Category: Cooperative Design

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The Lack of Public Confidence in America’s Institutions

Polling routinely tracks the decline in trust Americans have in their institutions, both public and private.  From a September 2023 Pew Research Report: “Fewer than two-in-ten Americans say they trust the government in Washington to do what is right “just about always” (1%) or “most of the time” (15%)

In the private sector, this distrust can accelerate business uncertainty, or lead to failure.  When economic challenges combine with  the ever present potential for market disruption, continued  success can seem more tenuous.

One area where these negative forces have all combined is in America’s newspaper industry.  One of the survivors is  Arkansas Democrat-Gazette, owned by the Walter Hussman family,

I recently heard him speak about how his paper has continued to succeed in this “dying industry.” Today the daily edition publishes the third or fourth largest amount of news stories after the national editions of the NY Times, Washington Post and Wall Street Journal.

The challenges and Response

In his remarks Hussman said the peak in newspaper ad revenue was $60 billion in 2006. Now it is less than $10 billion.  Many local papers and national chains such as Gannett have been purchased by hedge funds or outside investors.  Their business model is to provide “less and less” and ask customers to pay “more and more” to maximize their financial return, not the newspapers’ role for the public.

The separate Democrat newspaper bought out its Gannet-owned competitor the Gazette in 1991,  becoming the dominant  statewide publication.  Hussman’s view is that national news and sports are available everywhere.  What matters to his readers is local reporting.

To meet the disruption of both advertising and readership by social media, several years ago Hussman converted the six daily editions to an online format only, with just the Sunday paper still in distributed in print.  He provided free iPads to all subscribers. Teams of employees travelled  throughout the state to show customers how to use the online format.

That digital offering is continuously upgraded to include videos and other editorial material and links that would not be feasible in a print edition. Another factor in the conversion: “Today’s younger readers want the news to find them.”  The cost is $39 per month.  The savings in both newsprint and distribution costs has allowed the paper to remain profitable.

But what about the public’s general mistrust of all news media, both print and broadcast.   He cited that only 16% of the public trusts the media.   Everyone can choose the source today that most closely aligns with their views reinforcing existing “confirmation bias.”

Publishing Operating Core Values

Hussman described his firm’s response to this pervasive mistrust.  Every edition contains a brief Statement of Core Values, summarizing the organization’s approach to reporting.  Here are excerpts:

Credibility is the greatest asset of any news medium and impartiality is the greatest source of credibility.

. . . a news organization must not just cover the news, but uncover it.  It must follow the story wherever it leads regardless of any preconceived ideas. . .

The pursuit of truth is a noble goal of journalism.  But the truth is not always apparent or known immediately.   The journalist’s role . . .is to report as completely and impartially as possible all verifiable facts so that the reader can . . . determine what they believe to be the truth.

. . . as much as possible, there needs to be a sharp and clear distinction between news and opinion.

A newspaper has five constituencies. . . readers, then advertisers, then employees, then creditors, then shareholders.  As long as the newspaper keeps its constituencies in that order, especially its readers first, all constituencies will be well served.”

The Core Value Imperative

Hussman told the story about stating his core values when asked by a major television news network executive how to move his channel to a more neutral political public perception.

Most organizations, even credit unions, talk about and publish lists of value.  In many instances they affirm common sense principles such as integrity, openness, impartiality, etc.

There is a difference between virtue signaling efforts and core operating  principles as described by Hussman.

For the past week I have published brief excerpts from the Coach’s Playbook, a series of core operating statements by Ed Callahan.  Note that none of these was a list of personal values; rather they were the operating priorities he followed in multiple leadership roles with credit unions.

The difference between the two approaches is revealed when persons in authority fly from their responsibility to do “the right thing.”  Some will fall back on legal distinctions, some on tradition and others assert their positions of power or control of resources.

Banking on Values

Today is a celebration of Banking on Values, a global movement to change how finance can make change.

Their founding purpose:  “Banking is a powerful force.  From social equity to climate emergency the banking sector has a choirce; either ignore and exacerbate these issues or work together to overcome them.  . . banks must think bolder.”

Do credit unions today think bolder?   Are their values expressed in actual operating priorities?  How would they “square” their oft stated goals of growth and scale with the purpose to be a member-first design?

No one can question credit union financial success, the system’s stability and the avoidance of significant operational failures.   But is that what members and the country need at this time?

Can operating core values reignite credibility in purpose, or will we continue to float along with the rest of the financial sector?

Lip service to what credit unions should be will provide neither cooperative advantage nor market differentiation and success.  That is not the path of how we got to where we are today.

