A Member’s Question

If credit unions are a special idea about individuals’ collaborative financial efforts, we should care about human values and human rights when implementing this design.

I received the following from a member who had read several previous blog posts about mergers and just lived through the experience:

Recently, I was reading some of your articles, such as from 2017 regarding the issue of unjust enrichment by insiders in mergers. (Credit Unions for Sale) I didn’t realize what a longstanding problem this has been.   It seems like the whole structure is designed to enable those in power, in charge, to take advantage of those with less power, authority, resources, knowledge, and education.  

I don’t know who are the worst actors – the regulators who give the illusion of regulating to protect consumers, the BOD’s who are supposed to be looking out for members’ best interests, or the executive management who selfishly negotiate these deals at the expense of members, and try to convince members to give up their rights, their credit union, their net worth.   It’s a sickening rigged game. 

I see the motivation for the insiders who have millions of reasons for this, but how does the BOD benefit? Or regulators overseeing an industry decline in numbers and reputation?

A Rigged Game

Welcome to what democracy looks like with one- party government.  No loyal opposition.  In fact, no opposition, just obedience. Be a loyal consumer.  A satisfied customer, but not an owner.

The theory of cooperative design is that the one vote per member in election of their board members will act as a democratic check and balance to ensure the owners’ interest always come first.

It is an extremely rare event for those in power to fulfill this voting practice.  Boards become self-perpetuating; members are rarely encouraged to attend let along participate in the annual election.  And there is no voting, just acclimation for the board’s nominees.

The result is that boards and CEO’s believe they alone are responsible for determining the priorities and future of the members’ organization.  Even if this means transferring a long-standing, sound communal charter’s legacy  to another credit union where owners receive nothing and those last in charge cash out, often big time.

Democracy in a One-Party State

The defense offered by the regulator and the credit unions involved in these private deals is the members voted for it, often by overwhelming margins.

But what kind of a “vote” is taking place when those in charge control all the financial resources of the institution, the means for direct member and public communications, the timing and presentation of the election process, and the representation of regulatory oversight and approval?

The situation is the authoritarian’s dream of one-party governance. This is pretend democracy.  The people are told to vote for what the Board and executives will proclaim is a better future; albeit no longer under your control.

The results show the effectiveness of one-party rule.  Over 99 percent of mergers are approved.  An incumbent’s sure-fire strategy for self-enrichment.

To assert, as NCUA and state regulators routinely do, that the members’ voted for this is an  abdication of responsibility for member-owner rights. It destroys the core of credit union character. It demonstrates regulators as powerless or clueless in the face of this predatory  cooperative plundering of members’ equity. There is no governance by members, just subservience.

There Are No Limits

Ambitious CEO’s and boards see these free takeovers being negotiated daily.  There is no limit to the combinations being planned.  Just payout the initiators and receive the billions now up for grabs-for free.  The stakes will only get bigger, the payouts more creative and humongous, and the capitalistic model of acquisition dominate cooperative strategy.

But the history of one-party rule is not encouraging for the  long run.  The consolidation of power and resources grows, the lack of any meaningful role for owners is blatant,  and the sameness of all the “better products and services” becomes apparent to all.

Ultimately, the people will see what the member above observed.  The media will highlight the gaps between purpose and practice.  And the disruptions will start, small isolated at first, but real and threatening to those in authority.  Examples are already underway.

Most importantly, credit union leaders and members will learn what one-party rule means when this occurs with the federal regulator, not just in their individual institutions.  Then maybe the virtues of democracy will be embraced once again.

 

 

 

 

The End of Very Low Rates?

As the US economy  continues to react to various Trump fiscal initiatives,  some still hope interest rates will fall to the levels of the first Trump era.

That extremely low interest rate period, begun in response to the financial problems of 2008/9, was itself unique.  This analysis from yesterday’s Marketplace’s Daily Wrap suggests why that may not occur again.

As the GOP spending bill winds its way through Congress, the trajectory of U.S. federal debt, now 100% of GDP , is in the balance. What Congress and the president do with the finances of the U.S. government will seep out into the rest of the economy. Specifically, if the government must borrow a lot more, it affects the cost of borrowing for pretty much everyone else.

Recall the period before the pandemic when interest rates were super low. Where people were “borrowing money at 3 and 4% for commercial real estate transactions or a house,” said Alice Frazier, president of the 154-year-old Bank of Charlestown in West Virginia. “The low interest rate period was not a normal period.”

