Month: February 2023

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Love on Valentine’s Day

Esther Howland invented the greeting card as a Valentine Day occasion.  Her greeting cards are works of art. A sampling of them can be found at Wikimedia Commons  Search media – Wikimedia Commons.

This beginning of this holiday tradition is described in an excerpt from the Jefferson Educational Society, Book Notes # 31, Love Poems for Valentine’s Day:

“The story goes that while working in her father’s stationery shop she received a Valentine card from a competitor. She thought it simple and unattractive. Saying to herself, ‘I can do better than this,’ she did. She set up a small factory in the third floor of her parent’s home, hired some women she trained in the arts of paper cutting and origami. She soon outgrew the space, opened a factory and in the process created the American greeting card industry.”

After cutting and pasting my own Valentine’s cards for my mom and teachers in grade school,  the day became more personal in high school.  In English literature classes poetry, especially sonnets, were introduced as  the language of romance.  Two examples.

Elizabeth Barrett Browning to her husband Robert Browning:

How Do I Love Thee? (Sonnet #43)

How do I love thee? Let me count the ways.

I love thee to the depth and breadth and height

My soul can reach, when feeling out of sight

For the ends of being and ideal grace.

I love thee to the level of every day’s

Most quiet need, by sun and candle-light.

I love thee freely, as men strive for right.

I love thee purely, as they turn from praise.

I love thee with the passion put to use

In my old griefs, and with my childhood’s faith.

I love thee with a love I seemed to lose

With my lost saints. I love thee with the breath,

Smiles, tears, of all my life; and, if God choose,

I shall but love thee better after death.

Sonnet #  116   by William Shakespeare

Let me not to the marriage of true minds

Admit impediments; love is not love

Which alters when it alteration finds,

Or bends with the remover to remove.

O no, it is an ever-fixed mark

That looks on tempests and is never shaken;

It is the star to every wand’ring bark,

Whose worth’s unknown, although his heighth be taken.

Love’s not Time’s fool, though rosy lips and cheeks

Within his bending sickle’s compass come;

Love alters not with his brief hours and weeks,

But bears it out even to the edge of doom.

—-If this be error and upon me proved,

—-I never writ, nor no man ever loved.

A Sonnet Upon Departing

As a memory of high school  poetry exercises and first love, I received  the following sonnet from my girlfriend when I left home in June 1962 for a summer ranch job  in Wyoming.

The sadness which I knew was drawing near, 

And which I feared would grow as you had gone,

That sadness now has come, yet with my tear 

Shines half a smile, like fog at early dawn.

No longer do I dread your last goodby,     

Your parting kiss, your hand’s sweet lingering touch,

A bond will now transport my longing sigh 

To you, dear heart, who’ll surely long as much. 

So happy am I just to think of you,     

Remembering half a hundred joyful days, 

Anticipating half a million new,   

When you return, and laughter skips and plays.     

I’ll miss you, darling yes, but now instead 

of grieving so, I’ll dream of what’s ahead.

 

 

 

 

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Digital and Branching Options

As credit unions expand their market footprint, branches remain an important investment for growth.

Recently Credit Union Times reported on this effort by five credit unions across the country. Expanding their existing 75 branch network was Suncoast Schools, Tampa FL which is opening  three new branches in Orlando.  Truliant, Winston Salem, NC is investing in a South Carolina expansion involving five new offices in three years.

The Times story also described new branch openings by Blue FCU, Cheyenne, WY; Utah Community in Provo; and Brooklyn Cooperative FCU in New York.

In Person Matters

If digital transactions and virtual platforms are the future of financial services, why are these and other credit unions continuing to invest in real estate and a physical presence?

Part of the answer is that opening new markets is very difficult to do with a virtual only strategy.  Platform solutions bring individual responses to promotions.  However “seeing is believing” if credit unions want to have a continuing community presence and impact.

However another factor may be the reality that Stores Aren’t Dead, according to a February 10 article in Axios.

According to data from Coresight, “physical store openings exceeded closings on an annual basis in 2022 for the first time since 2016.”   Retailers are on a pace to open more stores at an even faster pace in 2023.

Why?   “While e-commerce platforms helped retailers manage the pandemic — but both retailers and consumers realized the limitations of doing business entirely online.”

