In this poem published in 1927, author A. A. Milne’s words create that special feeling of a child’s trust.
Furry Bear
If I were a bear, And a big bear too, I shouldn’t much care If it froze or snew; I shouldn’t much mind If it snowed or friz— I’d be all fur-lined With a coat like his!
For I’d have fur boots and a brown fur wrap, And brown fur knickers and a big fur cap. I’d have a fur muffle-ruff to cover my jaws, And brown fur mittens on my big brown paws. With a big brown furry-down up to my head, I’d sleep all the winter in a big fur bed.
Yesterday Tanya Otsuka became the 25th NCUA board member since its establishment in 1978.
Her professional resume includes serving on Senator Sherrod Brown’s banking committee and as a staff attorney at the FDIC.
Her direct experience with the credit union community is limited.
Onboarding is a critical process for anyone new to cooperative system leadership. She has significant responsibility in overseeing and managing NCUA’s relationships with credit unions.
What Makes for Effective Onboarding?
Newcomers to important credit union leadership roles are becoming more frequent.
One example is BECU’s CEO Beverly Anderson. Her professional background was in banking. She provided an extended CU Times interview describing her transition as a first time coop CEO:
“What’s exciting about this role is, one I’m a first-time CEO, two I’m in the credit union movement for the first time, and three it’s my first time at BECU and here in the Pacific Northwest. . .
“The first six, seven months or so have really been about listening and learning. I did 30-plus deep dives with the organization, used that time to get to know the team and have them get to know me, and learned a lot about the business.
“The second thing I did was begin to understand the movement. It was very clear when I started using language like ‘profitability’ and ‘ROA,’ and people very quickly suggested I use some different language.
“It’s helped me to understand that the movement is in fact very, very different. Our return is around return to member, not necessarily return on assets, and that was a very big shift and pivot, but one that I quite relished.
“The third thing was getting to know my board – I have a new kind of boss and leader, a board. . .they are encouraging, engaging, experienced in their own right, and they have a lot of support and commitment for this organization.”
Onboarding An NCUA Board Member
Immediate board items and credit union events in 2024 will provide examples of Otsuka’s approach in her new role.
The following are questions on areas vital to credit unions as she undertakes her responsibilities.
What is her understanding of the role of the non-profit, tax exempt, member-owned cooperative system in the American economy?
Who does she turn to for advice?
How does she learn from the credit union constituencies she is serving?
Does her response to credit union issues enhance the member-owners’ role?
What is her availability and openness with the public? (e.g. Anderson’s interview above)
The First 100 Days
Credit union press accounts presume Otsuka will become Chairman Harper’s policy doppelgänger. That is, her democratic credentials mean her role is simply a reliable second vote for him to assert his regulatory and spending views on the industry.
Or, as an outsider might she bring a new generation’s fresh hope and enthusiasm for credit unions unique opportunities? Are credit union priorities for NCUA a question of party labels?
My hope is that her unfamiliarity with cooperatives and NCUA result in an enlightened voice supporting innovation with a passion for credit unions.
When one reads BECU Beverly Anderson’s learning process, there is a sense of confidence, commitment, and positive leadership energy.
That learning spirit is especially needed in this moment of credit union challenges and NCUA’s increasing peripherality.
For forty years, the NCUSIF has maintained not only its own financial integrity but more importantly, the trust and confidence of the credit union system’s members. This record of stability began in 1985 and continues unabated through 2023.
Over the same four decades the FSLIC, the separate S&L fund, failed and merged into the FDIC. The FDIC has had negative net equity on several occasions requiring an explicit government guarantee. It has constantly modified its premium model to accommodate numerous industry crisis. These include multiple premium levels, risk based pricing, an expanded assessment base for premiums, differential pricing according to institution size and other financial or accounting maneuvers. It’s equity to insured deposits has fluctuated from negative to 1.1% at June 30, 2023.
