Author: Chip Filson

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The GAPS In High School Financial Education Courses

In 2022, only 22.2% of high school students are required to take a personal financial course.

Three states have a 100% course requirement.  These are Mississippi, Missouri and Virginia.  Florida has one of the lowest participation rates but has begun implementing a state wide requirement.

Outside of the six states with near fully implemented requirements, only 9.3% of students in America have guaranteed access to a financial education course.

This data is from an article in Visual Capitalist, published on May 17, 2022.

What is Financial Education?

Course work can range from the very practical tasks of  managing a checking and savings account, to subjects such as budgeting, differences in stocks and bonds, and even understanding the filing of taxes.

Credit unions were founded with education as a core value.  Financial education is key to financial literacy.   A lack of financial literacy is a major factor in delinquency and low credit scores.

Credit unions, especially those serving schools, have pioneered classes for adult education.  Many offer accounts for children of family members.  Education credit unions have  established student branches as a means of giving students hands on practice with real money transactions.

Need and Coop Capability Align

Credit unions, especially those serving schools, have pioneered classes for financial education.  Many offer accounts for children of family members.  Education credit unions have  established student branches as a means of giving students hands on practice with real money transactions.

The article’s graphic and data clearly show there is much to be done.  This is an ever-present student need and a credit union skill.  Expanding access to financial education is a legislative priority with 48 bills pending in 18 states.

Moreover, adults support this school-based effort as statistics suggest that up to a third of parents never discuss personal finances with their children.  Many parents wish they had been required to take a course themselves.

Becoming a resource for high school classes on financial education is an example of cooperative priorities visible to the next generation of members who are essential to sustaining the movement.

If you have examples to share, I would like to provide these stories in later posts.

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Field Notes  for Thursday

The Employment Challenge

From CEO Bill Burke’s May 2022 report to his team at Day Air Credit Union, Dayton, Ohio.  The opening comment:

Best Place to Work

“It’s a crazy employment market out there right now.  A fair number of companies (mostly in the service industry) have increased their minimum wage.  This is being done to recognize that inflation has taken hold (no one uses the word “transitory” anymore) and we’re reminded of that inflation every time we fill our fuel tanks or go grocery shopping.

“As a Best Place to Work, we try to have a firm finger on the pulse of the economic environment.  Last fall we adjusted the grade level of 24 positions throughout the organization upward, 20 by one grade and four by two grades.  We’re carefully reviewing all grades again – don’t be surprised to see a big announcement  of another revision of some salary grades as we respond quickly to the  inflationary environment we find ourselves in.

“What some people are not seeing in the news is how many companies are laying off staff.  A fair number of direct competitors in our market, mostly in the mortgage arena, are laying off people because mortgage volume is decreasing.  A hallmark of a Best Place to Work is not worrying about layoffs.

“Unlike some area banks and credit unions, Day Air Credit Union has never laid off an associate.  How many companies have adjusted salaries upward each and every year?  Another indication of being a Best Place to Work.

“While we have every intent of continuing these practices – never any layoffs and always an annual salary increase – we can never say never.  There are no guarantees for the future; but we can celebrate the great track record of the past and be very confident that it will continue.

“What has to happen to ensure that Day Air remains a Best Place to Work?  The Credit Union will  continue its culture:  a good workplace environment, promotion from within, recognizing a job well done, growing the gain-share plan, providing opportunities for advancement, offering a robust array of benefits, having fair policies and processes–doing what we’ve always done.

“Each associate will continue living the mission by: being purpose-driven, engaging members, providing solutions to their financial needs, increasing our share of the member household wallet, and above all act in accordance with our core values: integrity, compassion, engagement and empowerment.

Thank you for making Day Air a Best Place to Work.”

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Members Left Out of Merger

A reader responds to the Cap Com merger with State Employees (June 1 blog) and NCUA’s role:

“A comment from a management person at one of our credit unions this morning to one of our field reps:  “Our member’s don’t know it yet, but we will be merging with XYZ credit union in the fall.”

“A sad testimony to how seriously the member vote, and the member’s will, is taken. NCUA knows about the pending merger, but no one has yet cued in the members.”

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Three Credit Unions In a World Alliance

Two New Members Join the Global Alliance for Banking Values


The GABV has welcomed two new members to the network: vdk bank, based in Ghent, Belgium, and Australian Mutual Bank, which operates in the state of New South Wales, Australia.

The GABV’s ever-growing network has now reached a total of 67 members from 44 countries that share a common goal to transform finance for good. Meet them

The three US credit union members are Clearwater CU (Montana), Verity CU  (Washington), Vermont State Employees (proposing to merge) plus the National Cooperative Bank (Virginia).

