Co-ops in Capitalism – Page 26

June 21, 2023June 21, 2023

Powerful Member Stories Show a Credit Union’s Heart and Soul

Translating the credit union difference into an effective message is hard. When done with stories of members serving their communities, the messages can be inspiring.

Whitefish Credit Union in Whitefish, MT has created a series of imaginative, colorful, “hometown” videos of their members’ special efforts.

These personal examples would cause almost any viewer to consider 1. moving to Montana and 2. joining the credit union.

The first example features skateboarding enthusiasts in Whitefish and the people who use and support it. A story for younger members and those forever young.

https://www.whitefishcu.com/Members-like-Whitefish-Skatepark-Association

(https://www.whitefishcu.com/Members-like-Whitefish-Skatepark-Association)

This second video is how a veteran with a military injury found his meaning in life in Plains, MT. “Life doesn’t always go in the direction we think it will go.”

(https://www.whitefishcu.com/Members-Like-David)

https://www.whitefishcu.com/Members-Like-David

This is the cooperative difference portrayed as a form of art. The theme: What we do, pays dividends.

Enjoy.

June 15, 2023June 15, 2023

The Fruits of the Spirit: A Credit Union’s 74th Anniversary Celebration

The cooperative spirit is a financial super-power. It is a passion that enables even small firms to have enormous impact. Affinity Credit Union in Des Moines, IA is example of this capability in action.

Chartered in 1949, its annual meeting is a celebration with members even as the required business items are covered.

This year’s meeting highlighted three vital Affinity success factors enabled by this spirit:

Respect for the member-owner;
Pride in the Affinity’s legacy and mission;
Exceptional leadership in the board and senior management.

All Are Invited

The credit union made special efforts to draw members to their annual meeting:

A reminder email was sent to all on the day of the meeting: “The 2023 Affinity annual meeting is tonight. We look forward to seeing you there!”
The announcement in the Members’ May Newsletter by the CEO: “Thank you to all who registered to attend our Annual Membership Meeting on May 9^th at the Top of the Tower Ballroom. . .you can still register to attend.”
The sign taped to the front door of the main office when members came to be served:

When members arrived at the meeting they were given a 10-page Annual Report that included a 14 item agenda; the board’s “promises” and biographies; committee reports; financials for 2022: and pictures describing Affinity’s role in the community.

Each Report included two raffle tickets for the post- meeting drawing for cash prizes. To kick off the event there was a free, full buffet meal for attendees before the speeches and business began.

I talked with members who had joined as far back as 1963 and an older couple, retired from state government, who joined just two years ago. Several families brought their children. One member brought a date, even though she was not yet a member.

The Speakers’ Messages

Outside speakers offered different aspects of Affinity’s impact. Michelle Bock, President of the Food Bank of Iowa, presented the challenge of food insecurity that 10% of Iowans face each year. Affinity’s CEO Jim Dean sits on the Bank’s board.

Katie Averill, Superintendent of Iowa Credit Unions, affirmed the strength of the Iowa system in the wake of recent, large bank failures. Of the 80 Iowa credit unions and $33 billion in assets, 72 are state charters holding 97% of the state’s total. The system has grown by double digits over the past five years.

Five Iowa charters are over a billion dollars in assets. Affinity at $145 million ranks number 22. Averill summarized Affinity’s evolution since its 1949 chartering as USW Local 301. Her listing of regulatory actions including FOM expansions, name changes, and mergers was a tribute to the credit union’s longterm standing in the community.

The respect for owners was shown when the Chair opened the meeting, under new business, for comments from members. Multiple questions were raised from the floor. Some were minor–will free movie tickets be restarted? A number were substantive about the financials–unrealized losses on investments and loss reserves for loans shown in the Report each attendee received. All were answered openly.

Pride in the Cooperative’s Contributions

At the check-in desk for the meeting, the credit union’s founding story was shown in a display case. A lunch pail used in the early years to collect funds and make loans during shifts at the Firestone tire plant was included with the founding story: “Here is a resource created by workers for workers that feeds families, futures and trust.”

A brief video testimonial of long-time member James Reasoner was shown. His financial journey recovering from near bankruptcy two decades earlier was highlighted. He was also one of four members elected to the board that evening.

Pride is evident in the credit union’s physical presence. The main office is still less than a half mile from the Firestone plant. Photos of the Firestone facility are mounted throughout offices that have been remodeled surrounded by careful landscaping.

The board’s “promises” start with employee education. Wednesday mornings are late openings to accommodate training. Three employees who had worked over 25 years for the credit union were recognized at the meeting. Misty is the person who helped new board member James Reasoner in the video twenty years ago.

“Enrich our communities” is another board promise. Six seniors from different high schools were awarded scholarships to further their eduction. Here’s one.

The program included multiple examples of Affinity volunteers in action.

Leadership by the Board and CEO

Few organizations can thrive, let alone survive, without dedicated leadership.

The four board members elected this meeting have leadership responsibilities in their professional lives. James Reasoner’s story is told in the video link above. Bridget Neely is the CEO of Big Brothers, Big Sisters of Central Iowa. Cara Harris is the Administrative Coordinator of Cortiva Agriscience in Johnston, Iowa.

