Category: Credit union History

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A 1982 Credit Union Leader’s Video “To All the Girls I’ve Loved Before”

I just received this video of six credit union state league Presidents recording a song in a studio.

The six state CEOs will be familiar to many CU veterans.  From left to right they are: Tony Schumacher , Gene Farley. Carroll Beach, Brad Murphy,  David Dinning and Bob Biancini. 

Note: Skip ahead to 17 seconds to begin the video.

To All the Girls

The Video’s Story (from a participant)

I thought you might get a kick out of this . The video was shot in 1982 I was at a meeting in New Orleans with a number of Credit Union League CEO’s . I do remember our gang walking from our hotel to a restaurant, “The Court of 2 Sisters” (still in business!) On our way we passed this recording facility where you could watch people making mostly silly videos.  The general consensus was, why would anyone embarrass themselves like that ?

On the way back from the restaurant after consuming about a bottle of wine each, this was the result.

The Significance of 1982 and State League Directors

The song’s lyrics might not pass muster today, but you have to admit they put on an excellent show.  But I think it tells a lot more about credit union leadership than the changing culture attitudes on relationships.

In this year of credit union history, the state league system was at its peak strength.  In some states credit unions were so numerous that there were even competing state level  organizations.

Leagues were vital pillars of the movement in this formative decade as credit union entered deregulation.  State charters were the only option until 1934.  Leagues were the driving force in the federal law pasage providing proof that credit union could be run by ordinary people.  State leagues were the vital organizers of  both federal and state charters.

At this moment there were 16 state insurance options along with the NCUSIF.  States were the incubators for change, innovation and creativity. These included activities off limits to FCU’s such as field of membership flexibility, share drafts, home mortgage loans, ATMS and  regulatory oversight and access. NCUA had become a three-person independent agency only in 1977.  The Agency was on its second chair, whereas some of these local leaders had served decades.

The state leaders founded CUNA at Estes Park.  CUNA was headquartered in Madison with a regulatory office in Washington DC.   Through ACULE these leaders coordinated legislative priorities and national leadership.  The corporate network was supported by the leagues initially with cross board membership which NCUA ultimately banned.

The system also spawned other organizational support groups with credit unions of similar fields of membership.  For example the League of IBM credit unions, Educational. Credit Union Council, the Airline Credit Union Association, and many more with like sponsors.

The results were a strong, grass roots state level system rapidly expanding their growing  role in communities in every state.  The movement’s success and the system’s support structure were closely linked and interdependent.

The Illinois Example

Leagues provided support services, education and chapters to promote local social and political interactions.  As a state supervisor from 1977 to 1981, I spoke at chapter meetings, annual meetings and worked with the league when examiners found problems. We would ask if someone from their two dozen or more field representatives might help out as we pursuded the shared the goal of a sound system.  For in 1977 there was no mandatory share insurance requirement for state charters.

Illinois had the largest number of credit unions of any state with over 1,100 active charters.  We wanted the Illinois system to be a national leader in serving Illinois residents. When the Suburban Bank Group sought a charter for  its employees, we granted the new charter. Then we hired the energetic person who organized the effort, Wanda Mallow,  to promote new charters across the state.

Through NASCUS, we learned  how other state supervisors in Texas, Michigan and California operated. NCUA was rarely present on the ground,

Together the League led by Dick Ensweiller and the Department recodified the Illinois Credit Union Act in 1979 introducing deregulation and flexibility for a changing financial marketplace.

The Cooperative System Today

The shape and character of the movement’s system is very different today.   Leagues have merged,  The number of credit unions has fallen from over 16,00 in 1977 to 4,300 today.   Large credit unions operate on their own, some with national ambitions in multiple states.

CUNA moved its operational leadership to DC and focused on national advocacy withdrawing from many support services often offered through the leagues.

Large credit unions dominate the industry. National issues of technology adoption, CUSO business partnerships and regulatory responsiveness  leave many smaller organizatons feeling left out or  irrelevant.  There is no system support for new charters,  In fact the opposite is happening with mergers of long serving, sound credit unions a seeming priority for leaders.