The Global Alliance for Banking on Values (GABV) is a network of independent banks and banking cooperatives with a shared mission to use finance to deliver sustainable economic, social, and environmental development.

Founded in 2009, the GABV comprises 67 financial institutions operating in 44 countries across Asia-Pacific, Africa, Latin America, North America and Europe. It serves more than 60 million customers collectively, holds over USD 200 billion of combined assets under management, and employs 80,000 co-workers.

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Inflation and Recycling

From Rensselaer, IN where I will attend my 60th high school reunion on June 11. (rensselaeradventures.blogspot.com )

“I took in some aluminum cans last week and was surprised that the price the scrap yard was paying was 70¢ a pound. I have never seen it that high. It takes 30 to 35 cans to equal a pound, so the scrap value of an empty can is about 2¢.

“That takes me back to my boyhood when an empty pop or beer bottle could be returned for 2¢. Back then most pop and beer came in bottles that were returned and reused. We did not find many because back then a postage stamp for a letter was 3¢ and a candy bar was 5¢; most people kept their empties.”

It reminds me of the summers my brother and sisters would go to the corn fields to pick up corn ears the automated pickers had missed.  We earned $1 per gunny sack full of corn.

 

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A Merger for a New Future or a Rescue Operation?

The largest merger announced so far in 2022 is the combination of the $2.8 billion Cap Com FCU with the $5.6 billion State Employees FCU, both in Albany, New York.

Cap Com’s web site has a link promoting the merger.  It includes a video from the President and Board Chair, FAQ’s,  merger updates and a description of the voting process.

In these explanations and in the required Member Notice dated April 8, 2022, the justifications (excerpts below) are general and rhetorical.

The combination will result in a different brand and new name which will  operate state wide.  The site even highlights a critical benefit  members will be able to keep: their free checks and coin counting machines!

There is  a  link to nine merger myths which are then dismissed with a contrary assertion.  For example:

Myth #6: Bigger is not better.
Often, that’s true but having more resources will allow us to do more for members, employees, and the community. This includes enhancing technologies that make banking affordable and easy.

In all the communications, both required and marketing the decision, there is a complete absence of specific benefits except those achieved by adding together existing branch, ATM, video tellers and other operational access already in place.  No savings or loan rate benefits are presented, nor any mention of new products or services.

The March 31, 2022 Financial Reports

 

While State Employees is almost twice as large as Cap Com, the most recent call report suggest it is confronting headwinds.  Total first quarter revenue declined and net income fell 50% to $6.8 million from the 2021 first quarter. Cap Com’s first quarter net was $7.1 million.

State Employee’s loans are just 51% of assets.  The investment portfolio shows a $105 million decline in market value.  The net worth ratio has barely increased over the past 12 months,  going from 6.8% to 7.06% at March 31 of this year.

State Employees would be subject to NCUA’s RBC net worth requirement.  Whereas Cap Com’s 9.86% net worth would allow them to elect the simpler CCULR capital compliance option.

35 Years as CEO

State Employees President Michael Castellana has been CEO since April 1988, or 34 years and two months.  From the Member Notice: As part of  the merger agreement Chris McKenna, Cap Com CEO/ President would become President and Castellana CEO of the new credit union.

The board chair of Cap Com will become the  chair of the combined entity.  This and the other circumstances give  the impression that this merger  is  a CEO succession plan for the larger State Employees.

This “solution” will cost Cap Com members their independent, locally focused, sound organization.

Misleading and incomplete statements about the event are a suspect foundation for a new credit union launch.   It erodes trust in leadership.  It undermines promises about the future.

If that is the intent, it should be disclosed to Cap Com members.  It puts a very different framing for motivation and outcome.  For in this instance, the asymmetries in size, performance results, and financial situation  suggest the smaller credit union is rescuing the larger.

Members sense that something does not compute in this decision by Cap Com’s board and CEO to end their independent charter.  They, and even a SECU member, have made their views known on NCUA’s website.

Members’ Comments on the Merger Proposal

  1. I have grave reservations about this merger. There was not enough due diligence to provide a transparent account of why two thriving institutions must merge, and members have not been given enough complete information to make an informed vote.

I think that this is a disservice for members and the community and I would urge you to reject this merger as not enough was guaranteed to members, and the board of directors (which includes the proposed entity’s CEO) is not making decisions that favor employees or members of either credit union.

Thank you for your time.   (Jennifer Smith)

  1. Good afternoon,
    I have grave reservations about this merger. There was not enough due diligence to provide a transparent account of why two thriving institutions must merge, and members have not been given enough complete information to make an informed vote.
    I think that this is a disservice for members and the community and I would urge you to reject this merger as not enough was guaranteed to members, and the board of directors (which includes the proposed entity’s CEO) is not making decisions that favor employees or members of either credit union. (Justin Williams; similar comment from Paul Lenz))
  2. I am a Capcom account holder and I have reservations about this merger. This is being pushed down our throats and we are not being given full information to make an informed decision. Both credit unions are doing well and the merger is not needed. They have given us vague promises about “efficiencies”, while downplaying that there will be negatives.

