Lincoln’s Insights for Today: # 2

From Lincoln’s address Before the Young Men’s Lyceum, Springfield, January 27, 1838

On November 7, 1837, Elijah Parish Lovejoy, a Presbyterian minister, journalist, newspaper editor, and abolitionist, was killed by a pro-slavery mob while defending the site of his anti-slavery newspaper the St Louis Observer.  Lincoln was deeply concerned by the event and the lynching of a freedman in 1836.  This speech was from the time he served in the Illinois state legislature in Springfield ( 1834-1842 )where he shaped his skill as a public debater.

The Lyceum  talk was titled:  “The Perpetuation of Our Political Institutions”.[1][2] In this speech, Lincoln warned that mobs or people who disrespected U.S. laws and courts could destroy the United States. He went on to say the Constitution and rule of law in the United States are “the political religion of our nation.”

How then, shall we perform it?  At what point shall we expect the approach of danger? . . .Shall we expect some transatlantic military giant, to step the Ocean, and crush us at a blow?  Never! All the armies of Europe, Asia and Africa combined, with the treasure of the earth (our own excepted) in their military chest;  with a Bonaparte for commander, could not by force, take a drink from the Ohio, or make a track on the Blue Ridge in a trial of a thousand years.

At what point then is the approach of danger to be expected?  I answer, if it ever reach us, it must spring up amongst us.   It cannot come from abroad.   If destruction be out lot, we must ourselves be its author and finisher.  As a nation of freemen, we must live through all time, or die by suicide.

Editor’s comment:

This excerpt is from a lecture by Dr. Ronald C. White (BA, UCLA; PhD Princeton University) an independent scholar and authority on Abraham Lincoln. He is the author of Lincoln in Private: What His Most Personal Reflections Tell Us about Our Greatest President.

His book is based on 111 private notes Lincoln wrote to himself which provide insights  into his personal, religious and  intellectual journey as a politician and statesmen. 

Lincoln’s words are timeless, especially as we face  our political divisions today.  They were transformative when first prepared.  They feel even more profound today.

Ronald White’s complete lecture can be heard here.


Lincoln’s Insights for Today: # 1

This is the first of five examples of Lincoln’s thoughts and insights from a lecture described at the end of this post.

When Lincoln first announced as a Candidate for Political Office, March 15, 1832 at the age of 23, the custom was to announce one’s candidacy in the newspaper  which would then be followed by letters of recommendation.

This first public declaration shows Lincoln’s character.  It also is an example of  how each of us might consider our own ambition.

Every man is said to have his peculiar ambition.  Whether it be true or not, I can say for one that I have no other so great as that of being truly esteemed of my fellow men, by rendering myself worthy of their esteem. 

How far I shall succeed in gratifying this ambition is yet to be developed.  I am young and unknown to many of you.  I was born and have ever remained in the most humble walks of life.  I have no wealth or popular relations to recommend.

This excerpt is  from a lecture by Dr. Ronald C. White (BA, UCLA; PhD Princeton University) an independent scholar and authority on Abraham Lincoln. He is the author of Lincoln in Private: What His Most Personal Reflections Tell Us about Our Greatest President.

His book is based on 111 private notes Lincoln wrote to himself which provide insights  into his personal, religious and  intellectual journey as a person, politician and statesmen. 

Lincoln’s words are timeless, especially as we face  our political divisions today.  They were transformative when first prepared.  They feel even more profound today.

Ronald White’s complete lecture can be heard here.


Lincoln’s Insight for today: How January 6, 2021 Occurred

There is a temptation for current generations, with their additional perspective, to feel morally superior to prior ones.

For example in June of this year, Cornell University removed a bust of Abraham Lincoln and a plague of the Gettysburg Address from the University library “when someone complained.” Cornell even holds one of the five original copies of the Address in Lincoln’s own writing.

It is true that continual efforts are necessary for achieving America’s aspirational goals of greater equity and freedom for all its citizens.

However previous generations  had  timeless insights about America’s political experiment that are still vital today.

As the January 6th House Committee holds another hearing this afternoon,  I want to share an analysis  that is profoundly prescient of the actions of President Trump.

Lincoln was an Illinois state legislator in 1838 when he gave a speech to The Young Men’s Lyceum titled titled “The Perpetuation of Our Political Institutions”.[1][2]

He warned of the dangers  of a tyrant taking over the US political system from within. This excerpt  could easily define what happened on January 6th, 2021.

It is to deny what the history of the world tells us is true, to suppose that men of ambition and talents will not continue to spring up amongst us. And when they do, they will as naturally seek the gratification of their ruling passion as others have done before them.