Bargain hunters like to shop in person.  The top six retailers opening stores in 2022 were dollar chains and discounters, including Dollar General, Family Dollar, Dollar Tree, Five Below, TJX Cos. and Aldi, in that order.

Those customers would seem an attractive demographic for credit union services as well.

Digital transactions for existing members are an important option for supporting these members efficiently.  But a physical presence is what communicates commitment to a community.  And being there for an ongoing relationship.

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NCUA Board’s January Review of the 18% Usury Celling-A Shakespearian Event

Open board meetings are the public’s opportunity to see members officially at work.  Current practice is that all statements, questions, and staff answers are fully scripted in advance.

Even so these presentations demonstrate members’ grasp of issues, their knowledge of credit union operations and their view of cooperative’s role.

The one January topic with immediate effect was reviewing the 18% usury cap on  all FCU loan rates-except for PALS short term advances.

The Missing ALM Context

Setting loan and savings rates is an everyday event for credit unions.

The most important aspect of loan pricing is its ALM context.  The goal is to manage the net interest margin, the key factor in bottom line net income. That’s how credit unions “make their living.”

That fundamental ALM context was never introduced by either staff or board members.

As of September 30, the net interest margin for all credit unions was 2.79% up 20 basis points from the year earlier.   The average cost of funds to assets was 42 basis points.   As an approximation, a loan priced at 18% would have a spread of 17% over the average cost of funds.  Subtracting an average operating expense of 3%, would leave a net margin of 14%.

Loans are the fastest growing component of the credit unions’ collective balance sheet.  The year over year increase was 19% as of September 2022–the highest rate in decades.

There is scant evidence that the 18% is limiting credit union lending options or earnings.

The Board’s Discussion

Chairman Harper reported all three members had different positions on the ceiling.  He supported the 18%. The agency had obtained a letter from Treasury which concluded: As a result, we believe that presently there are not compelling reasons to change the current 18 percent loan rate ceiling for federal credit unions. 

This was the first time Treasury had ever commented on the topic.  Even more concerning was their offer to an “independent” agency:  Treasury is available to consult on any future consideration of the interest rate ceiling.  

Harper said he was willing to review the topic again in April along with the possibility of a floating rate cap.

The other two board members made no reference to the ALM context or operating margins.  Their intent seemed to find a way to give credit unions more leeway.

Both advanced an interesting economic theory: charging more for loans will actually increase demand.  To better serve members who pay high loan rates elsewhere, credit unions must charge higher rates themselves.  The cure for high member loan rates, is higher rates!

This view certainly supports the market’s practice that those who have the least or know the least, pay the most for financial services.

In the words of Vice Chair Hauptman:  Low-income and CDFI credit unions depend upon the ‘head room,’ the ceiling provides above the statutory rate of 15 percent. . . to serve their neediest members.

He then showed a bizarre slide of a personal example of the late fee assessed by a governmental authority when a required payment was not made on time. His apparent point was governmental authorities charge different late penalties which he equated to usury ceilings on loans.  He asked for further research and review of the issue in April.

Hood acknowledged: when you talk about the interest rate ceiling, we really need to think about how this impacts members. He gave several anecdotes such as:

One credit union told me that their concern is that if the NCUA maintains the interest ceiling at 18 percent, as rates continue to rise, they would have to deny potential credit card applications unless the credit union member had an excellent credit score.

NCUA staff seemed to embrace this view that higher rates are the only antidote for higher risk.

The reversion to a 15 percent interest rate ceiling would constrain an FCU’s ability to apply risk-based pricing to higher risk credits and reduce net interest margins in the current rising rate environment. In particular, a reduction in the interest rate ceiling would adversely affect a relatively large number of low-income designated FCUs (LIFCUs) and their members’ access to credit.

Much Ado About Nothing

Since 1987 the board has reviewed and approved the 18% cap twenty-four consecutive times.  All three board members voted for the 18% ceiling extension to September 2024.

This meeting displayed each board member’s understanding and approach to this hither to fore routine event. I can’t wait to see the sequel in April’s meeting.

 

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The Most Significant Omission in NCUA’s Performance Plan

At the January NCUA board meeting staff presented the Agency’s 2023 Annual Performance Plan.  It is 43 pages.  With many  outcomes.  As stated in the Chairman Harper’s introduction:  We have identified three strategic goals supported by ten strategic objectives and 19 performance goals. To meet these goals and objectives, the NCUA has also identified 45 indicators to measure performance.