The strong capital ratios averaging over 11% and with long serving safe   franchises  have caused many credit unions to rely less and less on system support, except as an independent  business decision.  CEO turnover at both credit unions and support organizations has caused the shared efforts from the past to be just memories.  NCUA has been leaderless for over a year.  Since the 2008 financial crisis, it has strived to be “independent” of credit unions or as one board member more bluntly stated, don’t look to Washington for advice.

The critical question facing the movement is whether a support system is even necessary and if so, for what purpose.   The shadows of many of these groups still exist, but there is little to no shared sense of priority or direction.  Advocacy means protecting the status quo.

The sense of purpose and serving the common good are sometimes referenced in local planning, but rarely are part of national conversations.  At a time of increasing shortcomings in many ways and at many levels of political and business activity, credit union identity is becoming more and more market-like.  Coop leaders are playing the merger and growth games they find, rather than defining the game they want to play.

So maybe the nostalgic message of prior relationships recorded by these State League Directors is more prescient than they could have realized.  Is the system that spawned today’s credit union industry just is a nostalgic moment of an era now gone forever?

To all the girls I once caressed
And may I say I’ve held the best
For helping me to grow
I owe a lot I know
To all the girls I’ve loved before
The winds of change are always blowing
And every time I try to stay
The winds of change continue blowing
And they just carry me away

 

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One CEO’s Most Vital Stewardship Attribute

The example of Boeing Employees Credit Union two recent CEO selections proves the adage that most organizations are onlly two transitions from failure.  Not just performance shortfalls, but more importantly the loss or founding purpose and the associated values and culture.

See post: When the Song Fades-Leadership Turnover and the Loss of Cooperative Identity.    (Link)

Newly installed CEO’s espeically from outside an organization assume they have been chosen to give new direction from their external experiences, often without first understanding the resources they now direct.

The failures are not due to lack of talent, skills or knowledge, but rather a more fundamental gap,   an inability to discern the foundation for the success they inherit.  That shortcoming is especially vital in democratically designed organizations such as credit unions:

In democratic organization, It turns out, in the end, there’s only one institutional factor  that actually matters: Good character. Everything else in a democratically governed system follows and relies on that simple foundation.

To put the current BECU leadership culture in perspective (link), here is a summary of the legacy that Gary Oakland created upon his retirement in 2012. From a press release by CUNA.

Gary Oakland Wins Wegner Award for Lifetime Achievement

National Credit Union Foundation to Present Four Awards on February 24, 2014MADISON, WI (September 4, 2013) — In recognition of his visionary approach to leadership and extraordinary commitment to the credit union movement, the National Credit Union Foundation (NCUF) is pleased to announce Gary Oakland, retired President/CEO of BECU in Seattle, Wash., as a winners of the 2014 Herb Wegner Memorial Award for Lifetime Achievement.

“Gary is a slam dunk as a choice to bestow the Wegner Lifetime Achievement Award,” said John Gregoire, Chair of NCUF Wegner Awards Selection Committee. “Gary’s contributions to the credit union movement were so obvious as everything he touches turns to success for the average American consumer. It’s evident in the growth of BECU, the state supervision system, dual credit union chartering, Biz Kid$, NCUF, and much more. It’s also an honor to see Gary receiving the award rather than giving one.

Tireless Supporter of the Credit Union Movement 
Over the course of his career, Oakland has supported the credit union movement in a myriad of ways. Those include serving on the board of the Credit Union National Association and as board chair for the Washington Credit Union League, the National Association of State Credit Union Supervisors (NASCUS), Filene Advisory Council and Board, and the National Credit Union Foundation. In his time as CEO of BECU, he guided the credit union to provide aid for more than a dozen low income credit unions across the country, often single-handedly locating the funds to keep his fellow members-first organizations afloat in times of hardship.