There must be, because mergers result in lowered competition, leading to reduced benefits, increased costs, decreased customer service, layoffs, etc. If they want to say this will not happen, then I ask, then how do these “efficiencies” happen?
Please do not approve this “merger.” ( S Price)

  1. I am leaning heavily against this merger. I maintain 14 separate accounts at CapCom and just feel the information that has been released is spotty at best, and reads as if it came from a marketing company. The special member meeting is scheduled for twenty minutes before online voting ends (24 hours before mail-in ballots must be received).From the notice that was sent to CapCom members: “Both credit unions are flourishing, so this is a ‘merger of opportunity’ with the ongoing needs of the members at its core.” What are these needs? Where have they been expressed?What about:

Higher nickel and dime fees (a SEFCU speciality – Google “Story vs SEFCU”)?
What happens if the merger is voted down?
Is CapCom over-extended on its loans (a popular theory floating around)?

Sorry. There are way too many issues here and very little substance offered for anyone to make an educated decision.  (David H)

  1. As a member of Sefcu for ove 15 years, I am appalled that this so called merger of equals is going to be allowed. It was announced last July as a merger of equals. If that is the case then not only should the capcom membership get to vote but so should the Sefcu members. You can’t have a merger of equals if it’s only going to get voted on by one side . I also would like you to look into the multiple conflicts of interest on both sets of leadership. I truly don’t feel that the members of both institutions are truly going to benefit in any possible way from this proposed merger. (Russel Kuhls)

MyAssessment

Despite the asserted benefits, this looks like a merger of necessity  to extricate State Employees from a downturn.

The members of Cap Com correctly see this as not in their best interests.

With a new  name and brand, a state wide operational commitment, a below average combined capital ratio, and required conversions from different data processing and other third-party providers, this merger is  a recovery operation not a launch to the future.  It will be costly.

State Employees could recruit Cap Com’s CEO to  be Castellana’s heir.  However bringing Cap Com’s resources to the project appears to be throwing good money after bad.

Cap Com members are being asked to rescue State Employees members in a time of heightened economic uncertainty.

Where Has NCUA Been?

The members of Cap Com are also covering for a lack of effective supervision by NCUA.   It was NCUA’s Chair who in January asserted  the need for succession planning by proposing a new rule.  Merging Cap Com to provide the  leadership  to turn around State Employee’s  trends is the exact opposite of the rule’s intent.

This rescue requires that members vote to approve and then exercise patience, of uncertain duration, to endure numerous technical conversions  for operational integration.

Whatever the outcome, credit union members are being tasked again to pay for the shortfalls of the regulator in its examinations and assessments of the management and board performance of State Employees, that is the M in CAMEL.

References:

From the Member Notice on NCUA’s Website. 

No specific member benefits are provided.

Reasons for merger: The Board of Directors of CAP COM unanimously concluded that the proposed merger with SEFCU is desirable and in the best interests of the members. Although CAP COM thrives today, there is no guarantee it will be immune to the ever-increasing competitive pressures that can blunt success in the future. Throughout the United States, credit unions face immense challenges from digital only banking services, industry disruptors, and powerful mega banks. This merger will increase operating efficiencies and offer the potential to expand products and services for credit union members sustainably over time.

Joining forces with SEFCU is the ultimate collaboration. This merger will benefit members, employees, and the communities across the combined organization’s new, expanded footprint. The merger would capitalize on the cooperative spirit of the two credit unions, their distinct strengths, talent pool, and significant financial resources. It is from a position of financial strength that CAP COM seeks to merge with SEFCU. Both credit unions are flourishing, so this is a “merger of opportunity” with the ongoing needs of members at its core.

Changes to services and member benefits: Banding together, CAP COM and SEFCU can expand affordable, easy-to-use, life-enhancing services. A unified credit union would possess the scale necessary to deliver greater value to members – beyond what CAP COM and SEFCU could deliver individually.

The fiscal strength, and safety and soundness, of the combined organization paves the way. The expanded and diversified balance sheet and membership composition will reduce financial and membership concentration risk and increase opportunity. The combined capital of the two credit unions, once merged, is estimated to be approximately $702 million, cushioning against unforeseen economic downturns or other financial challenges.

The merged organization would have the largest branch presence of any financial institution in the Capital Region of New York State. In terms of number of members, it would rank among the largest credit unions in New York and the top 30 in the United States.

