Climate Change at Home

Recently our electricity company informed me that this month’s average temperature was 3 degrees warmer than the same period  one year ago.

The New York Times asked in a recent article Why Hasn’t It Snowed Yet in New York City? The lead pointed out that this is the longest stretch of winter without snow since 1973.  Plenty of rain. No Snow. City residents can still travel upstate to Buffalo if they long for a real snow storm.

Here is what this time of winter used to look like here  at home in Bethesda.

Earlier this month some of my plants took an early peek to see what was going on.

The daffodils are now 3-4 inches high.

Hyacinths are poking their budding heads up.

Scottish heather is blooming early, normally it waits till February.

The neighbor’s forsythia is trying to catch up as well.

And even my early summer red poppy plant is making an appearance:

All I can say is that it is good I’m not a skier.  Here is a picture of a popular slope in Europe last week:

More rain today.  Temperature 45 degrees.  I’ll just have to content myself with memories from 2022.

Thinking About Money at the Start of the Year

At the beginning of the year, business firms, families and individuals take stock of their financial situation.  The results of last year are known. January brings the credit card bills from the holiday.  Taxes come due.

This year all segments  are reassessing their liquidity situation amidst rising interest rates and growing layoffs.

A Financial Disneyland

Since 2008’s financial crisis erupted, credit unions and members have been living in a financial Disneyland.  Interest rates were kept at historical lows.  The recent Covid response resulted in two years  of short term rates at or near zero.

The Fed’s monetary policy of quantitative easing flooded financial markets.  When capital no longer costs anything, most investments look safe. Returns on short term government securities or insured savings were most recently in single basis points. People and organizations tried new or speculative assets  such as meme stocks or crypto solutions.

The disciplines of long-term investing were overlooked. The risk-reward calculus became warped. Market and housing returns suggested only upside.  Everyone could become a winner.

What We Believe About Money

Call FCU has an unusual member financial education program.  It begins with a questionnaire.  The purpose is to learn your personality type, or in their words, “the strengths and weakness of your relationship with money.”

Everyone has a different approach and individual situations when the talk is about savings, spending and financial goals.   We live in an economy in which consumer spending drives 70% of the output.  Wealth, fame and power are the trinity of individual success for many in a capitalist economy.  Moreover if one achieves the first, the other two can be bought.

How a person or firms manage their finances express our values and ambitions.  So I think Call’s approach is an important first step in any person or organization’s approach to 2023.

One Organization’s Statement of its Financial Philosophy

Non profit organizations have a unique relationship to finances.  They are not in business to build wealth, but they must demonstrate stewardship to donors, or like private business, they can cease to exist.

The Center for Contemplation is a 501 C 3 founded by Franciscan Richard Rohr to put spiritual unity  as the center of religious practice.

The organization has published its organizational financial approach.  It defines this as a “complex process that codifies their relationship with money: how they  raise it, manage it, and spend it. Our financial philosophy centers on values concerning donations and the stewardship of resources. Those financial principles are:

  • We operate from a clear definition of “enough.”
  • We practice transparency.
  • We seek for money to never be the barrier to participation.
  • We understand exchanges of money first and foremost as vehicles for advancing our mission and message.
  • We commit to spend simply, equitably, and sustainably.
  • We lead with giving and generosity.

Should credit unions create their own statement of financial philosophy?  Is a business plan a sufficient roadmap?  Does operating in the context of cooperative design and values provide a complete picture?

Might a credit union’s leaders consider the CAC’s principles above and ask whether they describe their financial philosophy? I believe the exercise could be as revealing as Call FCU’s individual assessment.  For example, when has a credit union ever defined what “enough” might mean?

Amahl and the Night Visitors-How the Story Ends

In an earlier post about credit union’s most essential members, I quoted an aria from the short opera Amahl and the Night Visitors, Do Rich People Know?  The  mother lives with her crippled son. The three kings spend the night before continuing their journey.  The mother tries to take one small nugget and is caught stealing by the King’s page.

Here is how that confrontation works out in the opera’s final lyrics:

MELCHIOR (seeing what has erupted) Oh, good woman, you may keep the gold. The child we seek doesn’t need our gold. On love, on love alone he will build his kingdom. His pierced hand will hold no scepter. His haloed head will wear no crown. His might will not be built on your toil. Swifter than lightning, he will soon walk among us. He will bring us new life, and receive our death, and the keys to his city belong to the poor. Let us leave, my friends.

MOTHER Oh, no! Wait! Take back your gold! For such a king I’ve waited all my life… and if I weren’t so poor I would send a gift of my own to such a child.

AMAHL (pipes up) But, Mother, let me send him my crutch. Who knows, he may need one, and this, I made myself.

MOTHER (drawing in a breath sharply) But that you can’t, you can’t! Suddenly, Amahl begins to walk without his crutch.

AMAHL I walk, Mother. I walk, Mother.

First Things, First

As we enter a new year with both individual and corporate financial challenges, should we first ask what our relationship to  money is?  What “crutches” do we lean on to get us by?  What if we risked giving them away to find out who we really are, as a person and leader of a financial service?