With his leadership, BECU was also able to play key roles in the founding of two low-income designate credit unions: TULIP Credit Union and Express Credit Union. Oakland also oversaw BECU’s creation of Prime Alliance (now Mortgage Cadence), a Credit Union Service Organization that provides mortgage solutions to approximately 600 credit unions.

“Until his recent retirement, [Gary] ably served as an intellectual thought leader on every important issue facing credit unions,” said Mary Martha Fortney, President and CEO of NASCUS. “Of particular note and importance are his dedication and efforts to make supplemental capital a reality for all natural person credit unions. We are seeing the result of Gary’s work on this issue today as supplemental capital in being considered on Capitol Hill.”

High-Impact Commitment to Member Value                                                           Oakland is hailed for his unfaltering dedication to improving value for the credit union member. Exemplifying the effect of this commitment, BECU grew from 108,000 members when he took on the position of CEO in 1986 to over 775,000 members at the time of his retirement in 2012.

Oakland was known for accommodating the needs of Boeing employees and providing guidance in responsible financial practices. He also led the credit union to a statewide field of membership to allow more members of the community to benefit from the credit union advantage: member-focused service with better rates and fewer fees.

While this growth trajectory could have changed the organization’s culture, Oakland held BECU true to its founding principles and the credit union philosophy of People Helping People. In 2006, BECU had an opportunity to return a portion of its reserves to its member base. He instated the Member Advantage account, which reversed the interest rate tiers, providing more return for smaller savings accounts and creating incentive to start saving at a time when U.S. savings rates were at or below 0.

“At the local level, Gary advocated for the member at every turn,” said Rae K. Miles, President of Innovative Resources, LLC. “He changed policy to help Boeing employees when they needed it most and led by example in promoted the importance of thrift to the membership. His ‘people helping people’ efforts went well beyond the membership of BECU.”

Biz Kid$ Spearhead

Among Oakland’s most influential accomplishments was the role he played in the launch of the PBS program, Biz Kid$, an award-winning financial education show for youth. Through leading the production initiative, committing $500,000 initially and $1 million over-all, bringing together a group of credit unions that raised $2.6 million per year, and ultimately making the project a possibility, Oakland has become the face associated with the show’s success.

After five seasons, Biz Kid$ has won 2 Emmy Awards and was nominated for 11 more. It claims nationwide recognition and makes a daily difference in the lives of its youth audiences.

“Had it not been for Gary’s effort, leadership, financial and personal commitment, [Biz Kid$] would never have happened,” said Rudy Hanley, President and CEO of SchoolsFirst FCU. “The result has been overwhelming. After five seasons, 13 Emmy nominations and 2 Emmy awards, the program is being delivered to millions of students through a variety of channels and participating organizations. The stature of the credit union brand has been greatly enhanced thanks to his vision and leadership.”

Steadfast Dedication to Employees

Amidst his countless other commitments and initiatives, Oakland still managed to earn the full respect and gratitude of his employees for his supportive and encouraging approach to leadership. He put his employees before himself and made concerted efforts to urge them to embrace personal and career growth opportunities. As a result of Gary’s compassion and attitude, BECU claims one of the lowest employee turnover rates in the industry and five former BECU employees are now CEOs of other credit unions.

“Gary understands that ‘People Helping People’ begins at home,” said Roger Mauldin, BECU Director. “It was always important to Gary that employees have a healthy work-life balance, be paid a fair wage, receive good benefits and know they are appreciated.”

“Man of Steel” Philanthropist

Described as a “Good Samaritan”, Oakland has left a legacy that extends the credit union philosophy well outside the credit union movement. He is known for his generosity and selflessness as well as a tendency to go above and beyond the call of duty.

In 1995, at a member’s suggestion, he led the establishment of the BECU Foundation, a chartered foundation that provides college scholarships to students who excel in academics, leadership and community service. Since its creation, the BECU Foundation has awarded more than $1.5 million to 715 students.

Oakland served on the Board of Seattle’s Neighborhood Children’s Club, helping many children get on the right track to a productive future, and has guided BECU to support a number of non-profit organizations that provide affordable housing, including Habitat for Humanity, Rebuilding Together, Impact Capital and Plymouth Housing.