It was a dream, and we’ve woken up from it.

Rates were low back then for many reasons. Inflation was not an issue. Also, after the financial crisis, the Federal Reserve started keeping short-term rates low and working hard to push long-term rates down. And investors around the world were traumatized by the crisis and particularly interested in safe assets, accepting low rates for that purpose.

All of that has now changed. Inflation awoke, the Fed raised rates and, over time, international investors were less accepting of lower yields. . .

Would-be homeowners started to think twice about that mortgage. “And on the business side there were investments, but our borrowers were much more measured, and this is operating type companies — landscapers or manufacturers,” sai d Frazier.

This is generally what happens when interest rates in the economy go up.

“Everything that the firm or the private sector would contemplate doing gets a little bit harder to do,” said Jesse Schreger, an associate professor at Columbia Business School.

Higher rates haven’t been fun, especially if you’re a buyer trying to get a mortgage, a startup trying to lure investors, or a struggling restaurant chain trying to stay afloat. But so far, the economy as a whole has been strong and able to handle it. . .

“If you take a look, for instance, at consumers, at households, you know, we think they’re in a very sustainable place. Balance sheets are relatively healthy. The use of credit and leverage does not appear unsustainable,” said Josh Hirt, a senior U.S. economist at Vanguard. . .

But the question right now is whether borrowing costs across the economy, after going up a notch since the start of the pandemic, are going to go up another, perhaps more unpleasant notch — and not just for the private sector.

“I think that really is gonna come down to the key question: how are we going to manage our fiscal situation in the U.S.,” Hirt said.

 

A Critical Leadership Capability with Example

A professor in the Kellogg School of Management at Northwestern was asked the most important skill he learned in his consulting work.  His answer:  Asking the right questions.  He commented:

PhDs, like many students, excel at defining problems by asking the right questions.

“It’s important everywhere—in academics, in industry, and otherwise—to ask the right questions and choose what to work on, more so than actually knowing how to figure it out,” Gordon says in his keynote address for the Tepper School of Business at Carnegie Mellon University. “The skill is really crucial, and it will take you everywhere.”

I would add to his list, the most important issues of public policy which confront credit unions.

An Example: Questions of Public Policy Priorities for Credit Unions by Ancin Cooley

If Not Now, Then When?

I try to wade into these conversations with as much nuance and care as possible. I understand the layers, timing, political cycles, and just how hard it is to win in Washington.

So when I say this, I say it with full respect for the effort that went into protecting the tax exemption, again. That work is meaningful. It matters. And I don’t take it for granted.

But now that we have a slight intermission before we hit repeat on this tax fight ritual. —I have some honest questions.

Because it seems like every year, every cycle, this issue is always the centerpiece of our advocacy narrative. It’s always the rallying cry. The headline. The thing we organize around.

And my question is:

When do we get to talk about something else? Not instead of—but in addition to?

When do we apply that same level of coordination, messaging, energy, and visibility to:

Member-facing issues?
Governance questions?
Structural threats?

For example:

Can we discuss why America’s Credit Unions is advocating against succession planning requirements?

Can we discuss why America’s Credit Unions continue to pursue changes that would further weaken the role of supervisory committees? We lose several credit unions annually due to a lack of basic internal controls.

If we can mount national campaigns to protect our tax status—and we should—then why can’t we have a transparent, public conversation about the internal reforms that will shape the future of cooperative governance itself?

When’s the right time to advocate for member-facing issues to help credit unions grow and deliver more value to their communities?

Mainstreet” Issues like:

Student loan reform affects members’ financial health and directly impacts credit unions’ bottom lines (past dues, charge-offs, and additional provisions).

Corporate ownership of homes prices out local families and limits credit unions’ ability to provide mortgages (Most credit unions over $1 billion have large mortgage portfolios).

These are win-win opportunities. They intersect with both member interests and credit union sustainability. They build relevance. Trust. Brand strength.

But they rarely seem to rise to the top of the agenda if discussed at all.

I get that during the ceremonial tax battle, it may not feel like the right time for deeper, messier conversations. But that leaves me with the final question:

If not, then… and not now… When?

I would add: What Questions are you, your board or your external consultants raising for your consideration?

 

Solid Anchor: Pictures and Memories from Vietnam

          A recollection on Memorial Day

The Vietnam War was a divisive period in American society.  Duty called people in many, often differing diections.