Through this merger, CAP COM members will realize gains in excellent rates, favorable pricing, and innovations that enhance their banking experience and financial wellness, thanks to the operating efficiencies of a larger organization that reduces expenses and generates revenue. The personalized service for which CAP COM is known will benefit from a larger membership across New York.

Making banking more convenient, affordable, and easy is a primary goal of the combined organization. The merger would enable members to gain access to more branches along commercial corridors and in diverse neighborhoods across the Capital Region and upstate New York (including areas where members prefer to bank today). More surcharge-free ATMs throughout the United States would also be available, along with more robust call center services and the convenience of 24/7 digital banking. Below you will find the retail expansion opportunities you will benefit from through this merger.

  • Capital Region, Central NY, Western NY, Southern Tier
  • 61 full-service branches (CAP COM currently 12) and two mobile branches
  • 27 video tellers (CAP COM currently 0)
  • 130 on-site ATMs (CAP COM currently 13)
  • Nationwide 85,000 surcharge-free ATMs (Allpoint®, CO-OP) More than 5,600 shared branches

Along with enriching the service offerings and benefits for members, this merger will create countless opportunities for employees to hone their skills, apply their talents, and grow in their careers with the combined organization, which will ultimately benefit members. All staff of both the merging and continuing credit unions will be offered continued employment following the completion of the merger.

Members of CAP COM will be well represented in governance of the combined organization. The Chair of the Board of Directors of legacy CAP COM will assume the role of Board Chair in the new credit union. In addition, Board members of the former CAP COM will occupy seven of 15 total seats on the newly expanded Board, along with committee assignments. As stewards of the unified credit union’s mission, fiscal soundness, and strategic direction, the Board of Directors will possess decades of institutional knowledge and continue to be advocates for members.

Finally, community outreach with generous financial support are hallmarks of both credit unions. Larger philanthropic efforts, and a greater number of employee-volunteers statewide, will support a more sustainable and equitable future across communities where members live and work.

Merger-related financial arrangements:

Two CAP COM executives, Chris McKenna, President & Chief Executive Officer, and David Jurczynski, Executive Vice President & Chief Financial Officer, are covered by a collateral-assigned split dollar life insurance plans (the Plans) that were established in 2019, prior to any discussion of merger with SEFCU. The Plans include a standard “change in control” provision requiring that, given certain circumstances including a merger as proposed to the membership herein, any unvested benefits that may be subject to a vesting schedule under the Plans, become 100% vested on the merger effective date.

Footnote:

More information on CapCom’s business strategy here:

(Opening paragraphs) For the past three years, CAP COM Federal Credit Union ($2.6B, Albany, NY) has been honing its abilities to reduce risk and maximize reward — taking care to not throw out the BABI with the bathwater.

“BABI” is shorthand for the business analytics (BA) and business intelligence (BI) division the cooperative created in January 2018. The BABI team generates and interprets data as well as makes intelligible reports available to stakeholders across the enterprise.

 

 

 

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A CEO Reports to His Team

Learning from others is how many inform their own leadership approach.  Each month Weokie FCU’s CEO Jeff Carpenter sends a briefing to staff about the important events.

The brief excerpts below are from his April update. Used with permission.

The complete report includes pictures, member testimonials, project priorities and performance numbers.

Open communication contributes to shared efforts with common purpose.  Both are vital for effective organizational performance.

Living Our Vision & Mission

WEOKIE adopted a new vision in 2022 and has been working hard to make the vision, not just words on a paper, but a reality. I wanted to pause a minute each month to share some of the “stories” of how we are  “making a difference, one person at a time”

Calculating the Coop’s Value

Why Cooperation Matters

“Cornerstone IMPACT 2022: I attended my first “in-person” meeting of the Cornerstone Credit Union League’s Annual Meeting and Convention entitled IMPACT.

“WEOKIE is stronger when we cooperate with other credit unions and the Cornerstone League is a great facilitator and cause agent for credit union collaboration.

“The meeting had excellent educational content and numerous opportunities for R&D (Research & Development, aka Rip-off & Duplicate) great ideas that other credit unions are pursuing.”

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Memory and Hope:  Memorial Day 2022

From the golden fields of grain in Ukraine to the classrooms of Uvalde, Texas it is hard not to feel deep sadness at the self-inflicted tragedies of life.

Wilfred Owen’s poem Futility  captured this feeling during WW I in which the poet lost his life on November 4, 1918: :

Move him into the sun—

Gently its touch awoke him once,

At home, whispering of fields unsown.

Always it woke him, even in France,

Until this morning and this snow.

If anything might rouse him now

The kind old sun will know.

 

Think how it wakes the seeds—

Woke once the clays of a cold star.