 

 

 

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Merger Exuberance:  Preparing for the Future or Signaling a “Mature” Industry

CUNA and NAFCU are now joined.  Coming right behind is the announcement of COOP and PSCU’s combination by yearend.

What are the implications of these large scale mergers? According to the participants, they are preparing for a more ambitious future.   However some  analysts  see mergers  as a sign of declining opportunities and creativity as an industry enters a  maturing, slower growth  phase.

One Observer’s Take: A Wake Up call

“First NAFCU merges with CUNA, now PSCU and COOP.  This should wake up the rogues amongst us – opportunity calls.

“Once sold as the titans of hope, they are now seen as one trick ponies riding old ideas and copied solutions.  No longer is their faith in ownerships’ will, unique competitive differences nurtured, and innovation cast from confidence  in their  community.  These players rode their vehicles into the ditch.

“There is no sincerity leveraging others, margins guaranteed without value shared, or room left for the creativity of leaders whose credit unions these firms were designed to serve.”

How Should Credit Union  Owners Evaluate the Latest Proposal?

In both mergers the details of the combinations are at best scarce.  Most of the justifications  are rhetorical: “ speak with one voice”;  “ we are stronger together than we are separately”;  “a transformative opportunity to bring broader opportunities and products.“  And, “the merger brings together teams with a similar mission/vison and comparable values and cultures. “

There is also future hope: “The combination offers credit unions increased scalability, access to best-of-breed technology, unparalleled services and differentiated value, fostering long- term success and sustainability for the credit union movement.”

This is the language of marketers and PR, not operations. It is a script one can find in almost every significant coop merger. There are no facts or data, except to clarify  who will be running the show:  CUNA in one case; and PSCU  in the second.

How are the credit union owners who built these organizations with loyal patronage, capital support and volunteer leadership resulting in financially independent organizations, to evaluate these future promises?

Some thoughts:

  • Ask for the latest financial statements and the 2-3 year trends. How will the combination affect the member-owners’ financial stakes?
  • What will the key financial indicators look like in the first year including operating expenses, revenue goals, and net income?
  • What gains and losses (write downs) will the two organizations incur from the merger that would otherwise not have occurred?
  • How will existing third party relationships be evaluated?
  • What are the projects and investments that will be post-merger priorities?

These operational questions are critical. The political decisions to combine are the easy steps; implementing a merger is difficult especially if there are no concrete goals, measures or key success factors identified up front.

Owners are asked to transfer the results of their cumulative years’ relationships into a new entity without any stated outcomes.

Concrete objectives should be part of the dialogue.   Organizational alignments and who will lead the new firm are important. But leadership will change. Some specific benchmarks and benefits should be an important part of the dialogue to come.

Why the PSCU-Coop Combination?

A former CEO of a credit union owned technology provider had the following assessment motivating this event.

This is a transaction born years ago in the mind of executives trusting in the destiny tied to the path of “scale” – this is the only route for aggregators and deal makers.

Neither firm had the heart of a manufacturer of technology. The primary asset they sold their clients was affiliation.  In their minds the concept of clients as the owners of unique solutions was not an advantage. Rather it was viewed as more of a disadvantage with CUs limited by the very model of cooperatives, non-profit roots, and their virtual ownership aspects.

They were and are simply re-marketers, sales firms leaning on the value propositions of other firms. They will merge and take smaller and smaller returns as the owners of design, manufacturing, and their true competitors take a piece of negotiated solutions. 

As aggregators, they never owned the right to price, the right to equity, or the will to create.

Both were valuable players in credit union history, but not creative forces or protectors of what it means to focus on the power of ownership underwritten and  guaranteed through cooperative design. 

There are new days and new architects ahead with models which rely on the uniqueness of cooperative themes reborn to new needs. These firms drank the wrong Kool-Aid.

The Opportunity for Credit Union Innovators

It is important that credit union leaders not assume merged organizations will power the future or be the primary source of improved solutions.

Instead they signal opportunity for new marketplace entrants.  Now is  a time for new value propositions, new energy around execution, and old ideas  presented differently and considered again.

Merged businesses do not naturally create a strengthened survivor. These large mergers create artificial Goliaths repositioning from intra-industry challenge.

The result is not marketplace gained organic success.  Rather the events point to business assumptions requiring substantive review.

In the end, over-confidence on scale may actually hinder innovation and system resilience.  Until new coop disrupters emerge.

 

 

 

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Wisdom: On Regulation

 

Share Insurance & Regulatory Choice

“The fact that there is an insurance option-private insurance for state-chartered credit unions-assures that the NCUSIF will be different from the premium based FDIC fund, that it will be funded with deposits from credit unions, and can be counted as an asset on the books of credit unions.  The fact that there is an insurance option guarantees there will be a charter option, and thus a regulatory option.