“Gary has been a trailblazer and a most generous and dedicated philanthropist, both inside and outside of the credit union movement,” said Robert L. Coleman, Director of Northwest Baptist FCU. “Gary Oakland’s career was spent not only ensuring the absolute best for his membership, but also ensuring the success of those surrounding him.”

(emphasis added)

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The Origins of the Cooperative NCUSIF

History matters.  Especially when an institution like the NCUSIF occuoies such a vital role in the integrity of he cooperative system.  Following are important  facts in understanding the unique value of share insurance today.

On April 15, 1983 NCUA sent a Report to Congress on the origins and future of the NCUSIF.  It is required reading for anyone who wants to learn of the unique role of share insurance for the cooperative system and the basis for its restructure in 1984.

While all three federal funds responded to the special  Congress’s request, only the NCUA’s proposals were adopted in the Deficit Reduction Act in 1984 changing the whole approach to cooperative share insurance.

Moreover, only the NCUSIF has continued to function in this financial structure  for 40+ years.  The FSLIC failed and was merged into the FDIC.  The FDIC has reported negative net worth during several subsequent banking crises and experimented with  multiple adjustments in its premium based financial model.

In Chairman Callahan’s April 15 cover letter he made four important points:

  1. All credit unions, including FCU’s should have a choice of share insurance, either state authorized or NCUSIF.
  2. Financially restructure the core design of the NCUSIF with a one-time 1% deposit of insured shares which would be adjusted annually thereafter.
  3. The membership share required of members to join should be uninsured and be part of a credit union’s reserves (net worth).
  4. NCUA opposed consolidation of the three federally managed funds.

The Report was a unique document.  It was based on comments from multiple cooperative organizations, historical facts, operational realities, not academic theory or untried alternatives.

It points out FCU’s operations had grown dramatically without federal insurance from 1934 to 1970.

CUNA and leagues  opposed federal insurance for many years as incompatible with cooperative principles.  Some of the reasons for opposition included:

  • It was unneeded and add to the cost of operations. No credit unions had failed during the bank holiday of 1932 and studies showed minimal losses when liquidations occurred.
  • Federal insurance would not get at the causes of failures and undermine the roles of supervisory and audit committees.
  • Most importantly, federal insurance would reduce the number of credit unions in operation, put an end to new charters and introduce a “federalization” of the dual chartering system.

Why Congress Approved the NCUSIF

When NAFCU and CUNA were able to compromise on a common bill in 1971, the environment was entirely different from the circumstances that led to the creation of the FDIC and FSLIC four decades earlier.  The Congressional Report on the bill noted in part:

Despite the lack of insurance, credit unions have grown to the point where there are now more credit unions than all (other) financial institutions combined. Despite this remarkable and rapid growth, credit unions have maintained an outstanding record of safeguarding member shares.  Your committee wishes to make clear . . .”federal insurance) should be considered as a reward for the outstanding job performed by credit unions.  

The Purpose of Cooperative Insurance

At the time of this 1983 Report, there were a range of options available to credit unions reflecting the multiple efforts to provide system resources in the event of institutional problems.  Several states or Leagues had created “stabilization funds” to assist troubled credit unions.  Central credit unions were used to facilitate mergers and purchase of assets if credit unions failed. The private insurers developed in parallel with NCUSIF’s initial years covered 3,150 state charters with $12.4 billion in assets.

The Role of the NCUSIF Today

The purpose of insurance and its multiple cooperative predecessors was not to facilitate liquidations.  The intent was to have a common pool of credit union capital resources to resolve problem situations both collectively and individually.

This collective role was used in 1982 when almost 100 credit unions that had invested in Penn Square Bank’s CD’s above in FDIC insured limit received non- earning “receiver;s certificates” with an estimated recovery value of 80%.  Both the CLF and NCUSIF stepped in to prevent any institution from becoming insolvent.