During this same period of national economic and interest rate cycles, the NCUSIF’s unique cooperative design allowed it to remain strong. The fund’s yearend equity level of 1.2-1.3% of insured shares has always been met. Premiums have been necessary only four times in this four decades.
“D” For Deposit Day
This fundamental redesign was a two-year industry wide effort.
This priority came to fruition in January 1985 when the first 1% credit union deposit underwritings for the new insurance model were delivered to NCUA. The event was pictured in NCUA’s 1985 Annual Report (pg 21):
(caption: NCUA Staff Member Wayne Robb accepts a hand-delivered capitalization deposit in the unheated Washington lobby of the NCUA.)
The Chicago Tribune described this historic change in an article later that year:
“The solitary messenger clutched a plain brown envelope as he picked his way carefully across a deserted, icy sidewalk near the White House. In- side was a check for $13 million.
“It was inauguration Day, 1985, a morning most memorable for the raw cold that forced cancellation of a parade and drove President Reagan inside to take his second oath of office.
“But for the messenger, and for the trio huddled around an electric space heater waiting for the check, it was also the deadline for credit unions to deliver payments to the new-look federal insurance fund that backs the deposits of 51 million credit union members.
“The $13 million check, the largest single payment, was from the huge Navy Federal Credit Union in Washington.
“The little-noticed transaction–one of more than 7,000 totaling $480 million that frosty January weekend–illustrates how the nation’s 15,000 federally insured credit unions have quietly put their house in order.
“Edgar F. Callahan Chairman of the National Credit Union Administration said credit union’s willingness to embrace a new approach to shoring up their insurance fund was just one example of how the industry has recovered from the hard times of 1981.
The challenge for his successor, Callahan said, is to keep Congress and other policy-makers aware that credit unions are unique.
“You’re in an industry this often grouped with banks and S&L’s and there’s a tendency to get painted with the same brush,” he said.
“There is a danger to getting sucked into that atmosphere. My successor will need to maintain that credit unions have been ahead of the problem curve and need not be grouped with other financial institutions.”
The Workup for Change
The NCUSIF was created in 1970, with no government-provided startup capital. The Fund’s design mimicked the premium base of both the FDIC and FSLIC each which had a 35-year head start accumulating retained earnings. But from 1979 onward the premium approach, even with doubling assessments, did not prevent the Fund’s equity ratio from decline.
In April 1983 the NCUA presented a Report to Congress on the Credit Union Insurance Fund. The Report was over 130 pages in seven chapters responding to specific Congressional questions and making four recommendations:
All credit unions, federal or state, should have a choice of insurer;
Capitalize the NCUSIF with a 1% deposit of insured shares;
Authorized at least one uninsured share per member as capital;
Keep the insurance fund independent from FDIC/FSLIC due to the unique nature and role of credit unions.
The Report included direct quotes from leagues, private cooperative insurers, credit unions along with a history of credit union stabilization options prior to NCUA insurance.
Following the publication of this Report, NCUA and credit unions working in partnership developed an alternative to the traditional premium model describing it as, A Better Way. It drew upon the two decade experiences of private insurer alternatives. It rested on the fundamental cooperative concept that members should own their own fund.
The financial logic and analysis was summarized in a video sent to all credit unions and interested parties on the NCUA’s Video Network. The following is an excerpt from this longer analysis, A Better Way:
This redesign was achieved by challenging long time conventional governmental practice. The alternative was drawn from cooperative experience and principles.
Trust in the Fund was not due to more regulation or open ended premium assessments. It was constructed on mutual commitments including frequent and audited financial transparency, accountability for expenses and legislative guardrails.
This capacity to “imagine differently” resulted from collaboration and open communication at every step. The historical financial analysis (above) and future forecasts were public, for all to review and refine.
The effort was not a sudden epiphany. Rather it resulted from hard work, shared viewpoints, a desire to create something better and courage to change.