This is to the good for everyone.  A single regulator is sooner or later bound to become a lazy or an arrogant regulator.  The best ideas will not bubble up; the regulated will not flourish to their maximum potential.  But with two regulatory options, competition is going to allow the best ideas to come to the fore and allow the dynamic credit unions to expand.”  (pgs 46-47)

 

Note: From the Coach’s Playbook,  a collection of  Ed Callahan’s observations.  These are a summary of operating values for the credit union system. Ed began his professional career as a high school math teacher and football coach.  His thirty years in credit unions included Chairman of NCUA (1981-1985), co-founder of Callahan & Associates, and CEO of Patelco from 1987 through 2002.

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The Cooperative Advantage

Cooperatives Are Unique

“The first word in credit unions always has to be MEMBER.  The second word has to be COOPERATION.

“We are a cooperative movement.  Credit unions are co-ops.  People join, agreeing to cooperative to better one another’s lives.   They pledge themselves to cooperation.

“We have seen what this spirit has done for us in the past.  From fragile, tiny groups of people a hundred years ago pledging to themselves they would save and borrow from from one another in a spirit of helpfulness to a movement of 90 million Americans and $700 billion in assets. That is the power of helpfulness and cooperation.”  (pgs. 58-59)

Note: The Coach’s Playbook is a collection of the thoughts of Ed Callahan from his thirty years working a multiple levels including CEO of Patelco Credit Union and Chairman of NCUA (1981-1985).

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Wisdom: The People’s Movement

The People’s Creation

“We don’t have to concern ourselves when people ask, “but what did Congress intend us to be?”  Our movement does not exist because it was created from the top (i.e. Congress) down.  Rather it was created from the bottom (i.e. the people) up.

We told Congress what we intended to be: cooperatives that would try to serve the needs of their members, whatever those needs might be.” (pg52)

Note: The Coach’s Playbook is a collection of the thoughts of Ed Callahan as a federal and state regulator, innovator and credit union CEO.  The book was published by Member Value Network.

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More Wisdom . . .

                     On Lending 

“The backbone of a credit union is lending.  You blow the whole thing if you make too many mistakes here.  Think back over the past 80 years of credit union history in America.  Consider the outstanding credit unions.   What sets them apart?  I believe it is their lending programs. In the long run, the rise or fall of a credit union depends on the loans it makes.” (pg15)

 

Note: The Coach’s Playbook is a collection of observations by Ed Callahan.  They are from his three decade career as a regulator (including Chairman of NCUA 1981-1985), co-founder of Callahan & Associates, and as CEO of Patelco.   The book was published in 2006 by the Member Value Network.

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Wisdom from The Coach’s Playbook

                  On Members

” Most economic institutions exist for the capitalists, who are a tiny minority compared with the body of customers.   In such an economic system as now exists around the world, people do not come first.  Money does.

Credit unions are different and always have been. We never came together with notion of making money, but with the notion of helping people and improving their lives.” (pg. 7)

 

Note: The Coach’s Playbook is a short collection  of Ed Callahan’s observations.  These were collected from his writings and talks working in credit unions:  eight years as a regulator  (including Chairman of NCUA from 1981-1985), co-founder of Callahan & Associates, and as CEO of Patelco.   The book was published in 2006 by Member Value Network, a spontaneous “collection” of credit union leaders and consultants.

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Credit Unions and Public Banks  

On September 18, 2023 an organizing group Friends of the Public Bank of the East Bay  (PBEB) announced the hiring of a its start-up CEO, Scott Waite.   This is a brief announcement by Waite on YouTube.

Waite is a credit union veteran having served over 20 years as Patelco Credit Union’s  CEO.  More recently he had turned around Central State Credit Union which had been operating for four years under regulatory constraints.

PBEB has raised $1 million and is undertaking further fund raising.  Four local jurisdictions – Alameda County and the cities of Richmond, Oakland and Berkeley – are supporting the effort contributing financially to the bank’s groundwork and business plan.

The intent is to seek a bank charter with FDIC insurance to open by 2024 or early 2025. The goal is to facilitate local governments’ reinvestments back into their communities. As a wholesale bank, PBEB will partner with community banks, credit unions and CDFIs to finance affordable housing development, small businesses, the renovation and electrification of existing buildings, and the ability of cities and counties to refinance their municipal debt locally.

More Efforts Underway

On September 29, the online reporting site, Next City, posted a summary of the history of public banking and the growing interest in major cities across the US.