The pictures below are of Solid Anchor a combined Vietnamese US Navy base on the Cua Lon river at the very tip of the Ca Mau penisula.  This stage of the war was relatively quiet.  The Seal team’s primary role was to gather information about threats from Viet Cong or North Vietnamese presence in the area. These pictures are from January and February 1971.

Leaving the USS Windham County (LST 1170) to go to Solid Anchor.

Passing an Island on the way

Large swaths of vegetation and lowlands destroyed by agent orange spraying.

The river front at the base dredged from the  lowland.  The river patrol boats at the dock.

The water front, an  artificial peer from sand filled 40 gallon drums.

A patrol boat disabled by a mine.

VIew from a base watch tower, manned 24 hours.

Joint command flags. Base main office with chow hall and for paying troops with military pay certificates (MPC) not dollars.

The Seal team’s hooch, Happiness is . . .  The boy with snake had found a Viet Cong cache of 200 grenades.

Sunset at helo pad with two gunships always ready to lift off at the first sign of trouble.

Dawn on helo pad.

Day after some incoming. Bunkers and metal for airstrip. (January 9, 1971)

At setting sun down main street.

Heading to Saigon with another huey close by to return all left over MPC which was being replaced with a new issue.

A straight canal on way to Saigon.

A Coast Guard ship  deployed  with our LST.

Heading to homeport after being gone for over six months.

Waiting for dads’ return atYokosuka Naval Base, Japan.  Lara in yellow rain coat and Alix on the way.

 

Tomorrow’s Unique NCUA Board Meeting

Thursday’s NCUA board meeting is unique. Only one of the three person board will be there.

Normally these public events are fully scripted in advance.  All senior advisors have briefed each other on their members’ positions.  The staff has been given the questions directors will ask.  All actions are known in advance.  Spontaneous dialogue, let alone direct back and forth is highly unusual.

The first open board with a single member will showcase Hauptman’s approach and how a single board member questions staff.  Will it be an open discussion or just a pretend briefing with all the dialogue preset?  Will Hauptman  be able to challenge a staff response, as he has sometimes done in the past?

The Two Agenda Items

One is the quarterly NCUSIF update.  It will be interesting to learn if Hauptman brings a more transparent approach to this financial briefing.  Many issues are long standing such as:

Why does the fund’s financial statement presentation not conform with private GAP (the practice until 2010) versus governmental accounting terminology?  In all of NCUA’s three other funds, financial performance follows private GAP accounting presentation.

Will there be an informed discussion about the Funds interest rate risk (IRR) policy?  The NCUSIF below market performance (2.59% YTD yield)  and investment practice have lead to a portfolio value with a net market loss since December 2022.

For two years the normal operating level (NOL) cap has been set above the long term 1.30% with no factual analysis to support this higher level.  This cap sets the level above which credit unions are sent a dividend as part of their open-ended funding commitment in the 1% deposit.  Will the cap be reset to its historical level?

The fund has a $ 5.4 million provision operating expense in March.  Will the staff show the details of how this amount was determined?  The loss reserve is now $242 million or 1.36% on insured shares.  There have been virtually no insurance losses in the past five years.  Why is this reserve still growing relative to total insured shares? How will the closure of Unilever FCU impact the fund?

How will the savings in total NCUA operating expenses due to staff and other spending cuts, reduce the NCUSIF’s expenses for the remainder of the year?

Finally, when will the NCUSIF’s equity and 1% deposit liability to insured shares ratio be calculated using the latest data from a single accounting period. This management  calculation would be a more accurate presentation of the Fund’s true financial position.  At the moment this ratio is calculated using data from two different time periods six months apart.

The State of the Industry

A traditional part of the quarterly NCUSIF briefing has been an appendix which presents the distribution and trends in CAMELS exam ratings by asset size and numbers.

The problem with this staff presentation is that the ratings are an average at least six months old. This assumes an annual exam cycle.  The staff does not present the current industry financial trends as of the same date as the NCUSIF financials.  However the industry’s  numbers are available.

Last week Callahan & Associates presented credit union’s first quarter 2025 financial performance. Here are some excerpts from the full presentation.

Note that all of the trends are positive begining with the key blance sheet totals compared to 2024.

Will these positive trends be reported as the context for the NCUSIF financials at the same date?