Even with these many details,  the document has a significant omission.  The oversight  was not  mentioned by any board member. The absence may explain why the agency has been so ineffective in overseeing the most vital component of cooperative design.

The Missing Concept:  “Member-owner”

The term member-owner is used once, in the Mission Statement:  Protecting the system of cooperative credit and its member-owners through effective chartering, supervision, regulation, and insurance.

The term is never referred to again.  Where one might expect to see the concept, instead the words “consumer “and “individual” are inserted.  The word member does not even appear in the two highest strategic goals:

Goal 1: Ensure a safe, sound, and viable system of cooperative credit that protects consumers.

Goal 2: Improve the financial well-being of individuals and communities through access to affordable and equitable financial products and services.

Standard Plan Descriptions

The agency self description affirms that “the NCUA is an independent federal agency that insures deposits at federally insured credit unions, protects the members who own credit unions. . .   But the protection throughout is interpreted only as consumer compliance. Nowhere is there reference to member-owner rights, interests, responsibilities or even education.

Here are examples of how the agency describes its responsibilities in various sections of the plan:

The NCUA protects consumers through effective supervision and enforcement of federal consumer financial protection laws, regulations, and requirements.

Throughout the year, the NCUA will continue to adjust its examination program and operations to maintain safety and soundness, protect consumers, and ensure compliance with anti-money laundering laws.

Provide timely guidance to the credit union system and examiners related to changes in regulations established to protect consumers.

Monitor consumer complaints and fair lending examination and offsite supervision contact results to guide consumer compliance program development.

Continue to provide a responsive and efficient consumer complaint handling process in the Consumer Assistance Center.

The NCUA will enhance consumer access to affordable, fair, and federally insured financial products and services through the following strategies and initiatives:

Performance Goal 2.1.2 Empower consumers with financial education information.

No Ownership Role or Protection

Those who originally organized the coop and their heirs who today own the institution, at least in design, are now nothing more than consumers.

Owners’ rights are not part of  NCUA’s oversight.  The agency  protects “consumers” not owners, and safeguards “individual” not owners’ assets.  The agency is nothing more than  a cooperative CFPB with a safety and soundness function.

The Most Critical Function of Owners

In NCUA’s plan, member-owners have no standing, no rights and most of all, no regulatory attention.  This significant regulatory omission is why some credit unions feel empowered to push all of the boundaries of self-interest and business enterprise with actions disconnected from owners’ well-being and value.

Democratic coop design was intended to be a check and balance, the all important governance process that every organization requires to remain accountable, safe and sound.

Even NCUA asserts it has a governance process:  To ensure sound corporate governance, the NCUA will use the following strategies and initiatives: pg 29

The Consequences of No Member Ownership Role

Because of this regulatory omission, intended or otherwise, few credit unions  today  have any meaningful ownership participation.  The organization’s aspirations are only those of the  CEOs’ and boards’ ambitions. That often means business enterprise priorities over member welfare.

Credit unions are not subject to their peer’s competitive reviews as would be the case with a publicly traded bank stock. The institutional practices of mergers, sales and buyouts are not subject to any competitive process. Instead these executive transactions are private deals devoid of member input, meaningful public disclosures, no objective benefit and often lacking any economic rationality.

Just as NCUA has eliminated the ownership role of the member from its purview, so have many credit unions.  Without owners, just consumers, there is no accountability for institutional performance in theory or practice.

A Dangerous Design

That is a dangerous model.  Credit unions increasingly control billions in member funds and their collective savings (equity) in the hundreds of millions of dollars.  They increasingly commit to long term projects such as  subdebt borrowings, 20-year leases, and long term commercial real estate loans. The final outcomes of these decades’ length transactions may not be known until long past the tenure of the CEO who made the decisions.

Today most credit unions provide little to no transparency of their plans, priorities or projects to members.   There are plenty of product and service marketing messages.   But rarely are members informed about management’s goals.

The election of directors at the required annual meeting is fixed.  There is neither a choice for directors nor director statements of their reasons for serving.  Voting is by acclamation.