The question then is, can that gratification be found in supporting and maintaining an edifice that has been erected by others? Most certainly it cannot. Many great and good men, sufficiently qualified for any task they should undertake, may ever be found whose ambition would aspire to nothing beyond a seat in Congress, a gubernatorial or a presidential chair; but such belong not to the family of the lion or the tribe of the eagle.

What! think you these places would satisfy an Alexander, a Caesar, or a Napoleon? Never! Towering genius disdains a beaten path. It seeks regions hitherto unexplored. It sees no distinction in adding story to story upon the monuments of fame erected to the memory of others. It denies that it is glory enough to serve under any chief. It scorns to tread in the footsteps of any predecessor, however illustrious. It thirsts and burns for distinction; and if possible, it will have it, whether at the expense of emancipating slaves or enslaving freemen.

Is it unreasonable, then, to expect that some man possessed of the loftiest genius, coupled with ambition sufficient to push it to its utmost stretch, will at some time spring up among us? And when such a one does, it will require the people to be united with each other, attached to the government and laws, and generally intelligent, to successfully frustrate his designs.

Distinction will be his paramount object, and although he would as willingly, perhaps more so, acquire it by doing good as harm, yet, that opportunity being past, and nothing left to be done in the way of building up, he would set boldly to the task of pulling down.

To counter this internal threat, Lincoln concluded that there was a need to cultivate a “political religion” that emphasizes “reverence for the laws” and puts reliance on “reason—cold, calculating, unimpassioned reason.”

This is how the House Committee’s hearings on the January 6th insurrection is fulfilling Lincoln’s call to action 184 years earlier.


Ralph Swoboda

(by Jim Blaine)

Annually, the National Credit Union Foundation (NCUF) recognizes an exceptional credit union leader with the Herb Wegner Individual Achievement Award. Can’t think of anything less challenging than being asked to write a nomination letter on behalf of Ralph Swoboda for this honor.

What a waste of time! Really, the selection is just too obvious, a real no-brainer, an eyes-closed slam dunk. And, in a moment, I’ll tell you why that’s so. But first, a bit about Ralph for those who don’t know…

Won’t bore you with the details of Ralph Swoboda’s  credit union career. You can get off of your Tik-Tok for a moment and Google-up Ralph’s remarkable record. Ralph’s reach was international; but of most importance, Ralph Swoboda was to American credit unions what Winston Churchill was to England during the Second World War. Ralph Swoboda led CUNA – and credit unions – through two crucial, turning points, when nothing was certain, the odds were long, and everything was at risk.

You see, Herb Wegner, the charismatic, visionary leader of CUNA in the late 1970’s – for whom the Award is named, understood the future power and potential of credit unions – what they could become. But, that future required great change – new standards, new laws, new systems, greater accountability.

Mom and pop credit unions were on the verge of moving from being post office/factory floor “cigar box cooperatives” to Main Street, USA. Not all credit unions were prepared for this change, not a few were unhappy with the prospect!

Herb Wegner needed someone he could trust without reservation to advise him along this difficult path – to make sure his vision became a reality. Ralph Swoboda was the man Herb Wegner put his trust in when he hired Ralph as his General Counsel at CUNA.

And, after Herb Wegner’s untimely death, Ralph – in several executive roles and eventually as CUNA CEO – did guide credit unions skillfully across that dangerous, inflection point and into the future. Much of what credit unions are today rests on foundation stones and bridges engineered by Ralph Swoboda.

But, like Churchill in England after WW II, in 1994 CUNA sent Ralph packing! Change again was at hand and Swoboda was not as certain of the long-range impact of this next evolution.

The sea-change was in CUNA moving from being a hardscrabble, smoke-filled backroom, vibrantly passionate, states-rights democracy toward a highly centralized, DC-based, political monocracy. Ralph had won the big war, but had lost the last battle! Perhaps Ralph had become too old fashioned, too quixotic, too stubbornly Ukrainian…? Time will tell.

Lastly just for the record, Ralph Swoboda was also a man of great personal charm and presence, but not of the classical sort. Ralph was not exactly a person of well-coifed, smooth-skinned, impeccably dressed and manicured good looks. He was more into the all-natural, slightly rumpled, “came as I got up” style.

He always sported a riotous shock of vigorously unruly hair, flopping around a pair of oversized glasses – the kind the smartest kid in the class always wore. His grin was impish, frequently verging on the devilish. Ralph liked to laugh and it was a full-throated, rough-edged kind of laugh, aged by years of multi-pack-a-day Marlboros. Ralph was a bit Irish at the bar, with good endurance and always fun to be around.