Are limbs, so dear-achieved, are sides

Full-nerved, still warm, too hard to stir?

Was it for this the clay grew tall?

—O what made fatuous sunbeams toil

To break earth’s sleep at all?

Where is Hope?

The irony of memory is that lives transcend tragedy when we remember the people whose loss leaves a deep crevice in our soul.  Especially those who gave us life and purpose when we faced our own uncertainties.

The most important event during the day when deployed in the Navy is mail call.   That is a reminder of the reunion everyone longed for.

(Returning from Operation Golden Dragon, Yokosuka, Japan 1970.  Mary Ann and Lara greet our brief stop to replenish before going back to sea. USS Windham County LST 1170 in background.)

Today an individual’s presence may not be physical, but  the  meaning they gave to our lives endures.   That is how hope overcomes tragedy.

 

 

 

 

 

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Memorial Day 2022-Time to Reflect

We all take risks in our lives. Shopping, learning, and worshiping are not places where we should fear for our safety.

This weekend, can we reflect about the changes we support to create the society we wish for ourselves and our children?

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Today’s NCUA Board Meeting: an Opportunity for Insight into the NCUSIF

With only one agenda item, the NCUSIF’s March quarterly update, today’s NCUA board meeting presents an in-depth learning opportunity about the fund’s management.

With almost $22 billion in assets, the NCUSIF is the largest investment under NCUA’s control.

Because NCUA publishes monthly updates on its three major funds, credit unions are able to monitor how their members’ funds are being used.

The public board discussion is a vital part of this process for credit unions and board oversight.

What I Am Listening For

  1. There is much confusion caused by the NCUSIF’s use of Federal GAAP versus private GAAP accounting, the standard credit unions must follow. The Federal accounting terms, presentation and practice are different from private GAAP.

This is because Federal GAAP was intended for use by entities which rely on government appropriations.

Some examples.  Cumulative results of operations: Following SFFAS No 7 the NCUSIF recognizes interest on investments as “non-exchange revenue” which in turn means unrealized holding gains and losses are reported as part of revenue.

In contrast, credit union “available for sale” securities are reported at book value with unrealized gains or losses recorded in a valuation account, not as an income or expense.  This  account is not included when computing the net worth ratio.

Credit unions report retained earnings.  Federal accounting has no comparable account. This and other differences mean that NCUA staff transform NCUSIF Federal presentation into a private format, but then do not follow private accounting practice.

For example the 1% deposit true up (or refund) is treated as revenue in the NCUSIF; however credit unions record this adjustment as an investment asset on their books.

Will this confusion be addressed?   How will this affect the calculation of the 1% true up when presenting the NOL ratio for the fund?  Private GAAP recognizes the true up as a receivable or payable on the insurer’s books when the insured risk is reported triggering the required deposit adjustments.

  1. How has the NCUSIF investment committee responded to the rising interest rate environment? The market value of the NCUSIF’s investments may have fallen by as much as $1.5 billion from the peak in 2021.   What changes have been made in response?  How will the below market income stream from the fixed rate, lower earning. long-term bonds, affect the income of the fund and projections of the NOL in 2022?
  2. Credit union’s first quarter results have been summarized in Callahan’s Trendwatch. How does the first quarter’s 9.3% actual share growth compare with NCUA’s projections for the year? What impact, if any, will the rise in interest rates have on CAMELS ratings?
  3. What changes in NCUSIF investment policy and accounting presentation/practice is staff proposing? Or will be requested by the board?

Over the past 16 months, I have written several blogs about NCUSIF investing and accounting anomalies.   Here are selected observations and additional background for the questions that may be raised in today’s meeting:

I’ll follow up next week on the board’s dialogue.  Hopefully this will be a fresh start for improving the fund’s financial practices.

 

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Red Hot Inflation & A Perspective on Previous Fed Approaches

The Federal Reserve’s dual mandate of managing monetary policy to sustain full employment and price stability is now focused on just one objective: reducing the 8% current inflation to the 2-3% range.

It intends to do this by reducing demand at all levels. The primary means  is by raising short term rates to discourage borrowing and reduce existing demand.

What level of rates will be necessary is unknown, as well as how long the process will take.  Also uncertain is whether the result will be a gradual slowing of the economy or  end in  recession.

CNBC reporter Kelly Evan’s May 19th column provides an historical perspective of previous Fed efforts to stop inflation. These prior results are mixed.

In her full column below she ends by stating what  she believes will be Chairman Powell’s approach.  Her analysis is a useful summary as pundits will offer critiques at each  stage of what will probably be a year long effort.