Webster Kranto is a small business owner who was born in Liberia. It took three years as a refugee to gain immigration to the US where he graduated from Iowa State University. In 2019 he was appointed by the governor to a 4-year term on the Iowa Board of Corrections.

Two continuing board members have worked at the Firestone plant for 22 and 23 years. Both are members of USW Local 301L. The board chair Cindi Summers is the Chief HR Officer at Baker Group. She earned a Master’s Degree in Business Leadership, as well as a B.A. in Management and A.S. for Paralegal Studies.

Christian Quijano, Vice Chair, works in Environmental Risk Management and was board President for the Environmental Professionals of Iowa from 2012-2018.

Their leadership terms begin with an oath administered to all directors at the annual meeting. Standing and facing the members, they commit to “faithfully, honestly and impartially perform the duties imposed upon me. . .”

The board’s most critical role is selecting the CEO. Jim Dean came to the credit union after a long career in multiple leadership responsibilities in Illinois. He has implemented the credit union’s vision of “building better lives” by demonstrating that small can have a big impact: “small but mighty.” He initiated a suit against Apple Pay’s restrictions and joined in a program to lend $10 billion to facilitate home ownership for minorities in Iowa.

He asked that I come to the meeting to learn about the credit union. I saw a genuine dedication to resolving members’ financial challenges from those still in high school to retirees. Over 50% of the 13,786 members live in low income areas. The credit union teaches the basics of savings and borrowing so members have skills to manage in any economy.

Jim’s view of success is more than increasing the volume of financial transactions. He united the credit union’s financial capabilities with partners to support the community’s overall health and well being. The Iowa Food Bank is just one example of this outreach.

With the board he has instilled a timeless evolution of values and principles. This special coop spirit can extend success forever, beyond generations lived and to be lived. He honors the traditions that created the credit union. He gave renewed meaning to the founders’ goal of an organization that “feeds families, futures and trust.”

Jim believes that the strongest credit union advantage is member loyalty. This is not contingent on size, but service. The only size criteria is to be big enough to care about members.

When a decision was made to end Saturday branch hours because of low transaction volume, Jim called each of the members who used this service the most, to let them know of the change and other transaction options.

My Message

When speaking to the annual meeting, I said the most precious gift each has is our time. This evening members gave several hours to learn about the credit union and participate in another anniversary.

My hope was that every member-attendee would expand their involvement to become owner-volunteers, sharing in the promotion, service and financial support of their credit union’s mission.

Affinity’s stability is rooted in and led by community leaders. These volunteers and professional staff demonstrate the potential from democratic member ownership. The Coop spirit enables members to serve the financial needs of others, not just one’s own.

The Importance of Leadership

Affinity is an example of what numerous other credit union leaders do to help members become who they aspire to be. Their coops invest time, energy, and resources supporting members’ ambitions and enabling personal opportunities.

Leaders take risks with decisions when they make members’ needs and dreams their own. The impact of their support and dedication is immeasurable. For it is the members’ who are the foundation of every credit union’s resilience.

Affinity’s leaders love what they do, who they do it with and who they do it for. Is there any higher standard for a life or a profession?

June 12, 2023June 12, 2023

How a Black Barber in Little Rock, AR Started a Credit Union

The first new charter in Arkansas in over a quarter of a century is the focus of a new podcast.

Arlo Washington is a barber, a self-made man who turned his entrepreneurial instincts into helping his community.

The story of People Trust Community FCU, chartered in September 2022 is told in this 30 minute podcast by the reporter Oscar Abello from Next City and Arlo Washington the credit union’s founder.

Hearing the story in their own voices, brings to life the challenges and promise of a new credit union.

The context matters. Payday lenders were shut down by Arkansas in 2010. Arlo had started a barber college and by necessity and local tradition became a lender to his customers.

The reporter states there have been just 25 new charters in the last ten years. He points out in the 1970’s there were hundreds of new charters granted per year.

Today Arlo describes the chartering effort as “intimidating, scary and tedious.” The endgame was to have “local ownership in the banking system.”

“If we’re ever going to close the racial wealth gap, we need financial institutions that understand neighborhoods and can meet their community members where they are in the process of building their financial well-being,” says Washington.

This example of a small lending enterprise adding a credit union is a model that could be replicated many times in other underserved communities across the country.

Seeds of Hope at the Grassroots

Planting seeds whether in a garden or in our communities’ choices is the practice of hope. Seeds that will grow and flourish to make lives more colorful and abundant.

There are more Arlo Washingtons throughout America who want to become gardeners for their community. How do we reach out to them? And grow our grassroots?

June 9, 2023June 9, 2023

Credit Union CEO Joins Iowa Bank Board

Iowa is home to a very rambunctious credit union system. A total of 80 credit unions manage over $33 billion in assets growing at double digit rates.

Several larger Iowa coops have bought banks to expand their franchises faster. 63 are suing NCUA over the agency’s failure to honor the plain language on its Corporate Claims Certificates.

Then there is a relatively small credit union who is currently suing Apple for restrictions in its Apple Pay product. This same CEO has joined the board of a local bank.

The bank has two major centers in Des Moines and Ottumwa from which it serves affiliates in 55 counties throughout the state.

The board director is Jim Dean. CEO of Affinity Credit Union. The bank is Food Bank of Iowa, a 501 C 3. It reaches over 300,000 children, seniors, veterans and persons who experience food insecurity during the year. In 2022 it distributed over 1.2 million pounds of food per month through 700 frontline partners.