But what Ralph liked best was to talk…and talk…and talk…in encyclopedic depth…especially about credit unions. As a great storyteller, Ralph told the cooperative story from the heart, he made it real, as if he meant it…which all knew he did!

So, what about that Selection Committee decision? Well folks, who did Herb Wegner trust more than anyone else? That person was Ralph Swoboda, who Wegner hired as his chief advisor, his general counsel, his “don’t let me fail in this effort” friend. Ralph Swoboda proved worthy of Herb Wegner’s trust.

Herb Wegner saw the light, Ralph Swoboda made it shine.

What’s to decide? You’re going to question Herb Wegner’s judgment?

Nah… I’m sure you’ll do the right thing!

(Editor’s note:  A history of Ralph’s contributions at CUNA is at: The Cooperative Leadership of Ralph Swoboda (1948-2021)





A Review of the NCUA Board’s Oversight of the NCUSIF

NCUA’s open board meeting In May had only one agenda item, the quarterly staff update on the NCUSIF.

This was an opportunity to focus on many topics that have swirled around the management of the Fund over the past year.   These include:

  • The fund’s investment strategy especially in the rising rate environment;
  • The accounting confusions using  Federal not private GAAP presentation;
  • Projections for the fund’s operating outcomes later in the year;
  • Options to more accurately present the Normal Operating Level (NOL). The ratio now uses two separate accounting period’s data;
  • The prospect of lowering the NOL to its historic range of 1.2 to 1.3% from 1.33%.

The NCUSIF’s $22 billion  is its largest asset . The fund’s unique cooperative design means credit unions have a direct financial stake in its performance.  Credit unions  should receive a dividend in years of strong performance and pay a premium in the event of mismanagement or a catastrophic loss.

As noted by Vice Chair Hauptman in the meeting:  it’s a mutual asset of the credit union movement and NCUA. . . it’s worth reminding everybody that every dollar of that one percent contribution belongs to credit union members and no other.  NCUA has the obligation to credit unions and their members to manage that fund prudently and effectively.

Board member Hood reiterated:   The 1% capital deposit which comprises most of the Share Insurance Fund’s equity is also an asset of the credit union.  We should never forget this.

I would add that the unique coop design intended the 1% deposit be an earning asset for credit unions.

The Fed’s Response to the Current Economy

As reported by CNBS:  Minutes from the Fed’s June meeting, which were released Wednesday, revealed that the central bank is prepared to use even more restrictive measures to tame surging inflation. They indicated that July’s meeting would bring another rate hike of up to 75 basis points, and acknowledged that the economy could suffer a slowdown.

“Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the minutes said. Treasury yields, meanwhile, continued to rise.”

This is not new news.   Since October 2021 the Fed has indicated that it would change its accommodative monetary policy in response to signs of growing inflation.   That intent became explicit in December with forecasts of interest rate hikes from the historically low levels engineered in 2020 to respond to the Covid economic shutdown.

The market’s response was swift.   Through this year’s second quarter,  bond  fund valuations have fallen almost 20% in market value. The NCUSIF has gone from a market gain of over $500 million in 2020 to a market valuation loss of $1.1 billion as of the April 2022 NCUSIF report.

The NCUSIF Staff”s Response to Rising Rates

The staff’s response to this dramatic change in rates was provided in May’s presentation:  Extend the investment portfolio further by going from a maximum term of 7 years to 10 years.   Rick Mayfield, capital market specialist. stated  this strategy would place approximately 10% of the portfolio in annual buckets over the 10 year range in a one to two year time frame.

The result would raise the average weighted duration from 3.5 years to almost 6 years—at a time when the overwhelming consensus and Fed intent is that rates will continue to rise.

The continuing decline in the NCUSIF’s market value in the past 18 months shows how far the portfolio is falling short of current rates.  This below market return is lost revenue in the tens of millions of dollars.  The continuing decline is a specific indicator of the portfolio’s performance gap from current market rates.

To mechanically continue  investing in equal “buckets” over ten years is a failure of  management.

This investment extension aligns with neither the current policy nor experienced investment judgment.   No objective data or analysis was offered to support this extension to a 5-6 year duration.

Extending a portfolio does not automatically bring higher rates.  Yield curves do not always slope upward.

As an example, when yield curves invert, that is the two year bond pays more than the 10 year,  how does purchasing the lower return 10 year bond “maximize yield” per fund policy?