The First Year’s Bottom Line
At the end of fiscal 1985, the fund held $883 million in 1% deposits. Earlier in the year each credit union received a pro-rata equity distribution (in excess of the Fund’s .3% equity) of $80 million to meet the January 1% funding obligation followed by a $30 million cash dividend at yearend.
This 12.5% return on the 1% capital deposits was on top of fact that this was the first year since the Fund opened in 1970 that no premium was charged. (page 5, 1985 NCUSIF Annual Report)
In future blogs I will present how the fund navigated specific economic and industry challenges.
Continued success does not rest on design alone. Credit unions must also exercise continuous oversight of NCUA’s vital responsibilities for fund management and supervisory oversight.
Scott Galloway is professor of marketing at NYU’s Stern School of Business. He is a prolific writer, commentator and provocative analyst of America’s economic successes and failures.
The following is an excerpt from a much longer December essay on current trends titled Prof G Person of the Year:
The real Person of the Year in 2023? A: Money.
I’ve experienced this firsthand, watching as faculty who can’t teach or pen relevant research create a weapon of mass distraction from their mediocrity: DEI. But that’s not what this post is about.
America is becoming more like itself every day: Money is the arbiter of … everything.
There’s a view that the rise of money is a good thing. Or at least not all bad. Human society has never been fair, and as long as people are status-seeking, competitive animals in a world of scarce resources, it won’t ever be. Historically, many of the lines that divided society traced innate characteristics like race or sex, were based on inheritance, or were determined by the exertion of physical strength.
Money doesn’t care about any of these things, and it has washed away barriers in ways that potentially make institutions more accessible. There are now nine Black American billionaires. Good news — and their rise is correlated to an increase in civil rights.
What stops this from being a Hallmark channel version of capitalism is that money, when not reinvested/redistributed (pick your word) quickly pools and concentrates, and innovation and competition decline. “Competition is for losers,” is how Peter Thiel puts it. And he’s following through, buying Senate seats (his protégé, J.D. Vance, is leading the charge to defund Ukraine) to secure the influence of his money.
We aren’t going to end the power of money any time soon. In an economy increasingly run on financialization, with so much wealth in circulation, our objective should be to ensure that it keeps circulating. Money = power, and power should be distributed as widely as possible. . .
My Comment
Galloway’s critique is one of the reasons for cooperatives such as credit unions in a capitalist economy. That is until the alternative begins to act like capitalists.
I believe the greatest challenge for credit unions is not external–competition, economic uncertainty or technology disruption–but rather internal. That is, the loss of confidence in who we are and how we try to counter the inevitable goals of more and more money and power, not for members, but for our personal and institutional ambition.
The greatest challenge is how do credit unions re-engage with members, not as mere customers, but as real owners in the “distribution of power” as Galloway describes it.
Yesterday the treasury market closed at these yields for the maturities listed:
Yield Maturity
5.50% Overnight
5.55% One month
5.46% Three month
5.24% Six month
4,80% One Year
4.33% Two Year
3.95% Ten year
This inverted yield curve, where short term rates exceed long term, can be an ideal time for asset management.
This is because return and liquidity are both optimized by staying short. If an asset or investment manager is matching with specific liabilities, the prospect of a duration gap between asset and liabilities can be minimized.
This is a Goldilocks ALM environment where return and liquidity are both optimized. By going long now, an investment manager will have a lower return versus staying short. That might seem like a surefire market bet as Chairman Powell has forecast several rate reductions this year. That is until inflation possibly comes back, and further reductions put on hold.
The Credit Union Opportunity
An additional advantage, besides reducing ALM mismatches, is that it allows balance sheet management to remain agile. Shorter maturities provide more opportunities to respond to market and/or liability changes.
A prime example is NCUA’s management of the $22 billion NCUSIF investment portfolio. The fund continued its 7 year ladder as rates went to near zero in 2019-2021. When the market turned, the entire portfolio was underwater, burdened with an average duration of almost three years.