The administrative offices, warehouse, and distribution-delivery capabilities are supported by volunteers who come daily to prepare boxes for local delivery. To carry out its mission, the Food Bank relies on almost 10,000 persons who freely give their time and labor.

A Common Cause

On factor in food insecurity is the inability of many to earn a living wage. The issue “comes and goes” for individuals as economic circumstances affect individuals’ opportunities.

When asked why the Food Bank partnered with Affinity Credit Union, Vice President Bergetta Beardsley, who is responsible for fund raising, replied simply, “There is a natural relationship with those we both serve.”

Why Is Affinity Involved?

Food banks have been an important part of Jim’s volunteer work during his credit union career. In addition to the overlaps of those facing financial and/or food insecurity, these two organizations share the same values.

Volunteer activity is part of Affinity’s culture. The credit union provides employees with two days paid leave per year to serve their community. The CEO’s participation raises awareness with staff about the Food Bank’s multiple roles.

The credit union promotes the Food Bank with special 30 second radio spots and ads on their delivery trucks. In some instances, the credit union has assisted with food pantries for schools in their communities.

Even more strategic isAffinity’s example. It connects the financial reach and capacity of the coop system to this critical organization serving over 10% (300,000) of Iowa residents with food.

An Ever-Expanding Effort

Credit unions, like individuals, are known by the company they keep. Two nonprofits, Affinity and Food Bank of Iowa, are joined in a common purpose of service and personal well being.

Across the country today, many families help their local communities with food drives. Schools arrange canned food collections for holidays; there are special hunger offerings and food drop-offs at churches and community centers.

But experiencing the scale and scope of this central wholesale operation (55,000 square feet) is an eye opener. It provides food to schools, day care centers, senior and community commons, church pantries and other institutions. The operating budget is approximately $30 million.

A Visit in Photos

Here are some of the pictures from my visit to the Food Bank’s Des Moines’ office, volunteer center and warehouse. Our guide was Bergetta.

The volunteer reception area with mission, vision and values:

A wholesale delivery of potatoes to be repackaged.

Converted to individual sized quantities..

Just one of several volunteer groups for the day who helped pack boxes for delivery.

Pallet being loaded for delivery to a Day Care.

Bergetta showing pasta provided in bulk from a corporate donor.

Another pallet ready for delivery.

Part of the massive warehouse. Storage racks with supplies and shrink-wrapped deliveries.

Food delivery trucks backed into loading dock.

Affinity Credit Unions adds its support on the back of the delivery trucks.

Even if an individual stops by the head office needing food, a box is always ready.

Organizations write thanking Affinity volunteers.

Isn’t this a Bank we all might like to join?

June 7, 2023June 7, 2023

Why an Oath for Credit Union Directors and Officers is Desirable

Boy Scouts have a pledge. Couples exchange wedding vows. Deacons, elders and lay ministers all affirm belief before the laying on of hands and becoming church officers. Naturalized American citizens take an oath-even agreeing to bear arms.

These ceremonies signify individual commitment in a public setting for the people they serve or community they join. There are responsibilities in an oath, whether occasioned by election, by appointment or by personal choice.

Faithfully Discharge the Duties:NCUA’s Oath for Employees

All NCUA employees are required to take an oath upon accepting their positions.

This oath is administered by an NCUA employee, usually in the HR division, during new employee orientation on an employee’s first official day. Here is the text:

I, [state your name] do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God. (emphasis added)

Duties, faithfully carried out. Faithful performance is itself one aspect of the standard liability bond for credit union coverage.

A State Example: OATH OF A CREDIT UNION DIRECTOR

Pursuant to Revised Code 1733.10, I, the undersigned director of NAME Credit Union, located in City, Ohio, do solemnly swear/affirm that I will diligently and honestly administer the duties of the office of director and that I will not knowingly violate, or permit to be violated, any law applicable to the Credit Union.

As a director, I have a legal responsibility and a fiduciary duty to credit union members to administer the Credit Union’s affairs faithfully and to oversee its management. In carrying out my duties and responsibilities, I shall exercise reasonable care and place the interests of the Credit Union before my own interests. I shall fulfill my duties of loyalty and care to the above named Credit Union.

I shall ensure that I learn of changes in statutes, regulations and policies of the Division of Financial Institutions and other applicable regulatory agencies affecting the Credit Union which affect my duties, responsibilities or obligations as a director and regulated person of the Credit Union.

I understand it is my responsibility to attend meetings of the Board of Directors and participate fully on all committees of the Board to which I am appointed. I understand it is my responsibility to review the examination reports of the supervisory authorities at the next succeeding board meeting after the receipt of the reports.

Signed and notarized by each director.

The Current Status of an FCU Oath

The following was the response when I asked NCUA if FCU directors were required to have an oath:

The answer is no. There isn’t a required oath of office for federal credit union boards of directors in the Federal Credit Union Act or Federal Credit Union Bylaws.

Our legal team reviewed the current bylaws, the previous version (Timeframe of the mid to late 1990s, with amendments), and even earlier versions of the Bylaws from the 1930s to 1940s. None of these documents require an oath of office.

