The Credit Union-Regulator Relationship

The basis for a shared cooperative regulatory policy framework:

“The relationship between credit unions and the regulatory agency is one founded on mutual self-respect, and on the realization that both sides share equally in the responsibility for the survival and future development of credit unions.”

(NCUA 1984 Annual Report, Page 14)

The Harm from an Absence of a Cooperative Policy Framework (Part II of II)

Yesterday (August 29) a press release from the North Dakota Credit Union League described NCUA’s turning a deaf ear to their request for their credit union members’ $10 million pro rata share of US Central’s AME surplus.

The final total may actually exceed $12.7 million based on NCUA’s March 2022 AME projected US Central distributions.

The NCUA’s Claim receipt states:  Upon final liquidation of the USC liquidation estate, this claim receipt will enable you to share  in the net proceeds, if any, to the extent of your PIC and MCA balances as of the record date.  No further action is required on your part to file or activate a liquidation claim.

The Dakota League’s title says it all: Time for NCUA to Do the Right Thing.  Its release points out Iowa credit unions are in the same situation. One might also ask how are all the corporate member shares of credit unions who were merged before AME payouts began being distributed? (example, Constitution Corporate)

Moreover, all credit unions  are still waiting for an update on the remaining $451 million of the reported $846 AME surpluses as of March 31, 2022.

These are just the most recent examples in which NCUA seems indifferent to its responsibilities to put credit unions and their members’ interests first.  This “me-first” approach is not lost on credit unions’ own activities.

Members’ Best Interests No Longer?

Lacking a cooperative policy framework, NCUA claims it is powerless when obvious conflicts of interest and direct subordination of fiduciary responsibilities by boards occur.   The members’ best interests becomes a forgotten standard.

For example, consultants overtly market “change of control” clauses for CEO’ contracts, a perverse interpretation of its real intent since coop CEO’s are the ones who initiate their own mergers.  The most recent example is a $750,000 payment in the merger of Global Credit Union. CEO contracts are a board responsibility.

A CEO and chair transferred $10 million of member equity to a private foundation they alone created upon merging.  The foundation is to be financed by another $2.5 million from the ongoing credit union-a clear conflict of interest. NCUA routinely approved this diversion of members’ equity to private party’s control.

Without a cooperative policy framework, the NCUA’s only test of a credit union’s sustainability is financial.  This is the “safety and soundness” mantra.

That standard is similar to saying that a person’s character and contribution is measured solely by their wealth. That is the value-agnostic success criteria that animates much of the capitalist system.

This policy vacuum undermines the unique advantages of the cooperative model and its long term safety and soundness.  Members become customers with profitability profiles.   A credit union’s resilience is nothing more than a quarterly tracking of net worth trends.

Soundness requires continual investments in members’ best interest, not merely fulfilling management’s personal ambitions.  A regulatory framework for cooperatives should be a collaborative effort.  It is not an NCUA internal task responsibility alone, like a budget, to be put out for comment.

Policy  would address current operational  issues that threaten the system’s character and integrity.  It will entail provocative conservations about current topics such as:

  • mergers of sound credit unions
  • the regulatory hurdles and lack of new charters
  • the suppression of members’ ability to vote for directors
  • the absence of member transparency on consequential decisions such as buying banks or adding ten-year debt/capital notes
  • reducing real regulatory burdens and enhancing NCUA transparency
  • the roles of CLF and NCUSIF-distinctly cooperative institutions reliant on credit union funding.
  • Increasing required disclosures for all credit unions including salaries for all federal credit union’s senior executives as is now required for state charters.

One outcome might even be a cooperative scorecard which would assess each credit union’s use of their charter’s unique abilities.

Not Perfection, but Setting Directions

A policy framework does not mean all the resulting regulatory judgments or approvals will be  uniform.   A regulatory framework should encourage better decisions  supported by objective data as well as the cooperative and legal documented processes of fiduciary oversight and care.  Conflicts of interest should be called out.

Experience suggests policy outcomes may be like the biblical parable of “weeds and wheat” grown together. That’s a risk but less so than the “anything goes” practices today.

Credit unions are and always will be a combination of good intentions and variable performance. They are run by human beings. Not all choices will be perfect. This mixed bag is the reality of freedom.

Both credit union leaders and regulators make mistakes. It is acknowledging when that happens.  Then  learning from the event, not defending the errors.