Where does moral courage come from?  How do we learn it?

That was the question asked of the actor in the one-man play about Jan Karski.  His character was a  soldier, member of the Polish resistance, and diplomat during  the most extreme conditions of WW II.

Karski had a photographic memory and made detailed reports of conditions as a courier in 1940–1943 to the Polish government-in-exile.  Jewish leaders in  Warsaw requested he visit the city’s Ghetto and Belzec death camp.  They asked him to report what he had seen of the Nazi efforts to exterminate the Jewish people to the Allies.   He did.

He was captured, tortured by the Gestapo who sent him to a hospital. His SS captors hoped to break him to learn the details of the Polish underground movement.  He escaped from the hospital.  The Nazis killed all of 32 hospital doctors and nurses where he had been treated.

He spoke directly with Churchill and Anthony Eden, the British Foreign minister.   In the US he met with FDR plus national political, press, and Jewish leaders including Supreme Court Justice Felix Frankfurter.  In all his meetings he gave great detail of what he had seen. He  asked Allied political leaders in both countries to act, to stop the Nazi’s genocide.

His wartime efforts are presented in a film Remember This of this one-man play.   It has just been released in heaters and will be shown on PBS Great Performances in March.

Why Remember?

Karski’s story is about more than the Holocaust.  It is about human nature in all its greatness and horror.

His words, not just his personal example, live on as timeless and timely insights into human character.

In the film he observes, “Humans have an infinite capacity to ignore things that are not convenient.”

This looking away occurs beyond  the horrors of war;  it is true of everyday life.

He commented that “Governments do not have souls.  Only people do.”  Caring for fellow humans is not done by organizations, policies or even regulation.  That is the responsibility of the leaders and members of an organization. There are no market “invisible hands” doing humane work.

When he briefed  Justice Felix Frankfurter, the first person of Jewish faith on the Court, Frankfurter replied, “I don’t believe it.”   He was not calling Karski a liar; rather he could not comprehend how humans could possibly be implementing a plan to eliminate an entire people.

A “Living Relationship”

Karksi stayed in the US following the war.  Poland was occupied by the Soviet Union.  He could not return.   For 40 yeas he was a professor of International Studies and Polish history at Georgetown  University.

He was awarded the Presidential Medal of Freedom by Obama a decade after his death in 2000.

Even with this heroic story, one of the co-writers of the script on the faculty at Georgetown, confessed he had walked by Karski’s campus statue for four years and paid no attention to it.

That typical oversight is why stories need be told.  And for their relevance to today’s and future generations.

The actor in the film stated he has “living relationship” with his character.  Karski’s life resonates still.   It is more than a remembrance of an extraordinary person.  It is an example that inspires, even compels us, to ask about  at our own lives.

Our Witness Today

In the Q&A following the film’s showing at the Shakespeare Theatre in DC, the question was asked of the actor: How did Karski develop the moral courage to act in these extreme circumstances?

The actor replied that he thought it was from his mother, a devout catholic.

I believe that people learn their values from watching others.  Whether in extraordinary acts of courage or lives long lived in service to people, we select those qualities we want to express in own professions.

Karski’s example is helpful for those working in the cooperatives.  One of our distinguishing features is an organizational design based on values and collaboration. We are called to a higher standard than might be practiced in other firms.

Credit unions were intended to protect and serve those who are exploited by others.  Our meme is the little guy with the umbrella.  But how easy is it to ignore our cooperative roots and imitate institutions for which credit unions were intended as an alternative?

Do we transfer responsibility for outcomes onto the organization in which we work?   Karski reminds that only persons have “soul,” that is the capacity to do the right thing.

It is not the cooperative model that fails.  Human agency matters whether consequences seem trivial or of utmost concern.

What I find compelling about his example is that after Allied leaders failed to respond to the Holocaust tragedy he reported, he never blamed others for inaction.

His witness of moral courage was not a basis for faulting others.   He did the best he could so that future generations could benefit from his example.

That’s why the film is called Remember This.

Cooperatives, Credit Cards and Wealth Redistribution

Who pays for your rewards?  That was the question posed by a Federal Reserve study released in December 2022.

Their short answer is “sophisticated individuals profit from reward credit cards at the expense of naive consumers.”

The Federal Reserve study describes this outcome as a redistribution of wealth.  They calculate the result as an “aggregate annual redistribution of $15 billion from less to more educated, poorer to richer, and high to low minority areas, widening existing disparities.”

The full study is 84 pages, but the Conclusion is on pages 30-31.

“Those Who Know the Least”

How this happens is a replay of the long-standing practice that in American those that have the least, or know he least, pay the most for financial services.

The reason for this redistribution is differences in consumers’ financial management savvy.  The data “show that reward cards induce more spending, leaving naive consumers with higher unpaid balances. Naive consumers also follow a sub-optimal balance-matching heuristic when repaying their credit cards, incurring higher costs.”

The academic work supporting this documented result is summarized in this initial summary:

Consumers lacking financial sophistication often make costly mistakes.  In the consumer credit card market, such behavior can entail over indebtedness and sub-optimal repayments.