Without governance and a recognition of the owners’ role, the moral hazard of management decisions using the credit union’s resources increases.   Upside risks all benefit the incumbents; but the downside possibility of failure from a bank purchase, national expansion or fintech investment, means the members or NCUSIF will pay the price.

If one believes CEO/Board self restraint is sufficient to ensure members’ best interests, then they have not paid attention to practices such as; the $1.0 million dollar bonus to the manager of a merging credit union; the $10 million transfer of equity to a private foundation; or the change-of-control payments inserted in senior management contracts.

The list of self-serving actions grows daily.  Where money management for others is required, greed always lurks.

As just “consumers” or “individuals” member-owners no longer benefit from the most important reason for joining a financial cooperative.

Unless or until there is a meaningful acknowledgment  of member ownership and management’s obligations thereto,  the credit union system’s uniqueness, not to mention its soundness, will increasingly be at risk.

 

 

 

 

 

 

 

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An Incredible Chartering Story

The headline tells it all:  This Black Barber Opened The First Credit Union In Arkansas Since 1996.

It is the story of Arlo Washington’s journey to create People Trust Community FCU chartered in  September 2022.   The article in Next City describes Arlo’s journey after his mother died in 1995.  He followed a mentor’s model and became a barber.  His business instincts led him to open multiple shops and organize a barber college.

At the barber college he set aside $1,000 per month from profits to make small loans to the community.  This micro lending service grew until  the lending program was converted into a CDFI.  People Trust Community Loan Fund, the government recognized non-profit, then became the basis for his credit union charter application.

The Story within the Story

The author, Oscar Abello,  also weaves in another, longer tale, of the decline in new credit union charters.  Several of his observations follow:

It’s never been very easy to start a credit union, but it used to be easier and much more frequent than it has been in recent years. Prior to 1970, it was common to see 500 or 600 new credit unions chartered every year across the entire country.

People Trust was one of four new credit unions chartered in 2022; just 25 new credit unions have been chartered over the past 10 years. . .

There are almost always more interested groups looking to establish new credit unions, says Monica Copeland, MDI network director at Inclusiv, a trade group for credit unions focused on low-to-moderate income communities, “but it’s hard to track until they actually get through the process. It takes organizing groups years.”. . .

Or take Everest Federal Credit Union, which is based in Queens, New York and serving Nepali immigrants across the country. Its organizers started their work in 2015 and only recently opened for business. Part of their challenge was the startup capital they had to raise, from donations they ultimately gathered over the past seven years from hundreds of donors across the country.

Each of these efforts has had to go through the National Credit Union Administration – the federal agency that charters, regulates and insures deposits held at U.S. credit unions.  . .

There are multiple reasons for the dramatic falloff in new credit unions since 1970. Now a credit union consultant, Brian Gately worked as a credit union examiner at the NCUA in the ‘70s and ‘80s. According to Gately, the agency gradually lost touch with its purpose over the course of his tenure.

He started out winning awards for helping new credit unions get chartered to serve vulnerable communities in Puerto Rico and the U.S. Virgin Islands, but eventually left after refusing orders from higher-ups to shut down a new credit union serving a largely Puerto Rican migrant community on Manhattan’s Lower East Side.”

The article presents further examples of the chartering hurdles.  These challenges help a reader understand the miracle that any new credit union charter represents today.

Missing the Next Generation of Entrepreneurs

According to the Commerce Institute over 5.0 million new small businesses were started in 2022.  Only 4 new credit union charters were issued last year.  During the year credit unions announced or completed four to five times that number of whole bank purchases.

Credit unions are not tapping into  America’s inherent entrepreneurial market-based culture.  A system that fails to attract new entrants will slowly mature, consolidate and lose relevance. Other startups will arise  intent on  taking away a declining industry’s  current and future customers.

The article is an engaging description of one person’s efforts to pursue the possibilities of a credit union charter.   It also documents how difficult that process is, especially as it depicts NCUA’s role.

If a reporter who does not follow credit unions as a regular beat can so thoroughly document the new charter failings of the movement, why can’t credit unions see this challenge?

It raises the question as well of how many interested charter groups give up in frustration and look elsewhere for financial services?

 

 

 

 

 

 

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Losing the Cooperative Spirit?