This mixed reality doesn’t mean regulators and credit unions can avoid the diligence and accountability that should characterize credit union decisions.  It’s not okay for self-interest to be the dominant standard for an action.

All are free to make mistakes and sometimes fail, but that does not mean there are no standards to be followed.

Cooperative assessments are important for another reason.  Credit unions, unlike their competitors, are not subject to the market’s daily judgments of management’s actions.   Coops lack bank’s  external check and balance on institutional performance whether through daily stock price fluctuations or the oversight of private ownership interests.

If cooperative standards are not part of the movement’s culture, then credit unions will tend to become just another financial option increasingly indistinct in a crowded marketplace. This will lead Congress to ask why this system should retain the tax exemption that would appear to be their only defining advantage.

The cooperative framework should enhance the never-ending task of credit unions becoming better cooperatives.  Nobody is perfect.  But reducing regulatory oversight to a standard that says  7% versus 14% net worth is better at meeting members’ needs is shallow and unhelpful.

Developing a Cooperative Policy Framework

In 1984 the credit union system redesigned its share insurance fund following 18 months of study, comment, and public dialogue about future options.  The recommended changes then required congressional approval.

This success was the product of extensive collaboration and interaction at every  level of the credit union system.  This effort was described in this brief introduction of NCUA’s implementation video by then chairman, Ed Callahan:


A cooperative policy process should be collaborative, transparent and yes, controversial.  It should be democratic, public  and seek consensus on shared interests. Policy must encourage credit unions as communities of possibilities, not conformity.

An Alternative Path?

Without this policy framework, continuing examples of a “race to the bottom” business practices may put all credit unions on a path similar to the S&L industry with no turning back.

That does not mean credit unions (taxed or not) will disappear.   But it does suggest their separate regulatory apparatus will be absorbed by the FDIC, OCC and the FED. This is where the 602 institutions and $1.5 trillion savings industry is now regulated.

Why have a separate NCUA cooperative regulatory system if all it does is mimic the banking model?




The Missing Framework for NCUA Success (part I of II)

It is an accepted truism for NCUA board members presenting their credentials  for Senate confirmation, or whenever the agency is justifying a new rule, reg or policy, to state their ultimate goal is “to protect the insurance fund.”

Current board members have even called that objective their goal or North Star.  Their primary job.

This assertion turns upside down the logic of means and ends.

What is NCUA’s End Purpose?

NCUA’s primary responsibility, its purpose,  is encouraging and sustaining the resilience and integrity of a cooperative financial system for American consumers.  The FCU Act states:

The term Federal credit union means a cooperative association organized in accordance with the provisions of this chapter for the purpose of promoting thrift among its members and creating a source of credit for provident and productive purposes

To achieve this end, NCUA was given multiple means in the law:  chartering, examinations, supervision, administration of charter changes, issuing regulations and providing expert guidance.   The tool least used, as it is rarely needed, is calling upon NCUSIF.

Most importantly, the FCU act specifically states the NCUSIF’s financial solvency is protected by the full faith and credit of the credit union system.   All members must deposit and maintain 1 cent of each share dollar in a credit union with the NCUSIF.  Every member is part of this collective guarantee ensuring all other member shares are indeed safe. This is a cooperative movement commitment, unique to the NCUSIF.  It is the law.

If all of NCUA’s every day tools ( the other “means”) are effectively managed, then the members should never be called upon to provide additional resources.  That is how NCUA protects the Fund.

The first four-decades of regulatory responsibility to maintain cooperative system integrity from 1934-1971 did not require the share insurance tool.

One aspect of “integrity” was certainly promoting credit union solvency as there has always been reserving and net worth requirements in the law.

But just as important, system “integrity” (as a source of credit) also included vital cooperative components to provide a distinct financial alternative for members.  These  include democratic governance, values such as education and collaboration, volunteer leadership (unpaid directors and committee members), access for all Americans regardless of financial circumstance (capital), focus on community (common bond), and contrary to the capitalist model, building common wealth versus private equity, to be used by future generations .

Over time additional characteristics have been developed including interdependence (corporates and CUSO’s) and system support augmenting the critical initial role of sponsors.

A Reward for Performance

When Congress approved the NCUSIF for credit unions in 1971, it was a reward for their performance.  As stated at that time, insurance was not due to financial problems with credit unions or the cooperative system.  Rather it recognized their growing contribution to the American economy and that they might not perceived by the public as the equal of their FSLIC/FDIC alternatives.