“Banks, in response, can design financial products to exploit these mistakes, combining salient benefits with shrouded payments. Naïve consumers might underestimate these payments and incur costs from usage.

“Sophisticated consumers, in contrast, might rake in the benefits while avoiding the payments and thus profit from usage. Such products can therefore generate an implicit redistribution from naïve to sophisticated consumers and thereby contribute to inequality.”

The Cooperative Challenge

Members need credit and/or debit cards for most routine transactions today.  The study documents the move away from cash payments. Credit cards are the most common way consumers transact daily and then  pay one bill at the end of the charge period.  A credit card is as important as a checking account for every consumer.

Most consumers are attracted by card rewards.  A card with only a low cost line of credit, is a difficult sale against the highly promoted barrage of reward programs.

These reward offers are not just from major banks.  The most popular cards partner with retail, travel and other services or products  to entice users to accumulate points that can be used to pay future purchases.

Cash back “immediate rewards” offer a 1-3% discount on purchases if points are not a consumer’s goal.

The Federal Reserve study shows that these benefit and rewards programs are paid for by consumers who are less adept at managing their finances.  For this user group the card becomes a loan with interest rates in double digits.  This interest income augments interchange fees and is the dominate source of bank card profits.

The Federal reserves describes these differing consumer card management habits as an income  “redistribution from less to more educated, poorer to richer, and high to low minority areas.”

Should Credit Union Card Programs Be Different?

What is a credit union’s responsibility in this wealth transfer process?   Should it not offer any rewards card and just maintain a low, universal borrowing rate for all users?

Members want rewards.  Is the response to develop multiple card programs to appeal to different segments?  Can credit unions really beat the best card offerings by highly visible national programs targeting high income individuals?

The Federal Reserve study documents what issuers implement as the universal profitability model for credit cards–borrowers pay for the benefits of those who do not carry balances.

With rare exceptions, most credit unions in their credit card offerings follow this banking model. Is this redistribution outcome consistent with cooperative purpose?

This is not a question of legality or even equity.   Rather it involves both strategic and values decisions.

If the intent is to serve all members with their diverse needs and circumstances, then marketing efforts will inevitably focus on the largest, strongest and most financially  attractive members.  They have bigger cars, larger mortgages, and higher family incomes.   This tier is every financial institution’s top priority.

To compete for this wealthier segment’s business with competitive loan and savings rates, the rest of the member base must pay more for loans and earn less on savings.  Risk based pricing is one tool used to implement this redistribution.

But is this the card model coops were intended to provide?   I don’t know the answer.  Credit unions were originally formed to serve different segments.   Today the goal for many is to serve the “whole market.”

The wealthy tend to be excellent rate shoppers. The less well-off tend to take what is offered. Is the result of an open-ended market ambition that no segment is served really well?  If so, is such a cooperative strategy sustainable?







Tech Layoffs and Lessons for Credit Unions

Organizational isomorphism.  That is a big word for the tendency of organizations in an industry to follow the herd.  Do what the other firms do and remain with the crowd.   To act contrary to the consensus is dangerous.   Staying in the herd protects individual reputation and accountability.

John Tippets, the longtime CEO at American Airlines FCU described this conforming tendency in his speech to the Navy FCU board in 2001:

One of the challenges of leadership is to constantly sort through popular ideas advocated by credit union peers. 

It seems that at every meeting, someone has a new fad or a new idea – they’re sure it’s the greatest thing since sliced bread!  A director will return from somewhere thinking he’s got the greatest idea; a staff member or a vocal member of the credit union will bring in great ideas. 

But many of these ideas do not fit.  For example, AAFCU has not felt comfortable about indirect lending; we do not actively participate in risk-based pricing; we do not see a fit for select employee group (SEG) expansions; we didn’t understand how dial PC banking could preserve our economics; and, so far, even credit cards do not seem to fit.  We declined to do these things because we haven’t been able to make them fit into our models. 

You have to make choices and you have to make trade-offs.

Layoffs in Tech:  Necessary or Herd Mentality?


Alphabet’s (Google’s parent) reported a 36% increase in 4th quarter 2022 profit to $20.64 billion.

At the same time as these record financial results, the company announced 12,000 layoffs  or 6% of its workforce.  The public explanation was over-hiring during the pandemic growth and doubling down on AI solutions in the future.

Why all these tech layoffs after record profits and rising revenue?   If the average laid off employee cost $200,000 per year, then Alphabet saved $2.4 billion, about 10% of one quarter’s profit.

It doesn’t compute. Here is one writer’s interpretation in an article The Tech Layoff “Contagion.”

The industry is having a midlife crisis. And that means once the crisis is over, a new era will begin. . . More likely, we are in an intermission between technological epochs.

Some argue that, as they wait out this intermission, CEOs are copying one another—laying off workers not simply as an unavoidable consequence of the changing economy, but because everybody else is doing it. “Chief executives are normal people who navigate uncertainty by copying behavior,”  writes Derek Thompson of the Atlantic staff.

He cites business professor Jeffrey Pfeffer, who told Stanford News: “Was there a bubble in valuations? Absolutely … Did Meta overhire? Probably.