Agenda Item Two: Staff Reorganization

The issue will be how were the reductions  achieved?  What reorganizations are necessary?  What are the operational priorities guiding these changes?

Will the focus be on areas where activity seems to be redundant or non-existent?  Why two legal staffs?  Can the CLF, which has had no activity for over a decade, be combined with other supervisory roles?  Why is a separate AME office necessary when for almost its entire life this function was part of the regional office staff?  Are contracts being used to replace staff functions thus giving the appearance of lower headcount but spending levels remain the same?

Finally, who is in charge?   The board’s job by statute is to manage the agency.  If a person has a question about any area of activity, who are the persons with line responsibility?  Can an org chart be published?

I would listen for any discussion about the board’s functions, scope and duties  during this period of leadership uncertainty.  What is the legal position of the General Counsel for a solo  Board’s authority?

So tune in Thursday via zoom at 10:00 AM.  Or better yet, go in person.

Building on Your Credit Union’s Legacy

Two quick examples how credit unions use their member and sponsor relationships to create resilience.

A Member’s Story

The CEO’s introduction:  We  continue to pursue our mission by living our principles and values and earn the trust and loyalty of our members.

This is a  conversation with La Tashia, a long-time member:

La Tashia opened an account with the credit union when she was 16. She had wrecked her car and needed a bank to put her insurance money in, so she chose us.

La Tashia is now 51, so through the 35 years she’s had her kids get our accounts, and now she has a 2-year-old granddaughter who is the newest member. Three generations of members that started all because of a car wreck.”

Honoring the Industry That Started the Credit Union

A New Scholarship

O Bee Credit Union and South Puget Sound Community College (SPSCC) are proud to announce the O Bee Brewers & Distillers of Tomorrow Scholarship, a $50,000 endowment created to support SPSCC students who are pursuing careers in the craft brewing and distilling industry.

As the endowment matures over the next few years, O Bee is also funding an annual scholarship of $2,000 through 2027, beginning with a scholarship that will be awarded in 2025.

With deep roots in the region’s brewing history, O Bee’s support honors their legacy while investing in the future of Washington’s vibrant craft beverage industry.

“O Bee Credit Union’s roots supporting the brewing industry go back 70 years when we began serving the employees and families of the Olympia Brewery,” said Andrew Downin, O Bee Credit Union’s CEO.

“While the industry has evolved, what hasn’t changed is O Bee’s dedication to the brewers and distillers of Washington. We’re proud to honor the region’s brewing heritage and support the next generation of brewers and distillers with this scholarship.”

 

A Poetic Political Observation

I enjoy poems that are accessible on first read.  Who Remembers Davenport tells a story of two jazz artists first encounter.  The writer sets the scene so realistically you can see it.

More than a story, he uses jazz as a metaphor for inspiration and commentary on social change.  Read the first line and last stanza again.  This is a story making a statement.

           “Didn’t He Ramble”—Fate Marable and His Orchestra
with Louis Armstrong (1920)  

            “Singin’ the Blues”—Frank Trumbauer and His Orchestra
with Bix Biederbecke (1927)

Who remembers Davenport, Iowa, in 1920,
the year the city voted Socialist?
No one now alive could cast a ballot,
and the white-boy jazzers of Scott County
Didn’t care about the Revolution, but stood
on a wharf overlooking the muddy river,
Waiting for a riverboat loaded with music
from the red-light district of New Orleans.
One of them, just seventeen that year,
had heard it hardest. On the deck
Of the paddle-wheeler, high above the dock
and its straggling crowd, a Black man lifted
His ordinary cornet and blew the world away.
No one in all of Iowa knew his name
Except that young man, who understood
his betters when he heard them.
That day he heard it all and soon he would ride
Like Armstrong up river to Chicago on a golden cornet.
You want a revolution? Music was his manifesto.

The clarity of his tone, musicians said,
was like bullets shooting a bell.

The author’s comment

“Who Remembers Davenport” evokes two jazz pioneers, one white and one Black, and centers on the moment when Bix Beiderbecke, then in his late teens, heard the greatest trumpet player in history, Louis Armstrong—an encounter that naturally had a profound effect on Beiderbecke.

The transmission of the art across generations and racial boundaries is a source of fascination for me, no matter what the art; but jazz, more than most, has reinvigorated itself many times in just this way over the decades. Perennially reborn, jazz (and most other musical forms) remains for me a central source of inspiration.”
—T. R. Hummer