A Cooperative Policy Framework Is Lacking

For NCUA to faithfully fulfill its mission to protect the integrity of this cooperative financial alternative, an appropriate regulatory policy framework is necessary. Such a framework should be nonpartisan and multi-administration.  Past examples are the deregulation of shares by NCUA or the redesign of the NCUSIF.

Without a thoughtful and evolving framework, NCUA becomes a mishmash of regulatory justifications or each Chairman’s personal priorities.  What do the banking regulators do?  Or let the “free market” work its will.  Or elevating suboptimal tasks and agency operations  to define priorities.

Absent a policy framework, the unique role of cooperatives becomes increasingly confused with all the other financial activity in the marketplace.   No longer are the well-being and rights of member-owners front and center.  Bright shiny objects such as innovation and new technologies take center stage.

The ambitions of managers and boards seeking to outgrow their for-profit competitors become the industry’s defining priority.  Some credit union leaders chart success not by developing a better alternative to attract members, but rather using their decades of member reserves for buying out bank owners at a premium.

That activity would certainly seem contrary to the spirit of the Act.  And therefore worthy of public debate.

Credit union CEO’s, nearing retirement, game the system for personal enrichment  “selling their credit union” via merger.  They capitalize on the transfer of members’ accumulated wealth and loyalty for additional bonuses and extended payments beyond those merited as CEO.

In these transactions, the financial and relationship legacy, its goodwill, is turned over to boards and CEO’s with no prior connection.  And justified only with vague future promises that bigger is better.  The unique character of the charter and its local legacy and traditional focus are eliminated.

Tomorrow Part II, developing a policy framework.

Prayer for Ukraine

After six months of fighting for freedom.


The hope for peace.


An Exchange On Credit Union and DEI Focus

In response to the August 8th post by Jim Blaine, (Deification: The Eighth Wonder of the Cooperative World) there was the following exchange between Jim and a reader. 

I believe their insights are very helpful for this topic.

  1. Chip,

    I’ve been waiting for people smarter than me to comment… I know they’re out there!

    My observation is that if you do the Seven Cooperative Principles right, DEI feels like it’s already built in. Raising DEI as an Eighth Principle seems like we need a collective kick in the butt for not getting the first seven properly implemented!

    Far from dismissing the idea, I see this as a challenge we need to take on. If anyone, either within the movement, or on the outside, isn’t feeling it, then it MUST be raised up – but not as a revolutionary new principle for us to debate, but as an EVOLUTIONARY opportunity to fix what’s already in place.

    Too many people are feeling disenfranchised these days, and the view from my soapbox is that credit unions specifically, and cooperatives generally, are the best way to restore power back in the hands of the people.

    By all means, credit unions should raise the DEI issue – not as a “checklist” item – “here’s our position in response to this issue” – but as a challenge to their own leadership, their staff, their members, and their communities, to GET INVOLVED.

    Our grounding principles are solid. If we erred in the how we built on them, we need that diversity and inclusivity to drive our evolution.

    P.S. I recommend the writings of Ray Dalio (don’t settle for watching him on the financial channels; really dig in to his 3 “Principles” books). I’m also a fan of Israeli historian Yuval Harari (3 books), as well as French economist Thomas Piketty for his work on participative socialism, and Thomas Hobbes for his ideas on the social contract… he was too late to save the heads Charles I, or Cromwell, but Charles II learned a few things.

    We seem to have lost that social contract, and have allowed a much larger Leviathan to form.

  2. Leo, may I recommend a book to you – “Jesus and the Disinherited” by Howard Thurman. It’s a short read and don’t be put off by the title if you’re not religious. If you’re black you should read it, if you’re white you must.

    But, it is far more than just another sermon about race relations in the U.S. It is about the often dehumanizing psychology underlying any relationship between those with power and those without – an “unbalanced” equation which, in the economic world, credit unions were created to address.

    So many of our cooperative leaders seem to have loss sight of that original thought, that original principle. A financial cooperative with a social purpose is not a bank, nor should it be. Without a social purpose….?

    “Life is not the way it should be, it is the way it is”… with our task growing larger daily, perhaps we shouldn’t rest on our laurels – nor our principles.

    Hope you will take a look at what Howard Thurman has to say about all of us, including you and me…and credit unions.

Ukraine’s National Independence Day

Today is the 31 anniversary of Ukraine’s independence from Russia.  Their example reminds us that democracy is never free.

To follow the events first hand, anyone can subscribe to this online daily newspaper, the Kyiv Independent.