But is that why they are laying people off? Of course not … These companies are all making money. They are doing it because other companies are doing it.”

Pfeffer believes this “social contagion” could spread to other industries. “Layoffs are contagious across industries and within industries,” he said in the Stanford News article. If so, the story of tech layoffs could end up being a much broader story about work in America.

A Cooperative Opportunity

Because credit unions do not have a stock price, they can resist  market expectations and respond in ways for-profit firms cannot.

In the 2008-09 financial crisis credit unions continued to lend to consumers, when every other firm pulled back.  Who would want to make auto loans  when all of the major US  manufacturers were threatened by bankruptcy?  Both GM and Chrysler were reorganized in 2009.  But credit unions continued to lend on these brands.

Sometimes crisis can motivate credit unions to become more of what they were designed to be: a counter cyclical option, to be there for members when other firms pull back, reduce staff, eliminate products and shortcut customer service.

A Strategic Misread

Another factor in the tech layoffs is the possible strategic misinterpretation of Covid’s impact  on consumer behavior and market evolution.  Derek Thompson suggests this possible misreading of the future:

Many people predicted that the digitization of the pandemic economy in 2020, such as the rise in streaming entertainment and online food-delivery apps and at-home fitness, were “accelerations,” pushing us all into a future that was coming anyway.

In this interpretation, the pandemic was a time machine, hastening the 2030s and raising tech valuations accordingly. Hiring boomed across tech, as companies added tens of thousands of workers to meet this expectation of acceleration.

But perhaps the pandemic wasn’t really an accelerant. Maybe it was a bubble.

Choices that Fit the Cooperative Model

Many credit unions also followed this same future assessment, investing in digital and fintech startups as the inevitable pattern for future success.

Yet the strength of credit unions is their member relationship, not their technology leadership.  Employees are the single most important aspect of this service advantage.  Laying off staff or other “potential recession’ cutbacks, could compromise credit union’s mission when most needed.

As Tippet’s explained he would sometimes shun the prevailing wisdom: We declined to do these things because we haven’t been able to make them fit our model.

Credit unions begin the year on a sound financial and earnings base. Whatever the economic and interest rate events in 2023  now is not the time to copy market expectations to cut back.   Especially by laying off those who make the difference when serving members.

Plus honoring a firm’s obligations to its employees If the economy turns sour, is the right thing to do.




Re-Imagining Federal Credit Unions’ FOM

In NCUA’s 1982 Annual Report Chairman Callahan’s  opening Foreward presented his approach to the Agency’s priorities:

“One year ago we were in the midst of a dialogue with credit unions about deregulation. . .our sense was that government was doing too much.  In the name of safety and soundness, we the regulators, had become overzealous. . .

In acting to change this direction, we were not advocating that credit unions should “do something” . . .Instead we tried to give credit unions self-determination . . .we tried to get out of their way. Government can’t react quickly enough to allow credit unions . . .to remain competitive.”

In every speech Ed reminded: “Deregulation is not freedom.  It is responsibility.”  To  a NAFCU conference he stated: “I think the vitality (in credit unions) comes from the initiative and ingenuity of the individual boards. Hopefully they’ll all do it differently so that the country’s eggs are not all put in the same basket. “

Reexamining FOM “Groups”

After NCUA approved the total deregulation of share accounts in April 1982, attention focused on the agency’s interpretation of the FCU Act’s common bond definition.   Callahan described this review in the Annual Report :

“Traditionally the agency viewed that “groups” meant an occupational credit union would be one sponsor, one employer period.  Groups within a well-defined neighborhood, rural district or community meant 5,000 people, then it meant 25,000 people; then we weren’t sure how many people it meant.  But numbers were all it meant. 

“We believe that this very narrow interpretation was probably far more insidious than the rules and regulations promulgated over time.   We have taken a more liberal view.  We think that if the law does not say no, it certainly leaves room for yes.  . . And so we think this interpretation is a far more deregulatory action than doing away with rules and regulations.”

Ed looked at the full scope of credit union history. Open charters were present alongside more  restrictive common bonds.  The practice in Rhode Island for example, was that their state charters could apply for statewide authority  to serve anyone who lived, worked, or worshiped via a bylaw amendment.  Many states had much more responsive FOM interpretations than NCUA allowed.

The result was that beginning in 1982 federal fields of membership became more flexible through senior clubs, multiple group charters and  allowing members  to  select from multiple credit unions, that is overlapping charters.

Still today, federal FOM changes are much more deliberate than most state processes. NCUA common bond oversight has metastasized as a  vestige of bureaucratic control.  Numerous vendors including former NCUA employees still offer consulting services to help credit unions seeking FOM change.

The Context for Callahan’s Reappraisal

Ed’s  belief in the importance of deregulating the common bond was shaped by his life experiences.  These include his thirty years as a teacher and administrator in the parochial school system; his six years overseeing the Illinois credit union system as director of DFI; and his belief in the unique self-help possibilities of cooperative design.

In  Illinois there were almost 1,100 state charters in 1977 when he became Director. He saw first-hand the challenges of unprecedented short term double digit rates.  The old economic and regulatory order was passing;  the need to change how credit unions responded to their members was urgent.