Kudos to former Fed chair Ben Bernanke for writing a perfectly timed book on the Fed’s battles with inflation in the 1960s and ’70s. If the book has a rather dry title (21st Century Monetary Policy), that’s because Bernanke sees it as picking up the narrative where his heroes, Friedman and Schwarz, left off in their 1963 classic that inspired his career and explained the Fed’s missteps during the Great Depression, A Monetary History of the United States. 

Bernanke, in other words, aims to provide a definitive account of how the Fed “got it wrong” in the Great Inflation that saw consumer prices rising more than 7% on average annually between 1965 and 1981, peaking at nearly 13% by the end of the period before Fed Chair Volcker finally wrested inflation back under control. His retelling contains so many similarities to today that it certainly ought to give anyone pause who thinks the current inflation will simply go away on its own. 

There were basically only two Fed chairs in the entire period spanning the Great Inflation: William McChesney Martin, from 1951 to 1970, and Arthur Burns, from 1970 to 1978. Martin comes off better in Bernanke’s retelling; he at least conceptually ran the Fed as a countercyclical institution, coining the phrase that the Fed should have “the punch bowl removed just when the party [is] really warming up.” He also emphasized the importance of keeping inflation at bay, noting “price stability is essential to sustainable growth.” 

And for much of Martin’s tenure, inflation was dormant. The CPI rose only 1.3% or so on average in the decade up to 1965. But “that began to change around 1966, when consumer prices rose a surprising 3.5%,” as Bernanke writes.

What caused the sudden change? President Johnson had passed a key tax cut in 1964, the same year he announced the War on Poverty, which culminated with the introduction of Medicare and Medicaid in 1965. The unemployment rate dropped–in fact below what was sustainable without stoking inflation. 

In December 1965, Martin was able “to take a very public pre-emptive action against inflation,” Bernanke writes, “by announcing a half-percentage-point [rate hike].” But President Johnson was furious, and so began a series of back-and-forths that for the next several years saw the Fed start and stop tightening several times as it tried to coordinate with fiscal policy so as not to overly constrain the U.S. economy.

The halting approach resulted in an inflation rate of almost 6% by 1969. “I’ve been a failure,” Martin told his colleagues as he left office. 

It’s important here to note, amid our current scare, that the U.S. economy fell into recession in 1970 after Martin’s tightening the year before–but it didn’t stop inflation. The CPI still rose 5.6% that year. There were actually two recessions in the 1970s–including a longer, deeper one starting in 1974–but they didn’t keep inflation from rising throughout the decade. Even under Martin’s successor, Arthur Burns, who ran even looser monetary policy, the Fed didn’t enjoy the supposed tradeoff of a stronger economy as a result; it wound up with “stagflation” instead. 

Burns was a gifted economic forecaster, which would seem like the perfect credential for a Fed chair. But philosophically, he worried that monetary policy was an overly broad tool to fight inflation with. He responded to the 1970 recession by slashing rates from 9% to 5% by 1972. 

More importantly, he agreed with the consensus at the time that “the U.S. had become more disposed to inflation for reasons unrelated to monetary policy,” like “the growing ability of large corporations and labor unions to insulate themselves from market forces,” pushing up prices and wages supposedly at will.

In other words, he believed in the “cost-push” versus “demand-pull” theory of inflation, so he thought monetary policy was the wrong tool to fight it with. In fact, as Bernanke writes, it’s “unlikely” President Nixon would have imposed his notorious wage and price controls in the early 1970s without Burns’s support. 

Then, like now, there were also oil price shocks that further confused the situation. To Burns, they proved that “inflation was largely caused by non-monetary factors.” His Fed hiked in response to surging oil prices in 1973, then reversed when the recession hit. Meantime, the political mood still emphasized the priority of achieving full employment, passing the Fed’s “dual mandate” amendment in 1977 and the “Humphrey-Hawkins Act” in 1978 that specifically said the unemployment rate for people 20 and older shouldn’t exceed 3%. 

All told, unlike Martin and unlike his successor, Paul Volcker, Burns “did not believe that inflation was caused primarily by monetary forces, and consequently, he saw tight monetary policy as an indirect, costly, and largely ineffective tool for controlling inflation.” Burns later admitted that the Fed could have restrained inflation by restricting the growth of the money supply, but that would have created “strains” in the markets and economy that the public wouldn’t tolerate. He gave a speech titled “The Anguish of Central Banking” after he left the Fed, to try and explain himself. 

Bernanke makes it obvious that Fed chairs who dismissed inflation as a “non-monetary” phenomenon, or who only haltingly tackled the problem, were mistaken. Volcker, by contrast, came in after Burns with a “shock-and-awe” monetary policy that did choke off inflation; and even after the deep recession it caused in the early 1980s, the economy recovered so strongly that by 1984 President Reagan would be reelected with the largest majority ever. 