Managing the portfolio’s duration is the most critical function to match the liabilities for which the fund is responsible.  These include  paying operating expenses, growing retained earnings in line with insured shares, and if necessary, covering insurance losses.   Those expense liabilities can be easily quantified and monitored monthly to align with investment earnings (yield) decisions.

For example, a 2% fund yield would generate $400+ million in revenue easily meeting the operating expense and projected equity growth goals.  A 3% earnings rate should result in a dividend to the owners if insurance losses are at, or below, long term trends.

This is the integrated ALM/IRR management NCUA expects all credit unions to practice.   This management responsibility is not a fixed formula followed routinely whatever the market conditions or future outlooks.  Rather modeling tools, forecasts and judgment are used to align asset returns and the cost of  liabilities as market events change.

No Free Lunch

Even more disappointing was the assertion by CFO Schied that the portfolio’s new extension to ten years would be initiated this quarter-despite the explicit forecast of further raises from the Federal Reserve.

“ . . .with respect to the investment portfolio and consistent with the existing board approved investment policy. the investment committee has decided last month to begin to extend the portfolio ladder out to 10 years.  This is not reflected in today’s quarter one presentation because the decision to do so does not show up until quarter two which will be evident in my quarter two presentation as well as our monthly reporting that we post on the website going forward.”

Naively extending investments to “chase yield” is a common examiner criticism of poorly documented credit union investing.  Such extensions  may produce a short term income jolt but at significantly increased ALM/IRR risk.

Vice Chair Hauptman remarked:   I can say as somebody who worked in fixed income markets for years you know there is no free lunch.  We can get more income by taking more risk and in no other fashion.

There was no data presented to justify a decision to extend from 7 to 10 years in a rising rate environment, an action contradictory to traditional sound portfolio practice.  This extension was also taken in the face of increasing market losses.  This mechanical approach underperforms in the current interest rate environment.

Making a fixed rate 10-year investment  in the face of inflation and other economic uncertainties, is extremely speculative.  It severely limits management options for responding to market events and any changes in credit union insurance needs. It results in  a fixed revenue cap for an even longer period than the current practice.

The result is that NCUA’s hands are tied responding to events during this extended average life of almost 6 years. The Fund becomes dependent on other sources for liquidity or revenue, a contradiction in the fund’s fundamental financial role.

This extension announcement doubles down even after the mounting evidence of NCUSIF investment management shortcomings.  The investment policy referenced has not been updated since 2013.   But most concerning is that there appears to be no ability to objectively evaluate investment practice.

Projecting the Equity ratio And Slowing Share Growth

In addition to presenting the current investment approach, CFO Schied’s projected the NCUSIF’s NOL to June 30, providing two interesting data disclosures.

The first is that he projects an operating loss of $68 million for the NCUSIF  in the second (June) quarter versus a net income of $54.4 million in the March quarter.  That is a $122 million reversal in operating results.

Since investment revenue more than offsets operating expenses, the only possible reason for such a reversal is insurance loss reserves.  Yet all the CAMEL results are positive.  There was no indication of any major unaddressed issues.  So why this dismal forecast?

Secondly Schied also gave the agency’s 12-month insured share growth forecasts for 2022.  Actual share growth was 9.3% for the March quarter.  The projections are  7% growth at June 30, year over year; and only 4.3% for the full calendar 2022.  A significant slowdown from the past two years.

A Board Meeting with Mixed Outcomes


The Agency’s mechanical NCUSIF investing in the face of dramatic rate changes and increasing portfolio devaluations was a disappointment.  Extending the investment duration to almost six years (versus current 3.5 years), will only reduce the Fund’s flexibility responding to changing rates and future industry risk events.

Both Chair Harper and CFO Schied downplayed or even denied there was any real risk to extending the portfolio. Here is the Chairman’s summary observation:

The changes in the value of these(investment) assets were expected. That is because as interest rates go up the value of these bonds go down. I learned that in my finance 301 class back in college.

These unrealized losses fortunately do not impact the equity ratio and do not increase the likelihood of a premium just as unrealized gains do not increase the equity ratio. What the unrealized losses signal is a change in the interest rate environment. We are moving forward to address this issue.   The NCUA is adjusting its investment strategy from a seven year ladder to a ten-year ladder. . .

This observation is incorrect in two respects:

  1. Extending the ladder increases the portfolio’s risks, especially as it relates to meeting its matching  liability/expense requirements.
  2. As the portfolio continues to carry underwater investments, that is returns below market, then the fund’s revenue is short changed. It is credit unions that may have to pay a premium for NCUA’s mismanagement due to potential  revenue shortfalls.