Through October 2023, the year-to-date return on the Fund is 1.92% and the portfolio reports a $1.7 billion unrealized loss.
When looking at historical trends, a yield on the NCUSIF portfolio of just 2.5% would result in a breakeven, that is stable, equity ratio in almost all years.
Recognizing this liability target for asset returns, makes NCUSIF investment decisions easy in this rate environment. By moving from overnight to maturities up to two years, the yields would be more than sufficient income to maintain the Fund’s equity ratio at or above 1.3% for any scenario.
Many investment managers were surprised by the Fed’s rate reversal to counter inflation. Today’s interest rates provides a rare moment for stabilizing both liquidity and return for credit union portfolios and the NCUSIF.
The headline at the end of 2023 summarized the prior year outlooks: “Market Forecasts Missed Mark in 2023.” (WSJ December 31, 2023)
Most observers in 2023 thought a recession was inevitable. The Fed’s rapid rise in rates to counter inflations was intended to slow consumer demand. That reliable indicator, an inverted yield curve, had indicated negative growth was inevitable for almost six months entering the year. The economy would slow, unemployment rise and the stock market falter as a result.
Yet two of the three major market indices hit all-time highs and the S&P 500 fell just basis points short of its peak. The economy recorded a higher than normal average GDP growth. The consumer is still spending.
This macro-forecast miss should be a cautionary note as we enter 2024. Future forecasts, no matter the model used, are not facts. They are guesses often based on assumptions reflecting the users’ biases or their institution’s role in the economy.
What is Money for?
To justify an investment decision today by forecasting a hypothetical future can lead to poor outcomes. A current example is what will be the role of major head office complexes in an era of hybrid or remote work forces? Or, what is the value of assets acquired in a low interest rate environment versus the rate reset now occurring in the economy?
For credit unions, the preliminary numbers indicate that 2023will record the lowest share growth in decades. This balance sheet slowdown will influence many decisions about how and where to invest in the coming year.
Those investment decisions will reflect the values, not just priorities, of each credit union’s leadership team. Will the institution spend to buy growth from external sources? Will it invest in enhanced delivery capacity? Staff skills? Member education and well-being?
Each credit union has a different context and history in making this fundamental decision about how they will spend to enhance their role in the economy. As in the case of individual choices, that spend will reflect how leadership understands the institution’s purpose.
The slow growth in 2023 may motivate us to find something new to get back on a normal expansion. But it may be just as wise to identify what got the credit union to this point. Are those values still the ones to guide investment priorities for this year? That is, “don’t let be forgot the “auld acquaintance” of who you are and where you come from.”
“All social entities or movements need dreams, which can be defined as an indispensable capacity to envision a future for themselves that considers both the practical means at hand and a higher ideal. Societies that do not dream are doomed to die.
“We have no knowledge of any human community where men do fail to dream,” writes Irving Kristol. “Which is to say, we know of no human community whose members do not have a vision of perfection—a vision in which the frustrations inherent in our human condition are annulled and transcended.”*
Source: *Kristol, Two Cheers for Capitalism, pg 153
JPMorgan’s $4 Trillion Balance Sheet Widens Lead Over Rivals – Firm has added the equivalent of one Wells Fargo since financial crisis
“As the spring bloodbath among regional banks began, nervous depositors with more than $50 billion began showing up at JPMorgan’s door. Bank executives went on to raise expectations for net interest income four times throughout the year, eventually pulling in so much cash that managers have taken to warning of “over-earning.”
“That’s put JPMorgan on track for the biggest annual profit in the history of American banking. Analysts predict that by the end of this month, its annual net income will be 36% higher than last year.
“By comparison, the combined earnings of the next five largest banks looks to be about 1%. For JPMorgan and its chief executive, Jamie Dimon, it was a year like no other.” (Source: Bloomberg, December 27, 2023)
As we turn the calendar’s page, which approach will be your credit union’s priority?