The photos and donation suggestions are from today’s edition.

Donations options from Kyiv Independent:

Another way to honor Ukraine on its 31st Independence Day is to donate directly to causes that support the Ukrainian army as it literally defends the country’s independence, and the Ukrainian population, as it has been facing tremendous challenges.

Here’s the list of organizations and charity funds that the Kyiv Independent responsibly recommends to those who want to support Ukraine in its darkest hour.


President Volodymyr Zelensky has launched platform UNITED24 as the one-stop shop for donating to Ukraine. The raised money are transferred to the official accounts of the National Bank and spent to cover the most pressing needs.

You can choose to donate to the military, to provide medical aid, or the future reconstruction of the Ukrainian settlements and infrastructure, damaged or destroyed by Russian shells and missiles.

Come Back Alive

Come Back Alive (Povernys Zhyvym) is the largest foundation for the Ukrainian military. It was born following the Russian invasion of the Donbas and the illegal occupation of the Crimean Peninsula in 2014. Over the years, this organization, headquartered in Kyiv, has proven to be trustworthy and among the most effective charities.

The fund provides frontline fighters with auxiliary equipment, various vehicles, thermal imaging equipment, specialized software, drones, personal body protection, as well as training.


Hospitallers is a volunteer medical battalion that has participated in the war in Donbas since 2014, providing first aid, medical care, and evacuation of injured Ukrainian soldiers from the front lines.


Tabletochki is the most prominent Ukrainian charity that helps children with cancer. The organization funds medicines for children, arranges treatment overseas if unavailable in Ukraine, and helps pediatric oncology units by purchasing medical equipment and reagents for hospitals. Russia’s invasion made it more difficult for Ukrainians with cancer to access treatment, especially in the occupied territories, where there is practically no access to essential medicines.

Shelter (Prykhystok)

Prykhystok is a non-profit communication platform that connects people who offer free housing and Ukrainians fleeing war in search of it. The website lists options of various housing either in Ukraine or abroad. In addition to participating in the project by offering your housing to refugees, you can also donate in crypto or regular currency to help cover their operations.


ZooPatrol is a volunteer organization saving cats and dogs abandoned during the war. Volunteers feed animals on the streets and and bring them to vet clinics if they need treatment. The organization reports about its activity on Facebook and Instagram.

Eye Trouble

Since August 1, I have been visually impaired in my reading eye.   I have mono-vision so this means I cannot read, type or the normal close vision functions.

Had surgery last Wednesday which will take a couple of weeks to evaluate.

In meantime will produce limited, if any, posts.

Intend to get back in the saddle as soon as circumstances allow.

Reflections on Life from an Ocean Beach

Cape Cod

by George Santayana in 1894

The low sandy beach and the thin scrub pine,
The wide reach of bay and the long sky line,—
O, I am sick for home!
The salt, salt smell of the thick sea air,
And the smooth round stones that the ebbtides wear,—
When will the good ship come?
The wretched stumps all charred and burned,
And the deep soft rut where the cartwheel turned,—
Why is the world so old?
The lapping wave, and the broad gray sky
Where the cawing crows and the slow gulls fly,
Where are the dead untold?
The thin, slant willows by the flooded bog,
The huge stranded hulk and the floating log,
Sorrow with life began!
And among the dark pines, and along the flat shore,
O the wind, and the wind, for evermore!
What will become of man?

Risk Based Capital: A Timeless Analysis

This Jim Blaine classic post is an analysis of the distortion of the Federal Credit Union Act by  NCUA when imposing Risk Based Capital on credit unions. Board Member McWatters voted against the proposed and final rule stating NCUA lacked the authority for the regulation.

These critiques are even more relevant as NCUA continues to expand its interpretation by adding a CCULR capital option to RBC in December 2021.  The lack of legislative authority to do so was detailed in this analysis.

These critiques are important if future corrections are to be undertaken to credit union’s RBC/CCULR regulatory morass.  The following is Blaine’s original critique.


Risk-Based Capital: Commenting on Your Future -OVERRIDING CONGRESS!

(originally published 3/26/2014 and again July 15, 2016)
… in which NCUA moves from rule making to lawmaking!
Really can’t believe this !

Little different tack today in terms of reviewing NCUA’s member-punitive and professionally embarrassing proposed, risk-based capital (RBC) regulation.  