Volcker wasn’t concerned with “soft landings”; he made it clear to the public that his only goal was to bring inflation down. Fed Chair Powell himself made clear to lawmakers in February that he believes Volcker was “the greatest economic public servant of the era,” and that he is personally committed to protecting price stability.

But this is the real test now, with markets spiraling downward and growth looking shaky. If Powell backs down without fully conquering inflation, future historians may not treat him kindly.  

 

 

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Technology versus Slow Checkouts

America loves innovation.  Especially in technology.  We celebrate, honor, and enrich those entrepreneurs who bring efficiency and ease to our life and work with their inventions.

Technology underwrites greater productivity, reach and speed in credit union services. It enables 24 by 7 interactions. Manual processes from loan underwriting and live teller interactions are replaced by AI decisioning and intelligent teller machines (ITM’s).

Even phone responses and “live” chat are now automated to the point where one must opt out to “speak” with a real person.

What society prizes, is what the people will create. One writer contrasts our modern view of success with the culture in ancient Greece.

The ancient Greeks gauged progress differently from us. “What is honored in a country will be cultivated there,” Plato said. The Greeks, imperfect as they were, honored beauty and justice and moral excellence, and so they cultivated these values. We honor speed and connectivity and portability, and so that is what we get.

The author asserts our current focus leads to: “cognitive dissonance from our misplaced faith in technology, and an attendant disregard for other forms of human progress.”

The Introduction of “Slow”

I was reminded of this contrast between ancient and modern values after reading about a new approach in retail services in Europe, called Slow Checkout.

Jon Horvat describes this approach in retail and service industries: With so much buying happening online or through self-service kiosks, the art of shopping has lost much of its attraction. Some market-savvy executives have noticed this shortcoming and have recently introduced slow checkouts, which turn the routine chore into a meaningful experience.

Many retail experiences, that is personal shopping, are no longer personal.   Human contact, especially the kind of interactions characterized  by local farmer’s markets have been eliminated in the race for self-service and cashless checkout innovations.

The pressure to automate customer interactions will only accelerate as labor shortages occur in many retail service sectors.

Executives at several retail grocery chains in Europe noticed something was missing in their retail experiences. Some customers wanted human interaction.   Jumbo a Dutch supermarket chain and Carrefour, the French grocery leader, both introduced “slow checkout” lanes after discovering that people wanted to chat when then paid for their groceries.

Harvat describes this approach as follows:

These small-talk cashier lanes are gaining popularity. They are called “chitchat” checkouts. The French name, blablabla caisses, is a bit more expressive.

About 150 of Carrefour’s French stores have opened blablabla caisses, with plans to have at least one till in every location by the end of March. The lanes are marked for only those who want to talk with cashiers. There are no time limits for the customer, although most try to respect those waiting in line. The lanes come at no extra cost to the consumer.

Shoppers are encouraged to take their time on the slow checkouts; cashiers greet with bonjour and can ask about the family or the weather. No managers will be around to speed the process up. The aim is to slow it down.

Both customers and cashiers report greater satisfaction in their roles where interaction is encouraged.  Shopping is a social experience, not just a purchase transaction. Small talk is an important experience for people living alone or feeling lonely.  Cashiers enjoy the opportunity to communicate with people, giving them a sense of expanded agency in their interactive role.

Credit unions have traditionally been an area where these interactions have been a valued part of the member experience.  Members get tired of talking to machines or referred to online applications or processes.  They want to talk with real people.

People are social creatures.  These chit-chat interactions show that economics, the best rate or the fast turnaround, is not the only, or even the most important, human need in every circumstance.

Every person has needs that surpass material economic sustenance. Humankind does not live by bread alone.

The Boutique Credit Union

One person who has recognized this critical capacity for human interaction is Bo McDonald.  He is a credit union consultant who has focused on the unique capabilities and experiences provided by smaller credit unions.   While some may see credit unions with assets of under $100 million or below the credit union average size as a disadvantage, he sees these as “boutique businesses.”

When inspired by passion they provide member experiences long lost in some billion dollar institutions.  Ultimately every credit union is founded on relationships, even if the only measures traditionally used are the number or size of  transactions.

These boutiques may not have the growth patterns of their larger brethren; but they demonstrate the enduring power of cooperative design.  For  when we look under the technology covers increasingly deployed by credit unions, we learn that what members really value is someone to talk to  when they have a need.

Boutique credit unions demonstrate that real progress can also be achieved by slowing down and giving members your undivided attention.