Confusing Financial Presentations

The staff continues to present financial information following Federal GAAP that both confuses and misinforms readers about the actual state of the NCUSIF.

The federal presentation of the balance sheet shows that both the assets and Fund equity  have fallen this year from yearend.  That is because the decline in market value is is subtracted from both investment assets and the cumulative results of operations (equity) on both sides  of the balance sheet.  This understatement is $1.1 billion as of April 30 and increasing each month as portfolio valuations decline further.

To the user of this information, the NCUSIF appears to be reducing in size and value.

The accounting category, year to date retained earnings, is not reported under Federal GAAP.  Calculating  the Fund’s NOL trends requires this number.  However it  is not  presented in the financial statements, but must be derived from the information presented.

Finally the issue of how the NOL is being calculated using numbers from two different accounting periods was again raised by Board Member Hood. He referenced the Cotton accounting firm’s review from  2021 and its reported description of several ways the 1% true up could be presented in the  Fund’s yearend financial statements.

CFO Schied’s response to Hood’s query was:

We are reviewing and doing the due diligence over alternative approaches including that pro forma idea that you’ve mentioned in order to have a complete picture of the relative costs and benefits and to understand any potential hidden implications of any alternatives. 

Because I’m not sure back then that they realized that the change was going to lead to the timing gap that we have today.  I would look forward to updating you on these findings over the summer.

Credit unions will certainly be looking for this review!

Overall  this single-topic open board meeting identified, but failed to resolve, these ongoing  issues of NCUSIF investment management, fund financial presentation and more accurate NOL calculation.

(Editor’s note:  Later updates corrected earlier spelling error of Vice Chair Hauptman’s name)

The Supreme Court,  The Administrative State and NCUA’s RBC/CCULR Rule

The new RBC/CCULR net worth rule is the most comprehensive, intrusive and costly regulation ever passed by NCUA.

The agency’s staff’s initial estimate of the funds now restricted from increasing member value is over $24 billion. From  their December 2021 board presentation:

Under the CCULR, if all 473 credit unions opted into the CCULR and held the minimum nine percent net worth ratio required to be well capitalized, the total minimum net worth required is estimated at $111.8 billion, an increased capital requirement of $24.3 billion over the minimum required under the 2015 Final Rule. 

This is a minimum 30% increase of capital, restricting its use for members, and imposed just nine days after the rule’s printing in the Federal register.

RBC/CCULR is both procedurally and substantively deeply flawed. Instead of implementing the  legislative intent that PCA be applied to a limited number of “complex” credit unions, the regulation passed covers 85% of all credit union assets.

But what can be done especially as the NCUA board composed of different philosophies approved the rule 3-0?

A Future Opening

The recent Supreme Court 6-3 ruling in the West Virginia v. EPA case suggests there is another opportunity to withdraw the rule or to challenge its validity.

The EPA case is about much more than regulating pollution.  The 89 page opinion is here.

As summarized in a New York times article:

It . . . signals that the court’s newly expanded conservative majority is deeply skeptical of the power of administrative agencies to address major issues facing the nation and the planet.

Chief Justice Roberts, employing the phrase for the first time in a majority opinion, said it applied in cases of unusual significance and was meant to address “a particular and recurring problem: agencies asserting highly consequential power beyond what Congress could reasonably be understood to have granted.”

Another account of the decision in The Hill explains the broader significance of the Court’s reasoning:

In reaching its conclusion, the court relied on the controversial “major questions doctrine.” The major questions doctrine is a relatively new interpretative maxim that directs courts to presume that Congress does not intend to vest agencies with policymaking authority over questions of great economic and political significance.

Only Congress’s “clear statement” that it did intend to confer the claimed authority can overcome this presumption. When a court employs this maxim, it reads statutes narrowly, stripping the agency of the power to address the major question that the statute, on its face, gives the agency the authority to address.

Unsurprisingly, the main focus of the media, scholars and the public is on the consequences of the court’s move for the size and contours of the federal administrative state.  . . 

The impact of the court’s ruling on federal agency authority and power cannot be overstated.

A lawyer friend when asked,  opined: “what I’ve read about it suggests the Court is going to take a very restrictive view when assessing agency claims of regulatory authority (effectively dispensing with Chevron deference).  When the authority to regulate is clear, I have no idea how much discretion the agencies will be afforded when exercising that authority.  I’m not sure what category the RBC rules fall into.”

