as well.

“The opposition to my original bill from the Department of Education was based more on a standing concern by the Department.  They opposed any specific topics  inserted in school curriculum through legislative efforts, rather than opposing the idea that kids should be exposed to basic consumer education.

“The compromise we reached was that consumer education would be included as part of all social studies classes. I can’t recall if it was 8th or other grade levels.

“It’s now 43 years later and I don’t know whether that practice still exists. If it does, I would think it might impact the grade level assigned to the state’s commitment to taking financial courses.

“At that time, I informed our league board and legislative committee of my efforts. Although I can’t recall other legislative and regulatory issues that the league was following then, I’m sure it was a full agenda.”

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The GAPS In High School Financial Education Courses

In 2022, only 22.2% of high school students are required to take a personal financial course.

Three states have a 100% course requirement.  These are Mississippi, Missouri and Virginia.  Florida has one of the lowest participation rates but has begun implementing a state wide requirement.

Outside of the six states with near fully implemented requirements, only 9.3% of students in America have guaranteed access to a financial education course.

This data is from an article in Visual Capitalist, published on May 17, 2022.

What is Financial Education?

Course work can range from the very practical tasks of  managing a checking and savings account, to subjects such as budgeting, differences in stocks and bonds, and even understanding the filing of taxes.

Credit unions were founded with education as a core value.  Financial education is key to financial literacy.   A lack of financial literacy is a major factor in delinquency and low credit scores.

Credit unions, especially those serving schools, have pioneered classes for adult education.  Many offer accounts for children of family members.  Education credit unions have  established student branches as a means of giving students hands on practice with real money transactions.

Need and Coop Capability Align

Credit unions, especially those serving schools, have pioneered classes for financial education.  Many offer accounts for children of family members.  Education credit unions have  established student branches as a means of giving students hands on practice with real money transactions.

The article’s graphic and data clearly show there is much to be done.  This is an ever-present student need and a credit union skill.  Expanding access to financial education is a legislative priority with 48 bills pending in 18 states.

Moreover, adults support this school-based effort as statistics suggest that up to a third of parents never discuss personal finances with their children.  Many parents wish they had been required to take a course themselves.

Becoming a resource for high school classes on financial education is an example of cooperative priorities visible to the next generation of members who are essential to sustaining the movement.

If you have examples to share, I would like to provide these stories in later posts.