 

 

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Cooperatives and Awakening the “Sleeping Giant”

Three recent observations:

  1. While reviewing an exam for a billion-dollar credit union of 25 pages, nowhere was the word cooperative used.  There were no  comments on any of the credit union’s responses to members during COVID, their PPE loans and multiple  community involvements including expanded DEI.   If the name were removed from the exam,  it would be impossible to know it was a credit union, not a bank.
  2. Two readers commented on REI’s values approach to its “brand:”

“While I am a fan of REI, I would like to mention (and this is probably not a surprise to you) that they too have a tendency towards oligarchic governance you have talked about in the context of credit unions. If I recall correctly, to be eligible for a candidacy in board elections you have to have leadership experience in a Fortune 500 company.

“We desperately need legislation that ensures fair electoral practices in co-ops. Glad you are advocating for this in credit unions. REI is a great company and credit unions are great – but they also need some tough love. “  (Leo Sammallahti)  

“I’m sure REI is admirable in its promotion of important values. However, the current unionizing effort does not seem to put REI in a good light.

“My own experience in a nonprofit progressive worker-rights advocacy organization (prior to joining the credit union movement) was that the management vigorously fought our efforts to unionize. It’s not an uncommon story among “liberal” organizations. Our effort was ultimately successful, but it taught me a lingering lesson about progressive hypocrisy. The co-op world is not exempt.”  (Cliff Rosenthal)

  1. Here is a small sample of the number of  job openings from Sunday’s CU Insight:
  • 77 positions at Lake Michigan Credit Union
  • 65 or 5.4 percent of NCUA’s authorized staff of 1,201. Fifteen were at Head Office and 50 in the regions (from NCUA Operating Fund report)
  • 40 positions at Michigan State University FCU
  • 37 positions at True Sky Credit Union

What do these Observations Mean?

Is our cooperative model struggling?   Is our business merely subject to the same economic forces affecting every other firm?  Are credit unions even addressing the multiple challenges of  inequality existing in every community?

In some respects the cooperative model is not working well.   On the surface we increasingly appear as just another financial option.  In many cases, let’s be frank, credit unions are not much different from many other financial choices in their behavior and impact on their communities.

Instead of transforming financial opportunity, credit unions increasingly embrace the tactics of their competition including purchasing banks, mergers (sell outs) of sound long- serving coops, and measuring performance by strictly financial and growth goals.

Recapturing our Promise

Occasionally a story appears in the press about a find in a flea market or an opportunity shop.  A person discovers an antique looking Roman bust selling for $34.99 in a Goodwill store.   She later learns it is 2,000 years old and priceless.

Sometimes in  life we do not understand the value of what we have.

But every credit union, not matter its size, has a founding story and purpose.  Every board inherited a legacy of power, fortitude and energy to make life better for members.

But does senior management and the board know what they have?  That is, an institution with the power to override the ever present push and pull of market forces of greed, domination and even exploitation?

The credit union charter is intended to enrich its members versus building institutional glory.  Every charter comes with that hope and potential.

So what is lacking today for why this transformative promise seems to be missing?

In One Word: Imagination

One of the examples of creative capability was Ed Callahan’s way of presenting the potential for the credit union movement, both as Chairman of NCUA and as CEO at Patelco Credit Union.

He believed the credit unions were “a sleeping giant,” or America’s “best kept secret.” They should be an option for all Americans.  Whether retired, between jobs or even for college and high school students.  The field of membership was an inclusive, not an exclusive concept.

In practice he did not let current reality limit what the future could be.  The NCUA exam cycle was over two years for federal charters when he arrived.  He held a “fire drill” that resulted in every federal credit union filing, for the first time ever, the yearend call report.   Working with regional directors, every federal credit union had an exam contact in 1982, and each year thereafter.

To celebrate the 50th anniversary of the passage of the Federal Credit Union Act, he announced a movement goal of 50 million members by 1984.   He inspired the largest credit union conference attendance ever in December of that year when state and federal examiners and credit union leaders came together in Las Vegas to debate their future.

Working with credit unions, the NCUA’s share insurance fund and CLF were redesigned following cooperative principles to create a three-part regulatory framework for the cooperative system.

These transformative events were inspired by the promise of what credit unions could be.  He recognized that in the new era of deregulation not all would perform with the same capability.  But working together, the system could position every credit union to be a competitive and valued experience for members.

Imagination was fueled by belief in what the pioneers had envisioned.  While the three current observations above may seem like challenges, they are opportunities to create a better coop system.

Let’s be honest.   Credit unions have always been understood, even trusted, as more than another financial choice.  They represent a member-centric focus dedicated to improving members’ lives and community options.

They are more than a financial institution.  Credit unions at their best represent the common hopes of young and old for a better life and a meaningful role in their chosen community.

The tools for transformative change have been a part of the cooperative model from the beginning.    What is needed is imagination tempered with vision and compassion.

Then indeed, the “sleeping giant” will be truly awakened.