The  RBC/CCULR rule’s flaws include the following;

  • The agency provided no “substantial objective evidence” that the system’s capital levels were inadequate under the existing RBNW rule. Staff admitted that only one troubled credit union in the past ten years would have been subject to RBC’s higher net worth ratio.
  • The agency wrongly applied the “comparable” standard to implement a clone of bank regulations. This approach clearly contradicted the statutory intent that RBNW cover only an identified small number of “complex” credit unions that presented unusual risks. As staff confirmed in its board action memo: A special note that most, if not all, of the components of the CCULR are similar to the federal banking agencies’ CBLR.
  • There was no statutory authority for a CCULR option which Congress, in legislation, authorized only for banking regulators.
  • Nine days for implantation violates the “reasonable period of time” statutory requirement for a change in PCA capital levels.
  • The rule imposes significant financial harm to members by reducing the value they receive,  beginning with the $24 billion staff estimate. That is just the initial number. It will grow every year.
  • The compliance burden is unreasonable. It mandates a one-size-fits-all mathematical capital formula for every credit union independent of hundreds of individual risk circumstances.

A Way Out of the RBC/CCULR Morass

Credit unions can sue the agency for the substantive violations noted.  But that takes years and the harm done members will just continue in the meantime.

The most feasible course of action will be for a more informed NCUA board, responsive to the needs of credit union members, to use this Supreme Court precedent to withdraw the rule entirely.

That will require leadership, courage  and insight from current or future board members.   The first test is to ask the sitting members their views on this deregulation opportunity.

What would Hood, Harper and Hauptmann say in response to this Supreme Court interpretation?

85% of Credit Union Assets Subject to RBC/CCULR at March 31, 2022

In December 2021 the NCUA Board passed a completely new regulation of over 500 pages to imposing a new RBC/CCULR net worth requirement.  The rule took full effect on January 1, 2022, or just 9 days after posting in the Federal Register.

It instantly raised the minimum net worth ratio to be considered “well-capitalized” by 29% that is, from 7% to 9%.

All credit unions over $500 million in total assets were immediately placed under this new capital standard.   As of March 31, 2022 these 701 credit unions manage 85% of the industry’s total assets, or $1.809 trillion.

No CCULR “Off-Ramp” for 193 Credit Unions

Those subject credit unions with less than a 9% net worth ratio must comply with the Risk Based Capital (RBC) computation.  It takes five pages of call report data to calculate this one ratio.

As of March 31, there were 193 credit unions with $345 billion in assets that reported less than 9% net worth.   For them there is no CCULR off-ramp.

They are thrown into a financial, accounting and classification “wonder-land” of arbitrary ratios, regulatory accounting decisions and almost 100 distinct asset classifications.

Following the RBC requirements is a complicated mess.

For example, individual credit unions have at least four options for calculating the net worth ratio. They can use average daily assets for the quarter, or the average of the three-month end quarter balances, or the average of the current and preceding three quarter end balances, or the quarter end total.

NCUA doesn’t even try to present the industry’s total net worth in this multiple manner, just asserting that the 10.22% is the industry average even though many other calculations are authorized.

Depending on which denominator a credit union chooses to determine the ratio, the outcome may or may not be a net worth over 9%.   Net worth comparisons become much less informative for members and the public without full disclosure of the methodology used.

Changes in the ratio, higher or lower,  may reflect nothing more than different calculations, not actual soundness.

RBC’s Reach Goes Beyond the $500 million level. Another 123 credit unions with total assets between $400-$500 million are within range of the $500 million RBC/CCULR tripwire.  46 of these have net worth below 9% and hold 37% of this segment’s total assets of $55 billion.

(Data update:  324 CUs completed the RBC ratio, and reported a value on the 5300.  324 minus the 193 under 9% is a difference of 131.  These completed the RBC ratio despite qualifying  for CCULR, or they may have failed one of the tests.

This suggests credit unions want to know their requirements under either net worth option to make the optimum decisions about which to follow.)

The Members Will Pay

The increase in regulatory net worth is a tax on asset growth. It requires resources be directed to reserves held idle on the balance sheet, instead of being used for investment in credit union products and services or higher returns on savings and lower fees.

Credit unions must choose to slow deposit and asset growth to build their net worth or increase their ROA by paying less or charging more.  Whatever financial choice is made, the members will pay the cost for this additional capital.

This burden occurs at a time when members are coping with a rate of inflation not experienced in 40 years.  Instead of serving members’ needs, credit unions must first serve the regulator which provided no factual basis for the rule.

A Unnecessary Rule Not Authorized by Congress

The passage of the RBC/CCULR capital regulation met no objective safety and soundness need and contradicted the express language imposing PCA on credit unions under the Credit Union Membership Access Act in 1998.