Yesterday’s post on The Bank of Dave was a tru-ish movie about an actual effort to organize a local financial institution focused on the needs of the town of Burnley. Dave Fishwick, a real person, was the hero. The antagonists were regulatory bureaucrats, lawyers and of course entrenched financial institutions.
As in It’s a Wonderful Life, the founder Dave is portrayed as someone serving the common good versus personal profit. The movie’s message is that this person’s purpose is one that present day society should honor and support.
How are credit unions portrayed in popular American culture? Are there any movies, books, plays or other artistic recognition of their special history?
Last night I attended a performance of The Seafarer, a play about Irish life by Conor McPherson. The scene is Christmas eve. The four personal friends drink for camaraderie and to cover the darkness in their lives.
A fifth character (Lockhart), the devil in disguise, enters to participate in a poker game, the main action (after drinking) of the second act.
This inebriated poker rounds are a metaphor for Lockhart’s stated intention of capturing the soul of Sharky, a character trying to give up drinking.
During the final betting round, the stakes go higher, and all raise with the last money they have on hand. At that moment the lead character challenges one of the other players, “Where are you going to get your stake? From the credit union?”
In the midst of this realistic-surrealistic tale is a direct reference to a financial reality an Irish audience would understand. The play was written in 2006 as credit unions were becoming more widely available in Ireland, a generation-long process.
Similarly, The Bank of Dave is set in the post 2008/9 financial crisis in Great Britain when consumer lending was unavailable. Current day viewers would be familiar with the real circumstances motivating Dave’s initiative.
American Culture and Credit Unions
Where and how are credit unions referenced currently or in past American literature? Is there a Norman Rockwell painting that illustrates this financial opportunity for a common person? Or a story of a local entrepreneur lifting up the community with a cooperative charter?
Is the credit union story so prosaic that the occasional coverage in the business section of the paper or on CNN/MSNBC captures our public reputation and contributions?
Have the many remarkable achievements of local credit unions been so taken for granted, that they are now just another ready option in the financial marketplace?
Have credit unions so lost their unique cooperative character that American culture and ordinary citizens, no longer see them as doing something special?
Just released and streaming on Netflix is a movie The Bank of Dave. Set in Burnley in the north of England, it is the story of a local van seller who sought the first new banking license to be issued in 150 years in the UK. It is a contemporary version of Frank Capra’s It’s a Wonderful Life.
Dave’s intent is “not about me making money” but creating jobs and the quality of life for the whole community. Profits will go to charity.
For the Financial Regulatory Board, the question is not can it succeed, but rather should it exist?
All the incumbents want to preserve the status quo where a few, large “financial supermarkets” dominate the economy. Dave’s local proposal is not the “right sized bank.”
Dave must overcome established bureaucratic opposition, a very high capital requirement (twelve million pounds) and entrenched scepticism that a new financial model is necessary.
You can read the status of his efforts today in this article about the movie, Dave Fishwick’s life and his ongoing campaign.
Although he faced resistance at every step, Dave eventually made good on his dream, opening Burnley Savings and Loans in 2011, and using “Bank on Dave!” as the company’s slogan.
The Message and Credit Unions
Dave in life and in the film is a pillar of the community. His dream is political, not just financial. Banking should not be reserved for the rich and powerful. Rather in a community, it is the ordinary people who define what that institution should be.
His goal is to have a bank that “looks after the community.” He wants a better way, than the current system, of helping each other where and how we can. That is Dave’s vision of what community is about.
The parallels with the credit union story are many. This includes the entrenched resistance to new charters and the ever present temptation to leave behind those that created the institutions which dominate markets today.
The Bank of Dave is a timeless story about money and who gets to control its use and distribution. It is a reminder that financial institutions are built first on trust in the people who lead them.
When that trust and connection is lacking, then others will move to fill the needs that are no longer served.
If you still need convincing about the Dave’s of this world, here is an interview with this real Dave.