Also, an oath of office is not something we track in regulatory reporting like the Call Report or Profiles. As such, I don’t have any information on which federal credit unions, if any, administer an oath of office.

While we don’t have specific rules on this topic, the NCUA has received and considered the question of an oath of office before. The attached 1985 NCUA legal opinion says an oath of office is allowed because it would not conflict with the Federal Credit Union Act or Bylaws for a federal credit union to require directors to take an oath of office.

Why An Oath is Desirable

Leadership of a credit union is a responsibility to members, the community and those who in generations past created the cooperative as an enduring organization to pass forward its legacy of wealth and service.

Sometimes the concept of a “volunteer” has connotations of a position that can be taken or left at will. Duty is voluntary. Anyone can step up. The responsibility is institutional and collective, not individual. Except for a number of state charters, directors are not paid, which is sometimes interpreted as an absence of individual accountability.

Cooperative board leadership now involves oversight of trillions of dollars member-owned assets. The directors’ roles are becoming more consequential for members and communities.

Moreover there are unique aspects in cooperative leadership:

Awareness and implementation of cooperative principles;
Recognition and respect for democratic member governance;
Adherence to bylaws and numerous regulations specific to credit unions;
The absence of any federal tax liability.

Moreover, the traditional director duties also still pertain including the standards of loyalty, care and the fiduciary obligation to act in good faith.

An Oath as Promise

An oath ideally in public at the annual meeting would be an act of honor and commitment. It signifies both responsibility and accountability even as volunteers.

Credit unions are a part of a society that at times has differences about the priorities of their leaders. Oaths remind all of our common obligations.

An oath is a promise. In the NCUA’s example it comes with a sacred commitment-so help me God. It would elevate the moral and communal character of cooperatives.

A person when taking an oath acknowledges the responsibility, not merely the public honor, of their role. The commitment is elevated beyond the routine director tasks of attendance and oversight.

All oaths remind us of who we are and what we want to be.

They show a solemn undertaking with commitments to the past and future, not just today’s agenda. It is another way to show how the cooperative model stands apart from for-profits.

June 6, 2023June 6, 2023

Two Trends Deserving Debate

At the NCUA’s May board meeting, one trend jumped out at me. Not new, but accelerating and read without comment.

In the first 90 days of 2023 there were 59 NCUSIF charter cancellations. That is a rate of almost 5 per week, one every business day. Without exception these charters are decades old, some surviving and most thriving. Why?

These charters are the handiwork of generations of volunteers, whose current leadership have decided to give up. It is a morale and ethical problem. For it undercuts the coop premise that pays forward the members’ collective legacy for which the present leaders are now the steward.

Many will suggest that the credit unions members are in better hands. However these hands are not the leaders they know or elected, nor the organization that created their collective reserves. Every charter cancellation eliminates an example of economic self help, self finance and self governance.

In most cases these are locally focused institutions which created unique relationships with their communities. Financial services may continue, but not from the same roots. Another civic organization so essential to a vibrant democratic political economy is no more.

What Can Be Done

Regulators should put the same time and effort into requests to cancel charters that they extend to new charters. If a merger is the strategy, show us the plan. If the volunteer leadership is giving up, ask members for new volunteers. If the sponsor has moved away, then seek a new group for re-energizing the charter.

Today the regulators have endorsed an exit strategy that benefits only the senior leaders who leave the membership in the lurch. And retiring CEO’s especially, are taking advantage by transferring their legacy to another credit union, often for just a few more silver coins.

When quitting a business or long standing effort is easier than getting in, the movement will continue to close future growth options, create higher concentrations of risk, and remove financial services away from their local connections and knowledge.

No charter should be cancelled without an effort to find others who are willing to pick up the opportunity.

A Second Trend to Be Re-energized

No brand, business or opportunity can continue without the support of the next generation of consumers.

Student run and led credit unions have been part of the educational and financial services of cooperatives from the beginning.

Yesterday I learned about a scholarship program to identify young persons often from disadvantaged backgrounds (poverty, refugees, disabled) who are given the opportunity to become part of a special education effort.

The premise is that brilliance is equally distributed in persons, but opportunity is not. The focus is on 15-17 years old. This is an age when “ideation,” the willingness to consider new ideas and become doers is formed.

This educational support is for four years. The time frame for measuring success is in decades. It may take ten years or more to see if those chosen in the program will become leaders in their chosen professions.

The program called Rise recognizes that leadership will be manifested in many different ways but over time. But the investment in this generation must be made now.

The cooperative model is designed to attract this kind of self starter. But today again, the regulatory community discourages new charters. The application has become a compliance drill, not support for people with passion to serve a community. The next student chartered credit union will be the first since the 1980’s.

In the meantime these young change makers are engaging their start up fervor elsewhere sometimes in other innovative finance-related endeavors.

The Common Thread

Credit union leaders, regulators and professional staffs, have become captured by the short term focus that drives most performance reporting. What are the latest quarterly numbers? How will we expand the market reach of our FOM? What Fintech partner will give us short erm lead on innovation?

All these efforts while necessary overlook the longer term outcomes. Without this awareness, the movement will become just another increasingly concentrated, and limited, financial service option in ten years. The number of active charters will be halved.

Tomorrow’s innovative financial models will have been created by the high school and college generation outside the movement. Credit unions will be seen as old fashioned “banking” firms just tending to their own, stand alone, self interests.