A Victory For Public Banking

A public bank in California’s East Bay is gaining more momentum to become one of the first public banks to start operating since the state-owned Bank of North Dakota got established in 1919. It is the first public bank to hire a CEO in the last 100 years.  Interest in establishing public banks has grown significantly in the last decade but many organizers continue the long push to get one created in their cities.

In an earlier article Next City described efforts of mayoral candidates in Chicago and Philadelphia to make public banks part of their electoral initiatives.

Organizers in New York also want to create a city-owned wholesale bank which was the subject on an article in Credit Union Times, Public Banks: An Important Idea Whose time is Overdue. 

The author, Melissa Marquez, CEO of the $37.7 million CDFI Genesee Co-op FCU, pointed out the public banks are not competition but “would partner with us to increase our capacity to lend, grow and meet our communities’ needs. This partnership model is effective precisely because it leverages the proven expertise of local lenders and the scale of public deposits.”

She pointed to the century long record of the Bank of North Dakota, a public bank with over $10 billion in assets.   From its 2022 Annual Report:

BND had “a record $5.4 billion in loans to the state’s farmers and ranchers, business owners and students in North Dakota and record profit  of $191.2 million in 2022, up $47 million from 2021.”

Her article  cited statistics from the Institute for Local Self Reliance that  “the Bank of North Dakota has fostered the highest rate of community banks and credit unions per capita in the country.”

She added: “The New York Public Banking Act (S.1754/A.3352) would create an appropriate regulatory framework for enabling localities, such as Rochester or New York City, to apply for a special purpose charter for a municipal public bank. They will be charter-bound to reinvest in equitable economic development in low-income communities.“

The article also cites the history of the CDFI programs as a model for a new, locally focused financial institution system:

“30 years ago, the federal CDFI Fund was established during the Clinton Administration as a part of the U.S. Treasury. There were naysayers and name-callers then as well. But three decades later, thousands of successful CDFIs are operating in urban, rural and native communities across the country, and CDFIs enjoy broad public support across political and other divides.”

Why Public Banking Could Take Off

Scott Waite explained his decision to lead the PBEB as a “grass roots movement meeting the moment.”  The bank will partner with other institutions to ensure public funds are reinvested locally.  His three areas of initial support are affordable housing, renewable energy and small business lending.

PBEB cannot be a retail bank.   As a wholesale firm they will rely on other community financial institutions and firms to initiate projects for joint financing.

I believe there are two factors that suggest public banks could succeed.

The first is that the increasing consolidation of financial institutions.  This means that locally owned and directed firms are becoming less and less prominent in major American cities.

When I worked at the First National Bank of Chicago ( 1974-1977), the city had three major local banks:  First, Continental and Harris Bank plus dozens of correspondent banks under Illinois unit banking charter limits.  Today I know of no major locally owned bank that calls Chicago its headquarters.

Yet municipal and country governments manage hundreds of millions of dollars that are all deposited in for-profit institutions, whose priorities may not align with how local governments might see funds used.

Just as credit unions were formed by tapping into the steady flow of wages for military and public employees in earlier generations, public governments and authorities are now focused on the wholesale use of funds with local partners.

Secondly. government today is big business.  Public contracts for roads, health care, schools involve overseeing hundreds of millions of dollars in dedicated public spending.   Some of these same skills will be required in overseeing new institutions for local financing. In many cases the expertise is already there or readily available such as Scott Waite’s hire.

In one instance, credit unions have already chosen a public banking option. The Midwest Corporate Credit Union serving North Dakota voluntarily dissolved in 2011 after the multiple uncertainties driving the new corporate regulations. They did so because “North Dakota credit unions had access to the Bank of North Dakota that provided many of the services of a corporate credit union without having to maintain a capital share.”

Just as the FHLB system has become the preferred liquidity lender for the credit union system not the CLF, public banks may accelerate their role in local financing projects that are now too large for one institution to undertake.

Scott Waite believes credit unions should embrace these efforts as it will facilitate a greater local role for their members’ funds.  And just as important, the underserved needs are growing in cities across the country, so that innovative initiatives will be critical.

We’ll know the concept has taken hold when there is a public banking support organization such as Inclusiv for CDFI’s.

 

 

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The Challenge of Being a New Coop CEO

Leadership changes are necessary to sustain every organization’s success.   Sometimes changes at the top work well; other times they come with drama and uncertainty.

New CEO’s, especially if brought in from outside an organization, will have a healthy disrespect for the status quo.

But no one wants a job they disrespect.