This slide is from a November 2021 speech on credit union history at the Credit UnionLeadership Institute.  Facilitator:  Gary Regoli, CEO Achieva Credit Union.

It is a statement of the existential choice every credit union makes, often on a daily basis.

“Credit unions continue to lose ground with consumers, according to the American Customer Satisfaction Index’s most recent finance study. Credit unions’ score has dropped by one point to 75—falling behind banks for the fourth consecutive year.

Banks now surpass credit unions in nearly every service category as rated by U.S. consumers, according to this year’s survey. On the ACSI’s 100-point scale, credit unions now trail banks by three percentage points. Banks’ overall score (78) has remained relatively unchanged over the last four ACSI reports.

“The 2021-2022 study, which was based on more than 13,500 customer interviews, covers banks, credit unions, financial advisers and online investment. According to researchers, rapid membership growth fueled by the pandemic and ongoing industry consolidation could be affecting credit union customers, though the credit union industry’s traditional area of strength in the annual survey—in-person service—has remained consistent.

“Credit unions continue a long, slow decline in member satisfaction that is now in its fifth consecutive year,” said Forrest Morgeson, assistant professor of marketing at Michigan State University and director of research emeritus at ACSI.”

Source: ABA Banking Journal, November 16, 2022

 

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Resume and Eulogy Virtues

Last week I quoted New York Times columnist David Brooks’ philosophy in which he distinguished resume virtues from eulogy ones.

Résumé virtues are what people bring to the marketplace: Are they clever, devoted, and ambitious employees? Eulogy virtues are what they bring to relationships not governed by the market: Are they kind, honest, and faithful partners and friends?

This past weekend I received a copy of a funeral message from a friend I have known since college. His wife of 28 years had died in January.  She had been chronically ill their entire marriage–some of the times were good, but others in and out of hospital.

He celebrated her spirit with these words:

She was the most selfless person I have ever known. I really believe she hung onto life all these years for us, and I hope the rest of my life will be worthy of her sacrifice, because it was not easy for her to stay with us. She gave her life for her friends and family.

Organizations Do Not Have Souls

In the life witness of Jan Karski which I described last week, I quoted his observation that “Governments do not have souls. Only people do.”  I believe his words are applicable to any organization not just “governments” which was the focus of Karski’s anti-Nazi Polish underground activities.

Doing the right thing is sometimes very hard.   Especially when one’s views set them apart from the prevailing practice or beliefs of the organizations in which they work or are members.

Puritan John Winthrop in this lecture (A Model of Christian Charity) prior to sailing for the new world, warned his fellow Puritans that their new community would be “as a city upon a hill, the eyes of all people are upon us”, meaning, if the Puritans failed to uphold their covenant with God, then their sins and errors would be exposed for all the world to see.

That biblical reference of “a city upon a hill” has been later used by four Presidents to describe their vision for America.

Cooperatives were endowed with the hope of being  “a city on the hill” in a country where individuals were often taken advantage of by the prevailing economic system. That system still exists today.

What the above examples suggest is that credit union design is not what makes the difference.  Rather it is the quality of leaders chosen to continue a firm’s legacy.

Being in the minority, such as living at the boundary between health and illness in the circumstance referred to in the funeral, is never easy.  But examples of resolution and spirit should remind us of the aspirations of our own better selves.

 

 

 

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Looking for Credit Union Prophets

In America, the public has traditionally associated prophecy with forecasts about the future.

However their religious and political context  is quite different.  In past and present  societies, they are seen as troublemakers.  Richard Rohr, a Franciscan priest and founder of the Center for Action and Contemplation describes how this “truth-telling” might be viewed today.

After reading his understanding of prophets, I wonder if the credit union movement could benefit from this voice today?  Or is each credit union’s current profit more than sufficient?

The Prophet from Richard Rohr

“One of the gifts of the prophets is that they evoke a crisis where one did not appear to exist before their truth-telling.

“Prophets always talk about the untalkable and open a huge new area of “talkability.” For those who are willing to go there, it helps us see what we didn’t know how to see until they helped us to see it.

“It’s the nature of culture to have its agreed-upon lies. Culture holds itself together by projecting its shadow side elsewhere. That’s called the “scapegoat mechanism.”