Both of these trends today are shaping what the movement will be a decade from now. There will be other cooperative solutions designed to serve consumers’ financial needs; however they may not be called credit unions.

June 5, 2023June 5, 2023

A Perspective On Credit Union Leadership & Human Nature

“It’s probably been happening in the ranks of American business since the first corner office was built, the first board was elected and the first regulatory body was created. But the unceremonious departure of well-known chief executives is also occurring a lot more frequently in the CU movement, lately.

“These are people you know, or at least know something about. You see them at national credit union conferences. They are the ones who have their photos in the program book because they are on the board of the sponsoring group or are speakers. They are the first ones to the floor microphones to challenges speakers. They write articles and have articles written about them. Their credit unions are also in the press a lot for innovations and achievement.

But they are gone. Not because they wanted to leave, either. Boards asked them to resign or fired them. Regulators asked them to sept down. Officers of the law escorted them into custody. Staff pressures forced them out. Some simply couldn’t cut it any more. Some left kicking and screaming. Others left quietly, never to be seen or heard from again.

“It seems a shame that a long and apparently successful career ends with a headline, factual story and mug shot in the press. It happens to corporate titans all the time. But we’re talking about credit union people here. They’re supposed to be different, but I guess they really aren’t. . . Although the reasons for departure vary greatly, it is apparent that one more sign of the growth and maturity of the credit union industry is that the “here today and gone tomorrow” syndrome is alive and well. . .

“Collectively the moral of their stories should be to acknowledge when you are doing something that could be viewed as a questionable business practice and stop it immediately. CU CEO’s and for that matter their boards, don’t have to be rocket scientists to understand that eventually, hefty insider loans, conflict of interest . . . transactions, or sweetheart compensation packages are going to get them in trouble and into the unemployment line at beast and the appropriate jailhouse at worst. . .

“Who’ll be next? I suspect some out there already know who and why, too!”

(Source: by Mike Welch, Editor and Publisher, Credit Union Times, April 22, 1992, Page 6)

May 25, 2023May 26, 2023

Credit Union Leaders and Bravery-A Rare Combination

What does it mean to be brave? Many people consider bravery an act of courage, often in the face of physical danger.

At some point almost all credit union leaders will confront financial, personnel and political challenges. Facing up to these, in most cases, is just part of the job. Cooperative bravery I believe entails a very different character.

Aristotle believed that bravery was the highest of all virtues because it guaranteed all the others. “I count him braver who overcomes his desires than him who conquers his enemies; for the hardest victory is over self. You will never do anything in this world without courage.”

Following the “Path of Least Resistance”

Bravery is rarely cited in conjunction with credit union activities. For cooperative culture is based on relationships. Differences of opinion, whether major or minor, are resolved by following the path of least resistance.

That path in awkward situations may entail quietly resigning from a position of responsibility. Other times one may voice dissent but not formally oppose in deference to the “majority” view.

In cooperatives, it just makes life easier to get along, by going along.

Two Examples of Bravery

Courage can be especially important at critical decision points in an organization’s direction. It is a “call” that can motivate after one’s formal professional role has ended. A person responds, drawing from their life’s experiences and values, to a summons that others do not feel.

Two individuals of unusual bravery are retired CEO’s that took public and extended efforts to oppose the decisions of their successors.

These two people are David Keffer who retired from Cornerstone FCU in 2014 and Steve Post who retired from Vermont State Employees (VSE) in 2013. In their executive roles. Dave was CEO for thirty-three years and Steve for twenty-four.

Their successor CEO’s were in their responsibility for two and six years respectively before initiating actions with their boards to end their credit unions’ independence.

Both retired CEO’s sought out family, former directors and officers, longtime members and community organizations to oppose the effort to cancel their credit unions’ charters. Both organizations had served and earned the loyalty of over three generations of members

The Vermont State Employees example is described in several posts written at the end of 2022. The first describes the closest vote ever in a merger contest. The follow up stories highlight the issues involved.

Votes Counted: Closes Election Ever

The Tragedy of the Commons: The End of a Movement?

If George Bailey were a Credit Union Member

The VSE Merger: Will “Potters” Take Over the Movement?

The outcome of the Cornerstone merger contest in 2017 can be read here: Credit Unions As a “Cornerstone” Of Freedom

This blog includes a link to The Committee for Cornerstone Indpendence, a Facebook page which contains a running record including videos from members opposing the merger. The vote took place less than four weeks from the mailing of the member notice following NCUA rules at that time.

Both men and many of their supporters had devoted decades of their personal and professional lives to these local cooperatives. The institutions successfully served their members through multiple economic cycles and business innovations. As noted in the articles, both institutions were leaders in their communities achieving financial success whatever measure of performance one used.

What Bravery Looks Like

Both former CEO’s efforts to prevent the mergers by urging members to vote NO, lost. One on a margin of less than 1% of votes cast. At Cornerstone, the mail in ballots were in favor even though over two-thirds of members voted against at the required members’ meeting.

Why single out these retired individuals as “brave” in openly opposing the merger plans of their immediate successors?

All of the odds for defeating the merger were stacked against them. The current credit union rulers control all the financial resources, the members’ media channels and enticed employees with future promises to support their plans. They even claim to have received the regulator’s blessing.