NCUSIF capital was injected into multiple large problem credit unions from the turnaround at San Diego Navy FCU (the 9th largest in 1980), to the recovery of San Antonio FCU in 1990.

Because there is no private ownership or capital at risk, unlike the FDIC, credit unions’ collective insurance is more akin to a cooperative hedge fund.  The purpose is always to find the most effective way to continue operations and credit union service, not to liquidate or induce mergers for someone else to figure out solutions.

That ability requires judgment, creativity and concern for the members’ and cooperative system’s future not just problem resolution.

There are other critical aspects of the NCUSIF’s operations versus FDIC’s approach.  These include the safeguards put in legislation to address the concerns credit unions raised about federal insurance which were included in the 1984 redesign.  Those will be in a later post using the latest data from the two federal funds.

 

 

 

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Washington Post Opinion on Taxing Credit Unions

With exquisite timing during this week’s credit union GAC convention, the Washington Post published an opinion article with the title:TARGETING THIS $2.8 TRILLION TAX SHELTER COULD SOLVE A BIG U.S. PROBLEM

The opinion was authored by Scott Hodge, described as a tax policy fellow and past president of the Tax Foundation.

Hodge provides multiple examples of successful tax exempt, very profitable organizations such as AARP, the Academy of Arts and Science, the Kaiser Foundation Hospital system and the PGA as fellow travelers in the tax exempt panoply of unfair competitors.

Here is Hodge’s paragraph singling out the credit union exemption:

With more than $2.3 trillion in assets, the tax-exempt credit union industry has long outgrown its depression-era roots. Originally exempted to serve working-class people of “small means” who lack access to banking, credit unions are now indistinguishable from commercial banks. They offer mortgages, auto loans, credit cards and investment services—and they’re using tax free cash to buy banks. In the past decade, credit unions have purchased nearly 100 commercial banks, converting taxpaying businesses into tax-exempt ones. Imagine Gold’s Gym buying your local YMCA.  

His example of coops buying banks has logic and common sense.   As one observer has stated:

I’d invite anyone willing to discuss the original purpose of credit unions and why neither the FED, OCC nor the FDIC wanted to regulate them.

Short answer: Credit Unions are not banks. They are member-owned cooperatives created as a safety net and alternative to banks. As a result, credit unions were granted nonprofit status, were not taxed, and were placed under social services

But would that be a sufficient response to this recurring threat?

History of the Tax Exemption

State chartered credit unions received their federal tax exemption via an IRS ruling.  FCU’s are tax exempt in the Federal Credit Union Act.  One consequence of these two processes is that some states have passed franchise or other taxes on state charters.  Another critical  difference is public disclosures.  State charters must file an annual IRS 990 with facts on salaries and benefits of highly compensated employees and list all charitable donations  and political contributions.

Coops’ special service purpose  was endorsed by FDR in this 1936 note to the Treasury Secretary.  The Pesident  encourages publicity for these new institutions, supervised bythe Department of Agriculture, saying they are popular.

In the modern era of an Independent NCUA regulator, the agency’s first two board chairs were not hesitantin their support of  credit unions’ tax status. (photo from 1981. left to right Larry Connell, PA Mack, Ed Callahan )

Today’s NCUA board has been agnostic on credit unions’ tax exemption saying the issue is up to Congress.  This is similar to Board’s silence on the bank purchases referenced in the Post opinion even though NCUA approval is required for every transaction,.

How the Tax Exemption Formed the industry

For the first 100 years of credit union formation, all were started with no financial capital with minimal share donations by the organizers. Today NCUA requires at least $500,000 in equity  to receive a charter, but that is not how 99% of active credit unions today achieved their net worth.

Until NCUA insurance was required for all FCU’s in 1970, member shares were equity, ranking  last in payout priority  in the event of failure.  One of CUNA’s concerns about a federal insurance program was that it would reduce members’ ownership  attention.

During the bank holiday in FDR’s first year in office when many customers lost savings due to bank closures, credit unions noted that  not a single state charter failed in this period.  There were no FCU’s until 1934; but just  like the states, all member shares were at risk.