“It seems the prophet’s job is first to deconstruct current illusions, which is the status quo, and then reconstruct on a new and honest foundation. That is why the prophet is never popular with the comfortable or with those in power. 

“Prophets are difficult to have around. No one wants to claim the title or do the work because of it. In this postmodern age, everybody is uncomfortable with prophets. They yell when you don’t want them to. They ask for trouble when you could avoid it. They don’t have a politically correct bone in their bodies….

“Prophets are leaders, but not leaders of their own choosing. Inevitably, they have some sort of . . . encounter. . .They’re quirky and more than a little weird. “

Please share any experience with credit union prophets which you have seen currently.  I would like to share their message.

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Epitaph for THE Cooperative Book of Discovery

This post is a eulogy.  For 36 years credit unions were provided a comprehensive report on their collective progress.   That publishing effort grew in scope, analysis and detail while keeping the same title: The Credit Union Directory.  It is no more.

The Credit Union System’s Essential Resource

 

In 1986 Callahan’s introduced the first complete Directory of all active credit unions for the industry’s and general public’s use.   It was a complete census by state of every credit union, a task never accomplished in the eight decades since the first charter.

One reason for this gap was there was no centralized source for information.  NCUA’s call report included only federally insured data. There were approximately 1,800 cooperatively insured credit unions in over 20 states that offered a choice of share insurance.

Prior directories were periodically attempted.  One listed the  4,000 largest credit unions by assets.  Some state leagues published listings, but they were not for public use.

A Calling Card

The Directory was Ed Callahan’s  idea.  At great expense, Callahans had established a database of all NCUA data, augmented with cooperatively insured information. We believed the industry and public would beat a path to our door for the latest, most complete data on credit unions.

The company had an outstanding invoice for over $100,000 with a local service bureau that managed the information.  No one came knocking.  Ed decided we needed a “calling card” to let people know about our analytic capability.  Hence the first Directory, with 1985 data listing every credit union, was released at the  February 1986  CUNA governmental affairs conference.

The initial product was a literal directory organized by state listings in credit union alphabetical order.  The single line of information with the credit union was the CEO’s name, contact information and summary financial data:  total assets, loans, members and capital.

As the Directory became an annual effort, the content expanded.  Advertising was added to support production costs.  The concept of  a one stop information resource  became widely valued.  At least three other competitors entered the market:  NCUA printed and gave away a  state listing of its insured; Thompson’s added a credit union volume to their bank and S&L publications; and CUNA attempted its own version.

All subsequently dropped their “directory”  efforts.  For Callahan’s, this calling card expanded with more analysis and industry listings.  It demonstrated the firm’s software capabilities that eventually led to the development of Peer to Peer as the premier industry analysis product.

Annual  Publications:  The 2006 Example

The listings remained central, but the annual analysis expanded in multiple ways.

New reference material was included to give added value and market reach.  For example, the top 100 Canadian credit unions were listed in the belief this might open up a northern market.  It didn’t.  World Council information was presented showing the US totals in a worldwide context.

An example of this ever expanding effort is the 2006 edition which totals 646 pages in four tabbed sections.

Each year, the Directory’s cover was redesigned. A theme summarizing the movement’s progress was introduced .  In 2006, the message was Communities United by the Cooperative Difference.

The first tab, State of the Industry, presented the industry’s consolidated balance sheet and income statement, key trends and auto  loan share by state; 30 “best in class” leader tables;  an analysis of the corporate network;  a listing of CUSO’s, credit union auditors, leading technology providers and a list of mergers.  Contact information for all state and federal regulators, leagues and trade associations and Canada’s largest 100 credit unions were provided in just the first 125 pages.

Tab two was  the traditional listings provided by state.  Each state was headed by a five year performance summary and a top 50 by assets table preceding the alphabetical list of all the credit unions.  Seven pages were devoted to comparing state by state performance on key ratios.

The third tab was a cross reference listing where a user could look up credit unions alphabetically by name,  by city, or by the manager’s last name.  For example, seven Carlsons and 65 Johnsons.  Buffalo, NY, reported 42 credit unions with home offices in the city; Carmel, IN, had just two.

If one wanted a quick summary of credit unions by employment, the reader could look up credit unions that had Post Office or Postal, IBM, State Farm as a first name.  Or, if looking for parish-based credit unions, one would find 185 credit unions whose name began with St. (Agnes, et al ).