The time to mobilize opposition before Cornerstone’s vote was very limited. In VSE’s situation the debate extended over several months. The merger opponents had only their personal not institutional resources to draw upon.

Still working professional colleagues would stay distant at best, or be critical of their taking a stand abut the credit union “in retirement.”

So what motivated them to to speak out, to organize and ask their fellow members reject these proposals?

Both men strongly believed the merger’s rhetorical statements misled members about any possible future benefits. From their professional perspective, they understood that ending the charters was not in the members’ best interests.

The members received no merger benefit. Their generations of loyalty and accumulated resources passed totally to the control of a firm with a different business plan and leaders with no connection to the existing credit union. Or even a role in creating the accumulated wealth.

They saw the trust and goodwill of the members being taken advantage of. There was no immediate gain except for the leaders, who initiated the change.

Bravery: a Latent Capability

In life we will sooner or later encounter a situation where bravery is required. We may risk reputation and resources to do what we believe is right.

These moments are rarely scripted, let alone anticipated. There may not even be time to think about all the implications of taking a stand. Reaction can be as much intuitive as logical.

This “call” can arise from a lifetime of practiced belief. Or from witnessing the bravery of others responding to another of life’s ever unfolding equity challenges.

The motivation emerges from one’s deepest beliefs, spoken or not. It is the feeling that, “while ships are safe when in harbor, that is not why they were built.”

These two men took a stand when they perceived the values of the credit union members they served to be at a moment of maximum danger. They were right.

Their point of view was formed from serving members honorably for decades, not for just the length of a first employment contract.

Success In a Loss?

But they lost, so what kind of a “brave” example is this? By circumstance bravery often requires confronting superior power, a majority public opinion or even accepted protocols of behavior.

By opposing the merger plans, these individuals pointed to values much more vital than arguments for scale. They believed that members’ best interests should be criteria for all decisions. Management’s ambitions are not the purpose of a credit union—that is the cooperative difference versus for profit options.

There is growing awareness that events such as these mergers are compromising the future of the movement and members’ trust.

These examples of principled opposition will inspire others. Those who are now silent in the face of happenings with which they do not agree may take a stand: directors, employees, retirees or even those in regulatory roles.

What is the advantage of a cooperative charter if its supporters are not willing to pursue their democratic duty to speak up?

This capability is a learned skill, not one found in any person’s position description.

David Keffer and Steve Post retired from their jobs, not their principles.

Their standing up for their life’s work by opposing these mergers may be the cooperative example for which they will be most honored in years to come.

May 23, 2023May 23, 2023

Do Credit Union Names Matter?

“What’s in a name? That which we call a rose, by any other word would smell as sweet.” Juliet compares Romeo to a rose saying that if he were not named Romeo he would still be handsome and be Juliet’s love.

Shakespeare’s metaphor might not work as well today. For there are numerous varieties of ornamental rose that produce little or no fragrance.

And so it is with credit union names. Some are closely linked with the founding charter: State Employees, Stanford, American Airlines, Utility Employees. Some reflect an enhanced market ambition: Affinity, Summit, Community, or even Global.

Finally there are some that are just plain head scratchers–made up words meant to convey an impression or feeling that is not immediately clear.

Names can inform and enhance a credit union’s legacy relationships; or they can signal an effort to begin a new future, unbounded by previous limitations. Two examples follow.

A Credit Union Name But No Charter

The headline caught my attention: $5 million Naming Rights Deal Signed by Oakland University Credit Union (Credit Union Times, April 21, 2023)

Oakland University is real with 15,000 students. The agreement gives the credit union branding exposure with the newly christened OU Credit Union Arena.

OUCU has a website with pictures of the campus branch. It announces that so far in 2023 “we’ve saved our members $10.2 million in loan interest by refinancing their high-rate loans from other institutions to OU Credit Union.”

Despite these visual cues, OU is not a credit union. Rather it is a trade name created in 2013 by the $7.3 billion MSU FCU. The OU web site continues with this dual personality. The About Us link goes directly to MSU’s home page. The OU Credit Union Community shows pictures and events focusing on campus life.

The name and marketing examples in the website certainly communicate a commitment to this segment. MSU also operates two generic digital only brands, Collegiate and AlumniFi, to serve other college groups with “white label” (non-MSU) names.

The OU trade name would seem to be an effective way to focus on a specific group, one that would seem very similar to MSU’s institutional experience. One could suggest this dba is similar to a co-branded credit card from an airline or other retailer. It is not the airline doing the financing, but just providing a marketing introduction to its consumers for the bank which is responsible for all the underlying transactions.

With its 10-year, $5 million sponsorship and on site services, MSU is certainly investing in this partnership. The only rub might come if a OU member decides to exercise some of the other aspects of member-ownership such as run for the board or express a concern about an aspect of the credit union’s service.

Can the dba marketing model lead to member misimpressions about their role or credit union relationship? This example of branding has worked well for almost a decade. It is still hard to avoid the feeling that this is not the “full credit union monty” even with the linked disclosures on the website.

A Promise to Keep the Name

Another example is retaining the name, even after a merger, to respect the power of member loyalty. It also suggests an ongoing commitment to preserve the best aspects and local responsiveness despite the merger which transfers full control and resources to another credit union.