Federal share insurance was not passed because of member losses or credit union failures.  Rather it was a reward for performance that demonstrated member shares were as safe as insured deposits in banks.  It was not untill the mid-1980’s that the Public  Accounting Standards Board classified credit union shares as liabilities and not equity in GAAP presentationa.

The Imposition of Bank Capital Concepts

Even after multiple coop share insurance programs were available, until passage of the Credit Union Member Access Act (CUMAA) in 1998, reversing a Supreme Court interpretation of NCUA’s field of membership rule, credit union capital adequacy was determined on a flow, or earnings set aside requirement.

Net worth was created by allocating 6% of income into a statutory regular reserve account until that total was at least 4% of risk assets.  At that level,  the transfer was lowered to 5% until a ratio of 6% of risk assets (primarily loans) was achieved.  Retained earnings were on top of this required capital account.  The tax exemption on net income was a critical factor in coop net worth build up.

A 6% ratio of total net worth to assets was considered well-capitalized. However CUMAA changed the capital creation from a coop model to a banking concept. Now the required ratio was determined by  the amount of capital on hand at any point in time versus the flow of earnings into reserves. To be well-capitalized credit unions needed to have at least 7% net worth at all times.

For almost 100 years the tax exemption was critical to building total capital.  This was the sole source of credit union bet worth.  This process took time before startups could become financially self sufficient without sponsor support or location and convenience advantages.

Member loyalty was the intangible but essential foundation because  reserve accumulation could take a generation or more to become self-sustaining.  Growing a credit union’s balance sheet  from 1998 was now internally governed by the credit unions growth of equity, or ROE.

The Financial Ethos Today- CEO’s Born on Third Base

In  his brief history of FCU supervision,  Ancin Cooley points out (link) how this founding role of credit unions has been eroded as the founders and builders have left the scene.

Few CEO’s today have had to worry about building capital and ROE performance.  There is no external market accountability as there is no stock to be valued and traded.  The industry’s average capital ratio is 11%, far above the 7% well capitalized rule requirement.   Risk based capital measures are even greater.

Most newly hired or promoted CEO’s, especially in the three decades since CUMAA in 1998, are unaware of how the wealth legacy they now direct was built by  generations of member loyalty.

A baseball metaphor for this historical blind spot of incoming CEO’s is useful: “Some people are born on third base and go through life thinking they hit a triple.”

And so the focus of these newcomer CEO’s, often with board blessing, is how to take the credit union to a new institutional level.  Not how to enhance the well-being of the member-owners whose relationships were the unique foundation of cooperative success.

Excess capital makes the allure and seeming ease of purchasing banks or other third party assets, and moving beyond community to a financial intermediary,  a ready breakout strategy. With the help of brokers and financial consultants the option is hard to resist.  Organic growth seems so common place and difficult versus  using surplus funds to acquire assets originated by others.

Instead of fulfilling cooperative purpose, the acquisition or ‘”transfer of control” (mergers) of eternal assets becomes the go-to success tactic.  A coterie of consultants, lawyers, financial agents and lobbyists will facilitate these instant growth possibilities.

Responding to the Tax Exempt Challenge

Today GAC attendees will hear urgent  appeals for political action protecting the credit union tax exemption.  But  is that the best framing of the challenge?

Should the question intead be, if our organization were to  taxed, would that change our mission?  If the answer is yes, then maybe the first response is to discuss whether the vision-mission statement needs a review.

And secondly, what changes are needed for credit unions to continue their unique role for members, their community and in the overall financial markets whatever the tax status?

 

 

 

 

 

 

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Will NCUA’s Journey Be From Chartering a COOP Movement to a Regulatory Dead End?

What kind of financial regulator would be most effective to carry on the purpose of the credit union system stated in the FCU ACT? (see note on Congressional purpose at end)

Should the credit union system be overseen by a regulator of cooperatives or of financial institutions?

The arc of federal regulation from 1934 to today is simple.  The federal regulator evolved from the role of chartering, promoting and supervising cooperatives to just another financial supervisor safeguarding an insurance fund.