When presenting the rule, NCUA staff stated  their analysis of credit union failures for the past decade showed that this new requirement would have established a higher capital threshold for just  one problem credit union over $500 million.

The last minute addition of the so called CCULR off ramp in 2021 was defended as a way to reduce the acknowledged new and enormous burden of RBC.   Congress passed legislation permitting banking regulators this CCULR exception.  That statue did not include NCUA or credit unions.

The fact that credit union CCULR has no Congressional authorization is just one of many improper steps NCUA took when imposing this regulatory monstrosity affecting every asset decision made by a credit union.

The regulation  is the Fruit of a Poisonous Tree failing at least five explicit requirements of the PCA legislation and the Administrative Procedures Act.

So why didn’t credit unions sue?  Why did two board members go along with this deeply flawed regulation and process to make the passage unanimous?

What options are now possible to overturn a regulation  that injects the federal insurer into literally every specific balance sheet and asset decision made by credit unions?

Tomorrow a new approach to eliminate this rule, take away the burden, and return responsibility for the management of the credit unions to the members and their board and managers now appears possible.

Note:  Additional details of this flawed regulation can be found in these articles.








The Face of Freedom: July 4, 2022

Each generation learns the price of liberty.

This July 4th, America and  the world are  indebted to  Volodymyr Zelensky, President of Ukraine.  His courage and commitment  defending  freedom is a beacon that will shine throughout the ages.   

A Prayer Sung for Ukraine


Seeing the Impossible: A Musical Led by Deaf Actors

Entering the July 4th weekend, my wife and I were looking to have an evening out and see a live stage show.

Our choice was Meredith Wilson’s The Music Man.  Opening night had been delayed by several days because of Covid within the crew; tickets were easy to find on the Friday before the holiday.

We looked forward to the familiar story of Professor Harold Hill trying to con an Iowa town into believing he could create a boy’s band with uniforms and then skip out with the cash.

The musical’s songs are now familiar to all generations including Seventy-Six Trombones, Ya Got Trouble, Marian the Librarian, The Wells Frago Wagon, plus two barbershop quartets of men and women singing Lida Rose and Goodnight Ladies.

As one reviewer stated about the production on opening night: Professor   Hill is a high-octane opportunist with a jaunty strut and an eye for all exploitable human weakness, Caverly’s Hill is so raffishly charming it’s no wonder River City falls for his racket — except for the librarian Marian Paroo .

Hill sells his con in the opening number: Watch his delectable sneer when he compares pool to horse racing (that devil’s sport!). Spot how he deftly weaves the evocation of a pool cue’s motion into his spiel. Relish the assessing glance he sneaks at his enthralled dupes. Hill is effective because he’s a brilliantly calculating showman — but also because he revels in his own hoax.

The Impossible Surprise

We did not know, until scanning a review,  that this production would be by a cast of deaf and hearing actors.   Professor Hill signed all of his songs while his companion, Hill’s old friend Marcellus Washburn, sings most of Hill’s songs, including the exuberant “Seventy-Six Trombones.”

Half of each barbershop quartet is hearing.  All use American sign language with  two parts backed up by singers at the side of the stage.

All of the “dialogue” whether spoken or signed is projected on screens along the top and back of the stage.

The theatrical experience was extraordinary.  American Sign Language is communication with hands, arms and face.   All of the deaf actors performed their lines with the same expressions and physical movements as if they were speaking.

It was not the static signed interpretation one might see in newscast alongside the main speaker.  These people were performing their characters integrated fully into the play’s action.

For me one of the memorable moments was the opening dance number of the second act Shipoppi.  Harold dances with Marion, and actress who both signs and sings.  How did he keep the dance rhythm? Harold didn’t miss a beat, even without hearing!

A Takeaway

When we had read  that the production would include both deaf and hearing actors, we were skeptical.

But the experience was magical.   The story and songs are the same presentation of a salesman’s flimflam hustle testing an Iowa town’s hard earned down-to-earth integrity.

To see deaf actors in leading roles and singing actors signing gave the production an exuberance that seemed deeply genuine not merely theatrical.

(photo by Teresa Castracane)

It is ironic that the show’s lead role, the huckster Harold Hill, had to overcome his character’s own moral failures while navigating his real human deafness in playing the part.  In doing so, he gave the role a double meaning it would normally lack.

I could not help but think of a parallel to some of the experiences credit union people convey.   Yes, they believe in what they do and want their institution to do well.