In March 2021 I described the proposed merger of Maine’s oldest credit union, chartered in 1921 as Telephone Workers, renamed Infinity, with Deere Employees in Moline, IL.

Describing the reason for merging the $341 million credit with almost 10% capital, CEO Elizabeth Hayes gave the following logic and commitments in a January 31, 2021 Credit Union Times interview:

Hayes said when local credit unions merge there is often “overlap” that can reduce the effectiveness of the combination.

“Merging with a credit union out-of-state gives you advantages,” Hayes stated. “One is the increase in intellectual capital. I can’t stress that enough.”

Hayes said with the out-of-state combination there is going to be no reduction in offices, no reduction in staff, and the chance for her existing 90-person team to be part of a larger organization with greater opportunities to grow and remain with the credit union.

Infinity FCU will keep its name and local control. Hayes will stay on as Maine market president.

Hayes said keeping the credit union’s name was important to Infinity. “We can keep our brand, which is important. There are a lot of members who feel very vested in their credit union and they will continue to feel vested with Infinity.”

Recently several Maine credit unions sent an update on the merger regarding the name, local control and feeling vested.

Hayes tenure as the Maine market president lasted about one year. There has been much employee turnover and Deere staff has moved from Moline to help Infinity fulfill its ambition to serve all “Maine-kind,” as stated on Infinity’s website.

However this spring brings a more consequential update especially when compared with the original justifications for the merger. Infinity and its Deere parent are changing to use a common name and brand: EMPEOPLE.

From the website:As we look forward, we have a vision for growth that builds on this legacy with an even stronger focus on financial empowerment for our members. It is important that our brand reflects our path forward. One that honors our history and represents a strong future. With a legacy of service and a vision for growth, our focus is on creating a path to financial health for our members, their families, and the communities we serve.

It would appear that the Infinity’s merger commitments of an independent operation, “keeping its name and local control,” and respecting “members who feel vested in this credit union” is now gone.

“Keeping the credit union’s name was important to Infinity,” said former President Hayes in her interview.

Given all the Infinity-Deere’s post-merger actions, it would certainly be reasonable for members to question these new rhetorical statements and rebranding. One wonders what happens if the EMPEOPLE member-owners became skeptical of all this verbosity and simply walk away.

The End of Romeo and Juliet

Credit union names matter. Both case studies are examples that can be found throughout credit union land.

In the first case, the credit union is investing in creating a brand to build relationships with a community partner. In the second the credit union is walking away from its past into a future with a name that causes one to ask, what were they thinking?

In Shakespeare’s play Romeo and Juliet die. While the families reconcile, it has a price as the Prince states: “For never was a story of more woe / Than this of Juliet and her Romeo.”

What’s in a name? Contrary to Juliet’s poetic assertion, they matter, for better or worse.

May 19, 2023May 19, 2023

The Dangerous Goal of “Parity”

As pundits, regulators and congress have looked at what should be changed in the wake of the three recent large bank failures, one focus is how FDIC insurance is structured.

A precipitating event was mass withdrawals by uninsured customers, prompted by social media alarms. Using their Dodd-Frank “systemic risk authority,” the FDIC took over the banks and covered all depositor balances while it worked to find a least cost resolution.

This customer behavior has prompted suggestions for changing FDIC coverages to reduce this risk potential. CUNA and NCUA have publicly stated that the NCUSIF should have “parity” in any changes to FDIC insurance.

Here is one trade’s position: Credit unions must receive parity with banks in any deposit reform legislation, CUNA wrote to House Financial Services and Senate Banking, Housing, and Urban Affairs Committee leadership Monday. Congress and the Federal Reserve have indicated interest in deposit insurance reform in the wake of recent high-profile bank collapses.

“Our primary concern regarding any deposit insurance reform legislation passed by Congress is to ensure that credit unions receive parity, fair treatment, and equal protection with banks,” stated CUNA President Jim Nussle in his letter to Congress.

I believe this public posturing is dangerous to the future of the NCUSIF and to credit unions separate financial system. Here is why.

Credit union CEO’s and industry leaders have rushed to assure their members, the public and Congress that credit unions do not have the problems that caused the banking failures. They are more financially resilient.

The first proof of this basic difference is that 92% of credit union savings are covered by NCUSIF, whereas only 44% of bank deposits were FDIC insured. This point was presented in Callahan’s Trend Watch analysis this week in the following graph.

The obvious Congressional question is why do credit unions need whatever changes FDIC might make if the balance sheet structures of cooperatives are fundamentally different from the banking industry?

Politically it would seem unwise to request parity before any legislation has even been introduced. For in drafting any change Congress can easily respond to credit unions’ request with a simple bipartisan solution. They could mandate there be only one federally managed deposit insurance fund, the FDIC. That would be true parity. For the FDIC already merged the separate S&L FSLIC fund.

The factual response to this Congressional possibility is that the NCUSIF is different in both structure and purpose from the FDIC.

Since the NCUSIF’s financial redesign in 1984 into a cooperatively-funded deposit model, credit union insurance has not required federal backing, even during the corporate crisis. By legislative intent, the NCUSIF is backed entirely by members sending 1% of every savings dollar to the fund. This capital base grows along with insured risk. This base provides sufficient revenue so that premiums are rare. That revenue option is a last resort and can be used only when Congressionally established financial levels are reached.