For example  in 1978 Sangamo Electric Credit Union in Springfield lost its sponsor when the company moved to Georgia. I was credit union supervisor and said the law required that we close or merge the credit union as it no longer had a sponsor.

Ed’s reply was: “The company moved, not the people. They need their credit union now more than ever.”  We changed the credit union’s FOM so it could continue serving members.

In these initial years at DFI we  saw how government regulation and process  at all levels had become so slow and bureaucratic that the members, the people credit unions were meant to help, were the last to be considered.

More Than an FOM Interpretation

In his speeches Callahan called the credit union system a “sleeping giant.”  He believed that all Americans should have a cooperative financial option.

During his tenure as Chairman, field of membership flexibility was just one aspect of credit union expansion.

New chartering efforts were encouraged with universities and colleges a point of emphasis to bring the next generation into the movement.

In November 1982 a group of credit union leaders met in Philadelphia to plan CUE-84.  This stood for Credit Union Expansion.  The  goal was  50 million members by the 50th anniversary of the FCU Act in 1984.  The honorary Chairman was NCUA board member Elizabeth Burkhardt.  In addition to the presidents of national trade associations,  leagues and  NCUA staff, the committee included the credit union CEO’s of Navy, United Airlines and the president of CUNA Mutual.

Spreading the word about credit union opportunity was more than an FOM change.  It was the  belief that helping grow members was in everyone’s and the country’s interest.

FOM: Inclusive, not Exclusive

Before deregulation, the public impression was that one had to be a member of a sponsoring company, association, or church to join.  That was often the case.  Ed wanted to turn that traditional view upside down.

He believed credit unions should be inclusive, not exclusive.   As he was often quoted,”I do not believe in THE common bond.  I believe in a common bond.”  That “a” was the responsibility of each credit union’s board and management to define and serve.

Many Different Frames- One Goal

Today there are as many practices of the common bond as there are credit unions.  The FOM is like the frames in the National Gallery’s thousands of paintings.  Every picture, every frame is different.   That diversity is the credit union system’s strength.

To see the common bond as an advantage or not, is to misunderstand the core of credit union success.

Credit unions are a prime example of the “relationship economy.”  We all connect in our lives with some group(s) to fulfill  a sense of  purpose.  As human beings we aspire to join together in productive, self-fulfilling ways.  We rely on others and they depend on us.

Credit unions are one option.  When led well, they become much more than “just a job.”  Or when members use the phrase, “my credit union,” more than a financial alternative.

Ed believed in credit unions as a community just as John Tippet stated in his 2001 speech to Navy Federal.

Ed’s lifelong leadership of multiple organizations demonstrate  the special skills required  to build  “communities”  of shared purpose. The FOM should be a building block for credit unions, not a regulatory stumbling block.

Fields of membership are a “frame” for credit union performance.  What occurs, the painting within the frame, is what makes each credit union unique.























Field of Membership: How Important Is It ?

Field of membership (FOM )has been a legal characteristic of credit unions from the first charters.

Virtually all credit unions in operation today were started with no financial capital  The “common bond” of association, employment or community provided vital support along with organizers’ sweat equity to provide the critical “capital” to get the effort started.

As financial reserves were built over generations, credit unions grew increasingly independent of sponsor support.  In the case of many employer based credit unions, the FOM became a vulnerability. Especially when a company failed, moved away or laid off employees.

An example is the International Harvester sponsored coops.  At one time almost 20 credit unions served its factories, Chicago offices and subsidiaries such as the Wisconsin Steel Plant.  Today none of those businesses exist.

The FOM has come to be viewed by many as a constraint on credit union expansion.  Even with the multiple interpretations now possible by state and federal regulators.

The debate continues and practices evolve. FOM’s vary greatly from the very limited charter of State Farm FCU to the “anybody can join” definition of PenFed. Its reported FOM is 330 million potential members!

Is the FOM, which is  a legal requirement even if loosely interpreted, a strength or a constraint?

Below is  a traditional view.  This is an excerpt from John Tippet’s presentation on American Airlines FCU’s strategy to Navy FCU’s board in 2001.  John was CEO at the time and has since retired.*

Here is his opening comment focusing on the common bond:

Thank you for the opportunity to speak – this assignment has given me the challenge to organize my thoughts and better comprehend how membership common bonds have contributed to the success of credit unions, and to realize what the benefits of that principle are to us now and will be to who we are and what we do in the future.

A couple of years ago, the Credit Union National Association (CUNA) encouraged credit unions to participate in their “Project Differentiation.”  They asked us to prepare statements and other forms of documentation about what it is that we as credit unions do and why we are different than banks or other financial services providers.

We were then encouraged to share those materials with our members, Congressional representatives, and in other public forums.  In doing ours for American Airlines Federal Credit Union (AAFCU), we labeled it “Who We Are and What We Do.”

Who we are is the common bond shared by those described in our field of membership – employees, former employees, retirees, spouses, and children of those associated with American Airlines and the related companies originally created by American Airlines.

We’re very proud of our common bond and we’re grateful for the part it has played in defining who we are.