The final section was a buyer’s guide which showed 115 vendors serving the credit union community.   And helped to underwrite the Directory’s printing costs.  The sponsor for 2006 was Charlie MAC.  For those not familiar with US Central, this was a secondary market initiative for credit unions to compete with the government sponsored GSE’s.

The Incalculable Resource

Each edition attempted to list the major system components and the businesses serving credit unions.  To address concerns about timeliness of the data (publication occurred about 4-5 months after the financial information), Callahans in 2006 created a “Directory Online” with 24/7 access.  This digital version was updated with the latest financial as well as contact changes.

By publishing annually, the industry had a comprehensive set of performance benchmarks in one volume.   Who had moved in or out of the top 200?  How many credit unions have home offices in DC?  Or,  what states have the fastest growing coop system?  While the information was at a point in time, it was a starting place for limitless stories and analysis, then or in years later.

Leaving the Scene

Callahans last annual printed Directory was volume 36, published in 2021 using December 2020 data.  This edition had 221 pages including a 29-page buyer’s guide.

There was industry analysis with ten-year trends, leader tables, and peer group comparisons.  There was still a state-of-the-state section in which all the individual credit unions were listed.  Contact information was also provided for CUSO’s, Corporates, regulators, and trade associations.

There was no introductory analysis or theme, undoubtedly hindered by the Covid lockdown and recovery during the production cycle.

In 2022, there was no printed edition.  The industry trends, top 50 or 100 listings, the corporate network and state summaries are available online.  If printed, the  information would  total 132 pages.  There is no advertising or buyer’s guide.

Does It matter that there is no longer a printed Directory?

There are certainly virtual substitutes for some of the data listings and contact information.  One can search on NCUA’s site for peer information and trends.  Pulling other categories of information (CUSO’s, trade associations) would require someone with a knowledge of relevant  resources.  If interested in a year’s key industry events such as large mergers, charter conversions, bank purchases, or even newer data sets such as subordinated debt or goodwill, one would have to find a credit union database resource such as Peer to Peer.

The Directory’s function expanded assembling  performance and individual credit union data to serve as a starting point for insight and analysis.  At a macro level, the Directory was the only source for  ten-year financial trends and a two-year balance sheet and income statement that includes all credit unions, not just NCUSIF insured.

But the Directory was more than a useful compilation for quick reference.  It presented the industry’s multiple connections and comprehensive participants.  Each volume was a census of all key movement participants (by name and organization) and  an almanac of the  year’s trends.

Each edition presented the collective industry’s performance, information missing from all other yearend reports.  For example, NCUA’s Annual Report records its activities and financial audits, not credit unions’ role in the economy.  Trade groups report  their advocacy, education and  information services.  Individual credit unions promote their own success and accomplishments.

What is lost is the sense of cooperative identity, a shared destiny and a system with special purpose that serves over 100 million member-owners.   If one were to understand the history of the credit union system, especially the post deregulation era, the Directory would be the major resource.

This bridge connecting the past to the present no longer exists.  Each future writer or researcher will have to find their own way to the history.

The Directory memorialized multiple national, state and local  milestones for a movement whose future should be more consequential than its past.

Without this collective benchmarking, can there be a shared purpose? If one fails to celebrate birthdays, anniversaries or other key events, life goes on.  So will credit unions but with less of a sense of who they are and where they have come from.

A movement without a collective memory can slowly disintegrate into individual contemporary stories.   The shared destiny is lost as firms follow their own independent journey. A Community United by the Cooperative Difference no longer has a record of who they are.

 

 

 

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Two Messages from Clayton Christensen

How would the author of “disruptive strategy” counsel credit unions in this time of rising rates and tightening liquidity?

I met Clayton Christensen  following his participation on an expert panel debating the future of higher education and its ever increasing costs.

His message was that college and post graduate institutions were subject to the same disruptive challenges that he had described in multiple businesses.  His theory explained why successful companies often fail even though they appear to have a dominate competitive position.

Further he announced, during the panel, that he would inaugurate such a disruptive effort at Harvard Business School with an Internet course based on his strategic  theory.   I asked if Callahans might talk with him to see if  this course might be a resource adaptable for credit unions.  He gave me his card, his administrative assistant’s name was on the back, and said to call and make an appointment.