As a cooperative, the fund is required to pay dividends when reserves exceed the Normal Operating Level, historically 1.3%. The FDIC’s structure gives it only one means to cover increased risk—charge ever higher premiums on an expanded asset, not just the insured savings base.

The two federally managed “insurance” funds have fundamentally different roles which reflect the character of the institutions they cover. The credit union model is a not-for-profit, member-owned consumer focused coop. This system has a much different purpose than the for-profit commercial banking model. The NCUSIF is also a source of temporary recapitalization to sustain a coop hit by uncontrollable financial events. In banking, the FDIC cannot provide assistance to private owners.
CUNA and other credit union support for “parity “ with the FDIC could unfortunately be used to buttress Chairman Harper’s stated intent, from his first day on the NCUA board, to build a larger fund. His proposals would abandon legislative guardrails and add premiums as a regular option to expand the fund’s size relative to credit union risk.

There is nothing in the NCUSIF history that would support this desire for a larger fund. The Fund has performed though multiple economic cycles and financial crises that forced the FDIC to resort to multiple special premiums. The FDIC has no cap on how large its fund can be relative to its insured risk.

The downside of the NCUSIF’s financial success is that it has become a “piggy bank” from which NCUA draws increasing amounts to pay for its expanding operating budgets. Instead of paying for insurance losses, the majority of fund revenue is used for NCUA’s operating expense. This overhead transfer rate is currently 62.4 %, even though federally chartered credit unions are only 50% of insured risk.

The legislative constraints that are a part of the redesign passed in 1984 were to address credit unions’ fundamental concerns with an open-ended perpetual deposit underwriting commitment. The apprehension was: “If we just keep sending 1% of deposit to NCUA every year, what prevents them from just spending it.”

If Congress were to change how FDIC insurance coverage is based, it won’t be a single action. Legislation will come with additional rules and regs, increased financials tests, and stronger regulatory powers for examiners and supervisors to mandate changes when deemed necessary. There will be a significant regulatory quid pro quo if coverage is changed.

Credit unions, who in their own analysis, say they are unlike banks, would become a part of this new regulatory avalanche. One need only think back to 1998 when bank PCA was mandated by the Credit Union Membership Access Act which had nothing to do with the Act’s primary FOM issue. But it was included, saddling credit unions with PCA (RBC/CCULR) requirements in 2022 that NCUA cloned from the banking regulator’s rules.

Should credit unions individually or in certain circumstances believe additional share insurance coverage is desirable, options already exist. In Massachusetts, state charters must cover 100% of their savings. Amounts above the NCUSIF are insured by MSIC. In multiple other states, American Share Insurance offers additional coverage above the NCUSIF which credit unions can purchase. These are options credit unions can design to fit their own circumstances. NCUSIF insurance coverage is based on the principle that one size fits all.
If the recent banking failures cause a change to FDIC coverage, one of the factors is the market accountability publicly traded banks face. Market short sales can convert temporary problems into more serious runs. Credit unions do not have this market accountability. They also are not required to have the same public transparency required in SEC 10-Q and other filings for shareholders.

An Opportunity to Demonstrate the Cooperative Difference

For credit unions the debate on insurance coverage should be an opportunity to substantiate the differences and soundness of the NCUSIF, and its extraordinary record of success since 1984. Before that time, the NCUSIF did follow the FDIC model. As an FDIC financial twin over two decades, the NCUSIF never came close to achieving the legislative goal of a 1% fund. This was even after using double premiums, the only option available, for several years.

A major risk to credit unions is a NCUSIF-managed Fund without an awareness by leaders of its differences and why these matter. The changes requested by Chairman Harper not only abandon the explicit legislative guarantees made to credit unions in return for their perpetual 1% underwriting in 1984. It would most certainly entail more FDIC look alike regulations.

Here is Chairman Harper’s request to Congress this week:

If Congress does decide to act in this area, the NCUA has two requests. The first is to maintain parity between the share insurance provided by the NCUA and the deposit insurance provided by the FDIC. Share and deposit insurance parity ensures that consumers receive the same level of protection against losses regardless of their financial institution’s charter type.

And second, if coverage levels are adjusted in any way, there will be costs associated with those adjustments, such as the need to increase reserves. Accordingly, the NCUA requests additional flexibility for administering the Share Insurance Fund.

Specifically, the NCUA requests amending the Federal Credit Union Act to remove the 1.50-percent ceiling from the current statutory definition of “normal operating level,” which limits the ability of the Board to establish a higher normal operating level for the Share Insurance Fund. Congress should also remove the limitations on assessing Share Insurance Fund premiums when the equity ratio of the Share Insurance Fund is greater than 1.30 percent and if the premium charged exceeds the amount necessary to restore the equity ratio to 1.30 percent.²⁵

Together, these amendments would bring the NCUA’s statutory authority over the Share Insurance Fund more in line with the FDIC’s authority as it relates to administering the Deposit Insurance Fund. These amendments would also better enable the NCUA Board to proactively manage the Share Insurance Fund by building reserves during economic upturns so that sufficient money is available during economic downturns.

In sum, insurance parity is a false objective based on contradictory logic and a failure to understand the cooperative financial model. Credit unions should be careful what they wish for.

As one former NCUA Chair observed, the greatest threat to credit unions is parity.