A Strategic Advantage

It is my conviction that common bond is a credit union’s strategic advantage.  Common bond  helps make us different, contributes to our operational efficiencies, helps make our branding effective, and is a catalyst to increased focus on who we are and what we do.

In fact, part of the 1925 Edward Filene quote in your advance reading materials reads, “Whatever the common bond uniting the members, the bond must exist.”

Mr. Filene understood the value of common bonds.  In those formative years of U.S. credit unions, they were already learning from their past and the, then current, real world of financial institutions.  Mr. Filene had seen the banking panics and failures of 1895 and 1907.  He also had seen credit union models working in other countries, so he learned from them both.

By trial and error, the current U.S. banking system has emerged, including regulatory structure, the role of federal insurance, and a new tradition of credit unions within that system. 

We are a product of an evolutionary process, having survived as a result of unique adaptations and specialized advantages, one of which has been the common bond – the shared interests and affinities of credit union members.  (end of excerpt)

This statement is only 5% of his strategic presentation.  The entire talk contains an additional twenty slides.  He covers branding, products and the credit union’s response to 9/11– offering to help finance a plane for the sponsor.

Tomorrow I will offer another perspective from Ed Callahan.  As NCUA Chairman (1981-1985) he played a critical role in enlarging the interpretation of the FCU Act’s requirements.  A decade later one aspect was taken to the Supreme Court by bankers where the multiple group policy was overturned in a 5 to 4 decision in 1998.

What was Ed’s underlying philosophy? How did he reference credit union history in his understanding?

* Tippet’s brief biography:

John worked for 25 years in the ‘for-profit’ world (American Airlines) before becoming the AAFCU CEO.  He was an Officer with Sky Chefs, an AA, Airport Restaurant and Concessions, and Airline Catering, subsidiary.

He served as the credit union’s CEO from 1991 to 2008.  When he left the credit union was in the top ten by total assets.  Today it is 23rd.

The one material change after this talk was to take advantage of the TIP (trade, industry, profession) FOM option. This allowed other employer’s co-workers at the Airports to become members.  Airports were the credit union’s “community.”

John’s email:

Searching For Credit Union History

Three weeks ago I received a unique document.  It was John Tippet’s 2001 speech to Navy FCU’s board at their annual planning conference. John Tippets was then CEO of American Airlines FCU, now retired.

The presentation was typed in full along with the slides used.   John presented his credit union’s strategy and how he believed this implemented credit union’s unique design.

Ten years later (2011) Navy’s planning COO requested a copy. Now twelve years further on, I will share some of his thoughts. I believe they are an important example of a leader’s vision and provide important perspective today.

History Matters

The American historian David McCulloch wrote over a dozen books and countless speeches on transformative events (1776) and the people who played important roles.  His accounts are lively and compelling.  He drew upon stories from his subject’s diaries, letters, speeches as well as second hand press accounts recreating these past scenes.

As an author, he believed history was larger than life.   A country’s stories, he believed,  are its most critical  resource.  When well presented, often from original records, they enlarge the spirit and shape our understanding of who we are.  And what we aspire to become.

If one reads the Congressional Record transcript of Ed Callahan’s last testimony as NCUA chairman on April 24, 1985, there can be no question of his impact.  His eloquence, factual knowledge and even humor with the committee shows their respect of his leadership of NCUA during this very vital time for financial services.  The words recreate the event and provide, still today, insight into a leader’s talent.

Or read the July 16, 1982 hearing transcript of NCUA General Counsel Bucky Sebastian’s testimony before Chairman Rosenthal’s House Committee on Government Operations.  The Committee was investigating the failure of Penn Square Bank and its impact on credit unions. It had occurred just two weeks earlier. The back and forth between Sebastian and the Committee chair jumps off the page.  It shows clearly two very different understandings of the event and the role of government.   Bucky’s powerful argumentative style is on full display!

The Absence of Credit Union Records and Original Documents

The years 1981-1985 were pivotal in credit union evolution.  Their response to the economic crisis and the deregulation of America’s financial system was critically important for their members’ future.

These major events unfolded just as NCUA was still organizing itself as an independent agency with a three-person board appointed by the president.   Prior to this federal credit union oversight had been by a single Administrator housed within HEW.

In response to these changes, a separate credit union press of weekly or monthly newsletters was begun. These included CUIS (credit union information service), NCUA Watch, Report on Credit Unions and smaller commentaries. The trades wrote current stories in their weekly updates mailed to members.

These critical original documents from this period are hard to find.   I have contacted CUNA Mutual, CUNA, the Credit Union Museum and even the Library of Congress.  No copies of any of these written sources seem to be available.

Even more vital would be recorded speeches.  In this era all major credit union conferences would make cassette recordings of the keynote speakers and sell them to attendees to take home to boards and staff unable to attend.

A major event was CUNA’s Governmental Affairs Conference held every February at the Hilton Hotel. The NCUA chair’s speech would be a highlight.  I found a copy of Callahan’s 1983 and 1984 presentations.  But the most pivotal ones from 1982 and 1985 are missing.