We have taken a look at how NCUA’s “we-know-better-than-everybody-else-despite-our-track-record” approach to RBC will 1) deter member mortgage lending, 2) damage MBL lending, and 3) severely limit safe CU investments, forcing unnecessarily lower savings returns on CU members.  All proposed with utter disregard for the new, lower RBC standards now already in place for all other federally insured depository institutions. 

Today let’s look at how NCUA has decided to independently override the U.S. Congress and federal law with the new RBC proposal.  Have always noted how proud NCUA was of being “an independent agency of the Federal government”, but it had never occurred to me that NCUA believes it is independent of Congress – and above the law.

Congress is such a bother to
an independent federal Agency!

Here’s how NCUA intends to override Congress. In Section 216 of the 1998 Credit Union Membership Act (“HB 1151”), Congress specifically and purposefully wrote into the Federal Credit Union Act (FCUA) a series of mandatory “net worth” categories and prompt corrective action (PCA) requirements.  Congress defined statutorily that a credit union was “well capitalized” if its net worth was >7%, “adequately capitalized” if its net worth was >6% but <7%, etc – five categories in all. Congress wrote into the FCUA statute a very, very clear definition of “net worth” – nothing accidental nor haphazard about what Congress meant by “net worth”, nor how it was to be used to determine CU capital levels. 

NCUA through a sleight-of-hand (which they hope you won’t notice!) has rewritten the Congressional definition of “well-capitalized” for CUs. 

Let’s take a look at the proposed RBC reg:

NCUA is becoming
 thoroughly Pinnochioan …

“The proposal would change the title of Sect. 702.102 from “Statutory net worth categories” to “Capital classifications”.  NCUA believes that replacing the term “net worth” with the general term “capital categories” better describes the combined “net worth ratio” and “risk-based net worth” measurements that make up the five categories listed in the statute.  Moreover, the term “capital” is generally more inclusive of all accounts available to pay losses than the term “net worth” and is more commonly used in the financial services industry. No substantive changes to the requirements of Sect. 216(c) are intended by these changes in terminology.” 

 “[Several sections of 216] of the

“It’s growing…!!

 Federal Credit Union Act (FCUA) use the term “risk-based net worth” requirement, NCUA believes that replacing the term “risk based net worth” with the functionally equivalent term “risk-based capital” in the proposed rule would better describe the equity and assets the requirement would measure.  No changes to the requirements of the statute are intended by the alternative term…”

NCUA’s RBC comes with
strings already attached…

Now I’m sure that didn’t make any sense at all to most of you, because you’re nice, reasonable straight-forward kind of folks – unlike the folks  who wrote this proposed regulation. So, let’s break it down

Under current law:  Credit unions with net worth > 7% are “well capitalized”.  Under the current risk-based net worth (RBNW) formula, if a credit union is determined to be “complex”, it may be required to hold additional capital (none of even the 25 largest CUs are required to hold capital above their statutory net worth and most are not complex under current RBNW standards).

Under the proposed reg:  NCUA unilaterally has 1) decreed that all CUs with assets > $50 million are complex! No test, no evaluation – as now required by the FCUA – to determine if a CU is simple or complex.  NCUA simply changes a Congressionally approved law to make you complex regardless of your balance sheet risk; and then since you are complex(!), NCUA imposes its new RBC regime requirements on your CU.

Weaseling Congress !
(… robustly !!)

Here’s the weasel, NCUA is attempting to change the Congressionally legislated definition of  “well capitalized” to:

“To be well-capitalized a credit union must maintain a net worth ratio of 7% or greater and, if a complex credit union, (which NCUA has defined as all CU with assets >$50 million) must have a risk based capital ratio of 10.5% or greater…”  

NCUA’s proposed RBC reg flies in the face of express Congressional intent under the FCUA. You can always spot a weasel when you read phrases like:

1. “… replacing the term “net worth” with the term “capital categories” better describes…” – That’s a Weasel!
2. “… no substantial changes … are intended…” – That’s a weasel!
3.  “… replacing the term “risk-based net worth” with the functionally equivalent term “risk-based capital”… – That’s a weasel!
4. “… the term “capital” is generally more inclusive… and is more commonly used in the financial services industry …” – That’s a weasel!
5. Changing “if you are complex” to “you are complex”… – That’s a weasel!
6. “… no changes to the requirements of the statute are intended…” – That’s a weasel!

Shouldn’t we – on behalf of our 100+ million member-owners – demand that Congress make changes, if necessary, to credit union statutes, …

… and not have to deal with these weasels?