So the critical performance standard is the leader’s vision of the future.   Is the person equipped with the right motivation, not just relevant professional skill sets?  Or, are they chosen just to break from the past?

A  Difference, If Understood

Credit unions as cooperatives can teach and illuminate human possibility.  But it can only do so to the extent that leaders are determined to use the design for those ends.

Otherwise, it becomes nothing more than an aggregation of financial accounts in a marketplace full of options.

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A Credit Union’s Calling: Be “Stewards of Humanity”

Everything in life comes around, full circle, even in credit unions.

“In 1908, Monsignor Pierre Hevey, Pastor of Sainte-Marie’s parish in Manchester, New Hampshire, organized what was soon to be known as the first credit union. The goal was to help the primarily Franco-American mill workers save and borrow money.

“On November 24, 1908  in Manchester, New Hampshire  “La Caisse Populaire, Ste-Marie” (The People’s Bank)  became the first credit union in the nation.”  (from Our Story, St. Mary’s Bank)

Today the Bishops and priests of the Episcopal Diocese of New York are following in Monsignor Hevey’s footsteps.   And for many of the same reasons, as demonstrated in these founders’ statements:

“As a diocese, we are committed to making a meaningful impact on the lives of those who have traditionally been marginalized and underserved. That’s why the establishment and launch of our diocesan credit union is such a pivotal moment for us.

“It’s not just about providing financial services, it’s about creating an inclusive space where everyone, irrespective of their financial standing, can feel valued and supported. . .

“These initiatives are more than just programs or ideas, they are a call to action, a call to embody the love and grace of God in the world.”

A second organizer:

“As a member of the inaugural board of trustees and co-chair of the Diocese’s credit union task force, I am thrilled to see the New York Episcopal Federal Credit Union open its headquarters and first branch here in the Bronx. It’s a testament to our commitment to the local community and our mission to serve everyone in our field of membership, regardless of their financial circumstances.

The existing banking system often neglects the needs of those who are underserved and overlooked, and that’s why we’re excited to offer a financial institution that prioritizes the well-being of all its members. We look forward to empowering our neighbors in Fordham and throughout the Bronx, as well as the entire Diocese of New York, with the tools and resources they need to achieve financial stability and thrive.”

The biblical calling to be “stewards of humanity” was featured in this short recording by the Diocese announcing the credit union’s formation.

In the June 30, 2023 call report, the credit union reported $477,000 in total assets, all in investments, and a net worth of the same amount.

A Long Journey

Here are some details of the charter journey from an Episcopal  News Service May 23rd story:

“The journey towards establishing the NYEFCU began in 1990 when the Diocese of New York committed 10% of donations to its endowment funds to economic justice efforts and created a task force to recommend projects. Despite initial discussions and resolutions in 2003 and 2004, the credit union’s development was slow.

“It wasn’t until 2014 when the diocesan convention voted to “authorize the establishment of a task force to prepare a charter and solicit initial grants and deposits to establish the Episcopal Diocese of New York Credit Union.”

The Diocese embraces a lively community of faith, fellowship, service and spiritual commitment across almost 200 congregations and 50,000 members.

“The task force submitted an application for a federal charter to the National Credit Union Administration in December 2020, and spent 2021 and 2022 addressing the federal agency’s requests for more information and revisions before finally receiving approval.

“The credit union was launched with an initial investment of $500,000, with $250,000 from the diocese and another $250,000 from Trinity Church Wall Street. An ongoing fundraising drive aims to secure an additional $300,000 to cover the first five years of operating expenses, including staffing, office supplies, and computer technology. After this period, NYEFCU aims to have enough members to sustain itself without further external funding.

“The first branch of the NYEFCU is located next to St. James, Fordham in a new mixed-use development (St. James Terrace) that will house 102 affordable apartments, half of which are allocated for formerly homeless individuals. In its inaugural year, the credit union aims to cater to the specific financial needs of its low- to moderate-income members by offering an array of services.”

Credit Unions’ Future as Credit Unions

No matter the size of America’s collective consumer wealth,  many still have limited access to fair financial options.  These are often the targets of for-profit financial offerings.

It’s no accident that people of faith have played a major role in the establishment of coops as a way to serve their congregations.   They remind all of the values animating credit union pioneers.  And the values that make cooperatives more than “nice banks.”

The fact that this charter application and processing will take from 2020 (when submitted) until the end of this year to raise sufficient capital,  shows the perseverance required overcoming government bureaucracy.

These spiritual founders are responding to the call to serve by creating a financial cooperative.

The major difference is that the Diocese had one hurdle that Monsignor Hevey did not have to deal with, the NCUA.  It just shows it helps to  have God on one’s side.