State leagues and other conference organizers routinely recorded presentations by NCUA personnel as well.  Finding copies of these tapes is very difficult. The firms organizing the events have long ago moved on.  These live recordings are often seen as yesterday’s news when found in office records.

In this pre-internet period, NCUA communicated with its staff in six regional offices and the credit union community with a new media, VCR.   NCUA’s Video Network issued 21 productions over three years.  No copies can be found for many episodes. Neither NCUA nor the National Archives have the tapes of these critical updates.

Telling the Credit Union Story

Contemporary leaders are focused on creating their story rather than learning about the past.  Many of the participants from this critical 1981-1985 era have retired years ago.  Memories fade.  When their boxes of credit union experiences and keepsakes are opened by children or grandchildren, they rarely have any personal meaning for the family.  So out they go.

The founders of these earlier newsletters and conferences leave no legacy of their vital role of credit union events now forgotten.

But somewhere in a closet, garage, or basement storage area I believe some of these original records (newsletters, recordings, VCR’s) exist kept by those as memories of an important part of their lives—but even more consequential, I believe, as original sources of credit union history.

Can reader’s provide suggestions where some of this trove of credit union history exists?

I will be glad to digitize any records that a person wishes to keep.  The years of 1981-1985 are a turning point.

Parts of John Tippet’s 2001 statements on his credit union’s strategy will spark controversy.  It did then and it will today.   Some of the same challenges remain.  For the credit union story is always being updated.

Can you help me fill in some of the missing parts from an earlier era?  It will be entertaining, illuminating and educational.   Please let me know what you find or where I might look.



Early Learnings from Bank Yearend Earnings

Everyone looks like a business genius when interest rates are at historic lows and money is incredibly cheap. But when the tide goes out, you see who isn’t wearing any swimming trunks.

(Warren Buffett, among others)

This week all major banks will report their 4th quarter earnings.  Yesterday the money center banks released their results.  Today the large regionals report.

Credit union 5300 call reports for the same period will not be available for 60 days or more from NCUA, unless individual firms post their financials independently.

There are three observations from these commercial investment and consumer banking leaders so far.

  1. 4th quarter earnings compared with the same period of 2021 are at best mixed. JP Morgan’s net is up 6%; Bank of America, 2% up; Wells down 50%; Citigroup a negative 21%. Goldman Sachs down 69% and Black Rock’s profit fell 23%.
  2. Goldman’s decline was due in part to a cumulative $3 billion loss since 2020 in its efforts to develop a consumer lending market under the Marcus brand.  The firm has since reorganized these products.
  3. The stock prices of most money center and regional banks have fallen precipitously over the past 12 months.

Some examples:

JP Morgan  -10%

Bank of America -27%

Citigroup -24%

KRE Regional banking ETF  -25%

Each institution singled out different factors affecting their results:  increase in loan loss reserves, falling revenue in certain business lines such as investment banking and trading,  operating expenses too high, rising interest rates, recession worries and economic uncertainty.

The common refrain in the earnings announcements: “These are not the results we expect to deliver to shareholders.

There were a number of negative events called out:  Goldman’s loss in the consumer market, Wells Fargo’s $3.7 billion additional government fine, and  JP Morgan’s $175 million write off of a fintech acquisition.  Results were mixed but not troublesome from a systemic view.

Potential Questions for Credit Unions

ROA for credit unions through September 30 fell about 21% to  88 basis points versus 2021.   The largest single factor was 15 basis points in loss provision expense.

What the 12 months decline in bank stock prices suggests is that the market analysts see a more challenging year for financial performance in 2023 in all banking sectors.  Uncertainty from the  inflation-recession outlook is the major concern.

This overall decline in bank stock values raises questions for credit unions.  For the 20-30 who completed or announced upcoming bank purchase, did they overpay?   Will the purchase goodwill premiums need to be reassessed?   Will purchase offers going forward reflect the market’s valuation declines?

Goldman introduced its Marcus consumer initiative in 2016.   It announced a partnership with Apple for a new credit card.  Since 2020 these “platform” based initiatives for consumers have lost $3.8 billion.  This is one factor in the bank’s announced 3,500 immediate employee layoffs.

The question for credit unions is, if a an expert firm such as Goldman can lose this much entering a new business line, consumer banking, could credit unions face the reverse challenge?

For example, Jim Duplessis in Credit Union Times observed that total credit union commercial real estate loan production has risen 41% in the first nine months to $36.7 billion. For some credit unions these participations are a new lending effort.

Many banking CEO’s are cautious about the future.  It is not just the recession prospect, but declines in mortgage activity, drawdown of consumer savings, and economic impacts  from higher rates not yet fully played out.­

A Proven Track

To the extent credit unions follow their consumer members closely, the future should be sound.

Where the difficulties may occur is forays in areas where experience is limited.  Among these are commercial loan participations, whole bank acquisitions, and investments in “side” business such as technology startups or crypto offshoots.

One of the advantages in this economic and rate transition is that credit unions don’t have to worry about their stock price.   However the market’s negative outlook for bank stocks  should be an alert that prior assumptions in underwriting and investing may need to be reassessed.

What credit union wants to be found swimming without trunks?