Several months later a team from Callahans went to Cambridge.MA to meet his colleagues filming the course modules  for Internet delivery.  After taking the course and adapting concepts to the cooperative context, Callahans launched a course on disruptive strategy for the credit union market.

Even though Christensen died in 2020, today his course on disruption lives on as part of the Business school’s online offerings.

From the Bottom Up

The central theme of successful disruption is challenging market leaders from the “bottom up.” Credit unions might say from the “grass roots”up.

Successful firms generally grow beyond their initial markets and increasingly focus on more profitable segments.   They neglect early and familiar targets to go after more lucrative ones by expanding with more sophisticated and complex solutions.

Then their lower end markets  become vulnerable if new entrants better define the “job to be done”  and add value where the larger firm is no longer investing.  A new entrant gains a foothold at the lower end and can then relentlessly innovate to move up market.

His theory is a framework that asks questions and introduces concepts to sharpen leaders’ strategic intent.  It is not a model dependent on technology driven advantage, but one of business model disruption.

The cooperative design based on local, defined markets (members),  the values of service and collaboration, and self-funded financing is very compatible with Christensen’s theory. For many decades credit unions have been an example of his strategy playing out in consumer financial services.   Their success is measurable and market gains real.

However as credit unions became more financially self-sufficient and the focus on original groups lessens, market ambitions expand.  Today a number of credit unions seem to embrace the “top down” pursuit of more affluent consumers served by regional and national financial institutions.

Some credit unions openly proclaim multi-state, national,  and even global market ambitions.  Others purchase entry into new markets by buying banks or pursing mergers far distant from their proven success.

In doing so credit unions are sacrificing their  competitive advantage of alignment with members or groups.  These credit unions have become “market players” going wherever an opportunity appears, versus serving a distinct area or need.

The Liquidity Challenge

A current example.  Many credit unions today are facing liquidity pressures.  Slowing share growth, continuing loan demand, underwater investments and rising rate competition for shares pose new challenges versus the decade of easy money.  Some respond the way the big players do by bidding for money with CD rates currently in the 4.25-4.75% range and advertising openly for anyone’s cash.

Others have taken a look at their core strengths including local relationships, community presence, branch networks and the fact that many employers are looking for a special benefit to attract and retain employees.   Their back-to-future share growth with new members’s savings rely on credit unions’ core local advantages and reputations within communities that took years to establish.

A Second Message

The public reputation of credit unions rests partly on their values and democratic origins.  One CEO’s mission statement simply reads:  Do the Right Thing.  In the for-profit competitive consumer finance markets, this appeal is distinctive.  Value is about more than price or even great service.

The New York Times columnist  David Brooks  distinguishes between what he calls “résumé virtues” and “eulogy virtues.”

“Résumé virtues are what people bring to the marketplace: Are they clever, devoted, and ambitious employees? Eulogy virtues are what they bring to relationships not governed by the market: Are they kind, honest, and faithful partners and friends?”

In a YouTube video Christensen summarizes his understanding from his own life and work in a 2012 Ted talk How Will You Measure Your Life?  This 19 minute video opens with his discussion of why successful companies fail.  Then he extends the analysis to his own HBS classmates lives and the personal disappointments they have encountered while achieving material success.

(https://www.youtube.com/watch?v=tvos4nORf_Y)

The source of both corporate and personal disappointments is the same.  We live in a system that rewards short term achievements, investments that will pay off now, not in the years to come.  Creating successful relationships whether in family or businesses, does not result from short-term thinking.

He closes  with how to “measure” your life’s success at minute 17.  If you have only two minutes, listen as he presents what David Brooks calls the eulogy virtues.

Christensen’s Two Messages

Christensen’s  theory of disruption is a classic way of understanding credit union advantages from a strategic standpoint.  The framework focuses on long-term competencies combined with “job-to-be-done” tactics.

This approach asserts that it is not the demographic characteristics of the member that motivate market choices; rather it is what the member wants to accomplish that determines which financial firm the member will chose.

The second point is equally consequential.  Your “success” (personal and professional) will depend on “how well you help other people to become better.” Even if this just entails giving your business card to a stranger in the audience.

Both observations seem to me an endorsement of  a credit union “calling.”