But the really great ones do more by showing that the meaning underscoring each relationship is that everybody does matter.  Harold Hill’s character played by a deaf actor became about much more than a play.

Or as one character states: “I couldn’t make myself any plainer if I’see a Quaker on his day off.”







Credit Unions and Small Town America

(This is an observation based on three previous write-ups about my 60th high school reunion.)

My reunion visit to Rensselaer, IN (pop.6,000) had some surprises beyond the high school alumni gathering.

Ten years before (2012), the town’s main street seemed in decline.  New school buildings, a strip mall with a Walmart and several assembly/distribution  plants were located on the outskirts, not in town.

In 2017  St. Joseph College closed due to financial shortfalls.  The college served as the creative ying to the farming yang of the community.  What could replace this intellectual and institutional resource?

The Changed Environment-Ten years Later

At the Rensselaer City Council’s June 21st meeting a presentation was made from a firm which specializes in attracting  new residents to smaller communities to support economic development.  This is  from  the Rensselaer blogspot report of that proposal:

A company called MakeMyMove gave a lengthy presentation to the Council. The company, based in Indianapolis, is a marketplace that connects communities with workers who work remotely. So far this year they have helped 14 Indiana communities with 52 relocations with 59 others being processed. The idea is that a community pays MakeMyMove about $35,000 to prepare a marketing package and a listing on their site. The community also prepares an incentive package that usually includes funds for relocation.

The State of Indiana has funds that might be used to help a community with these costs. Some members of the Council were intrigued with the idea but others had reservations about the cost and whether Rensselaer would compare well with the other communities using the service, all of which were bigger than Rensselaer.

The community that was given as a comparison was Greensburg, which is about twice our size. The proposal was taken under advisement, and what happens next is unclear.

The National Movement to Smaller Communities

At the same moment the Wall Street Journal published a story with a similar theme: Rural Counties are Booming, But Can it Last?

The article pointed out that pre-pandemic, rural areas were growing slower and losing population compared to larger towns and  cities.  Those trends have now reversed for a number of small towns as related in the article:

  • Rural counties saw a net gain in population in the twelve months ending June 2021;
  • Remote work possibilities were an important driver of these relocations;
  • Job postings in rural areas increased 52% in the three years ending 2021;
  • Wages were growing faster in rural (6.3%) versus urban (5.7%) areas  in the same three years;
  • Housing is much more affordable in smaller towns;
  • Persons appreciate being part of a tight knit community and still live within commuting distance of bigger cities.

My brief visit to Rensselaer supported many of these advantages.   As shown in my earlier posts, wages are high and workers in short supply.   There are new businesses opening and investment in older ones.

Here are two examples: a new brewery begun in 2017 and since expanded, and continued local ownership of the Ritz Theater first opened in 1925.

The local owner even works the snack and ticket line before the show starts.

The economy is becoming more diversified with new services opening including health care, retirement living, Walmart and new restaurants.    Rensselaer also has three radio stations, two country and one classic rock.

Even though St. Joe college is closed, there are continuous efforts to use the buildings and campus for further education.

The public mural project is an example of a town going through a unique transformation that brings visibility and fresh thinking to visitors and residents.

Rensselaer is driving distant from three major cities, Lafayette (with Purdue University), Indianapolis and Chicago.   The town continues to invest in public infrastructure and new government funded buildings such as the National Guard base, fire station and a government business office.

Credit Unions and Community Transitions: A Home Court Advantage

The origins of credit unions were common bonds, that is people who had pre-exiting relationships  that could  be the basis for pooling  funds to help fellow members.

This  “community” feeling is generally stronger in smaller towns and in rural areas which should make these a natural fit for a credit union, what might be called a home court advantage.

To succeed in these markets will require the same commitment, patience and creativity to support their transformation that  local leaders are providing.  Smaller size is an advantage in smaller markets.

Action Steps

Find out if there are Rensselaer kinds of opportunity in the areas you serve.   To grow larger, most people believe that an organization should seek out bigger markets.  In fact the opposite may be true.

Rensselaer’s five bank branches have an asset base of almost $400 million.  A 6-8% market share of the town’s deposits would be a healthy branch or in some cases support a standalone operation.   Once established, growing that share from out of area bank branches should be possible.

Almost  every state has many more Rensselaers needing credit unions than there will be big city options such as Indianapolis, Gary, South Bends and Evansvilles.

For a number of these smaller markets the quality of life, the cost of living and the opportunity to make a difference will make them an ideal fit for lasting impact with a cooperative charter.

As the sign in the jewelry store said:  Shop local, Buy local.