“Change of Control” Payments in Executive Contracts are Anti-Credit Union

Change of control clauses in executive contracts of credit union leaders should be prohibited.

This form of executive payout occurs when a credit union’s charter is ended, always via merger.

NCUA has indicated that they must be disclosed as a merger related benefit, but compliance oversight has been uneven.  Global Credit Union’s $750,000 CEO payment upon merger with Alaska USA was disclosed.

In the case of Capital Communication’s merger with State Employees FCU, the member notice stated the CEO and CFO were due payments. However, the amounts were not revealed.

Why These Payments Are Contrary to the Cooperative Model

Change of control in executive contracts is primarily for those leading publicly traded stock or privately owned companies.  In these situations existing owners  may sell  to another  entity either through  friendly negotiations  (think Warren Buffett) or via a hostile takeover bid.  The firm’s controlling ownership has changed.  The existing CEO receives some additional economic benefit if new owners then want a change of leadership.

Credit unions are coops, not stock owned firms.  Management is not threatened by hostile takeovers.   Member-owners cannot sell their voting interests to a third party.  Proxies are not allowed. Management alone is in position to initiate a merger and negotiate the details.

Adding a change of control payment to a management contract adds an incentive, even the prospect, of seeking a merger. Mergers then trigger this payment as well as  multiple other benefits  (eg.SERPS)  that become 100% vested upon termination of a charter.  These merger-related gains are a direct conflict with the CEO and board’s fiduciary duty to its member-owners.

In addition, these CEO initiated and arranged combinations often include job guarantees and bonus payments for senior management in addition to the benefits compensation triggered by the firm’s demise.

This is why such financial conflicts were mandated to be disclosed in NCUA’s 2017 merger rule.  But reporting does not remove the stain of conflict.  Especially when the complete context for these benefits are almost never declared.  Moreover member notices state that NCUA has “approved” the merger subject to member vote-so how can owners object?

Member Owners Left Out

Management takes care to secure their personal self-interest when developing merger plans. They are offering their  ongoing entity, its equity and intangible franchise value for free to the continuing credit union.  A transaction unheard of in a market economy.  What’s wrong with taking a little off the top for the person(s) that initiated this strategic move?

Member-owner interests are last in these combinations of well-capitalized , long-servicing credit unions.   Rarely is any objective member benefit detailed.

The most frequent assurance is that existing branches will remain open and/or all employees are assured future positions.  These are embellished with pledges of a continuing superior service culture, as the board and management turnover all their accountability to a third party—a credit union which members had no role in choosing and know nothing about.

I have yet to see a specific benefit listing for members in a merger that the existing credit union could not provide itself without a merger.   Members are given only words.  By contrast management has no problem determining its assured roles and remuneration down to the penny.

Self-interested motivations by CEO’s are not new.  The change of control is just the most recent addition to merger initiated financial grabs.  It is openly marketed by compensation consultants to “protect the CEO’s interest” as part of a standard benefits package.

What Should Be Done

Ideally boards should not approve any contracts with a change of control clause as antithetical to cooperative design and their fiduciary duty of care.

But that is unlikely as increasingly CEO’s select their boards, not the other way round.

Or credit trades and spokespersons could state their opposition to the practice. Not likely either for the CEO’s pay the associations’ dues.

The single piece of credit-union-only legislation which the trades steered through the last Congress gave credit unions the ability of expel members.  A “success” so loaded with reputational kryptonite that even NCUA is loath to touch it.

However, another regulator may provide a model for this increasingly anti-member practice.

On January 5, 2023 the FTC proposed a rule that would ban non-compete clauses in employee contracts.  One in five Americans is bound by non-compete agreements.  In some industries such as technology and health care, studies have found as many as 45% of primary care physicians and between 35% and 45% of tech workers are bound by non-compete clauses.

The FTC asserts the agreements are noncompetitive and “block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”

In 2015 Silicon Valley firms including Apple Inc.Alphabet Inc.’s Google, Adobe Inc., and Intel Corp. agreed to a $415 million settlement over allegations that they conspired to avoid luring each other’s staffs.

A few states have already passed laws limiting their use, especially for lower paid workers.

The FTC’s goal is to protect and enhance workers’ employment rights.  FTC asserts these agreements prevent open competition for labor, and limit employees from optimizing returns from their skills and experience.

Power to the People?

For NCUA the fundamental issue should be member rights, especially in mergers.  Change of control clauses put the interests of credit union senior management ahead of their fiduciary duty to members. It provides personal incentives for the individuals who determine when and how such an option should be considered.

Whether by rule, supervisory interpretation or public statements the NCUA board should affirm that member-owners are always the first priority versus management’s self-interest in mergers.

The democratic cooperative model of one member, one vote was designed to give coop owners the ultimate control of their credit union’s future.  In all other financial institutions one group or another is given preference based on their varying legal positions as owners.

Given the paucity of information in mergers, member voting has become a meaningless administrative exercise to gain the owner’s sign off.  This empty gesture is easily gamed by those who have the most to gain.

Banning non compete clauses is a first step to restoring a modicum of democratic integrity to cooperative mergers.