The coop design is unique in American financial options. The users are the sole owners of the service.  The intent was to create shared community resources not private wealth.  The structure was to be perpetual with the common equity always “paid forward” to benefit future generations.

Moreover, financial soundness was underwritten by  this shared purpose of borrowers and savers.  Governance was democratic–each member-owners had one vote. No proxies.

The Impact of NCUSIF On Coop Regulation

The  turning point in cooperative regulation was the 1970 passage of a federal deposit insurance (NCUSIF) option modeled after the FDIC and FSLIC.  The banking funds were created in the early 1930’s in response to the  “banking holiday” failures in the depression.   The nascent state chartered credit union movement had no such system failures.  Deposit insurance was not  part of  the FCU act passed in 1934. It wasn’t needed.

The need for the NCUSIF was much debated by credit unions in the lated 1960’s.  CUNA opposed the option arguing such an institution would eventually dominate the system’s functioning.  A new trade association, NAFCU, was formed to lobby for and pass this federal option for cooperatives.

The NCUSIF was not created because of system failures.  Rather it was a recognition that cooperatives, while different in design, were just as safe as any for-profit banking option.

As NCUSIF insurance spread, so did federal regulation mimicking other banking regulations.

From Cooperative Partner to Financial Overseer

When implementing deregulation from 1981-1985, NCUA Chairman Callahan asserted credit unions were unique.  The so-called level playing field arguments, he believed, would undermine the cooperative advantages of member-ownership.

Callahan believed regulations should promote cooperative purpose and collaborative actions.  Both tenets were key tp the financial restructure of the NCUSIF and achieving 100% credit union participation in the unique CLF’s-coop system liquidity partnership.

But the bureaucratic pull of Washington prompted later NCUA leaders to emulate the example and practices of banking regulators.  Safety and soundness, not member service, became the regulator’s mantra.

Both NCUA and credit unions sought Congressional hearing seats at the tables with the titans of America’s financial services.

Today NCUA has copied banking regulators with rules such as risk-based capital and, expanding market sources of capital.  New charters are non-existent.  Cooperative purpose is never mentioned in supervisory priorities.

NCUA oversight has fluctuated between laissez faire (let the free market decide) to embracing the administration’s political ideology from DEI to government downsizing.

The absence of any reference to coop design is that there is no protection for for member-owner rights or their collective savings.  NCUA like the banking regulators has reduced their oversight to merely offering a $250,000 payout in the event of institutional failure.

This neglect of member-owners’ rights has resulted in boards staying in power perpetually.  Owners are kept out of any governance or voting role.  Bylaws are modified with NCUA approval to prevent member initiatives.  Boards and CEO’s feel free to take a credit union’s business model and its billions in legacy assets in any direction they choose.

Transparency for cu leaders’ conduct is non-existent.  Director fiduciary duties flouted. Accountability for outcomes occurs only after a financial crisis. Then the system’s leadership shortcomings are quickly swept under the rug via mergers.

When new CEO’s arrive from outside the coop system, often former for-profit financial professionals, they bring their prior experiences with them. They act like teenagers given a new high-powered formula 1 car.  With board assent, they jump into the driver’s seat and try to see how fast they can make their new institution grow.

The NCUA’s Future

Today NCUA acts and sounds like the other banking regulators.   Credit unions applaud the Trump adminisration policy of government tear down and relaxed o exam oversight.    NCUA appears  alongside the other financial overseers in Congressional hearings, states all is well, and makes no effort to describe how the tax exempt coop system is fulfilling any public duty.

The consequence is that credit unions no longer see their organization as part of an interdependent financial system. Institutional success is celebrated versus cooperative’s  ability to create better financial solutions for those who have the least or know the least about personal finances.

Individual credit union priorities look more and more like capitalist business plans.  They attempt to acquire, not support their peers, via merger takeovers.  If that fails, just buy a bank.

With self-perpetuating board oversight, regulatory withdrawal, no transparency about transfers using tens of millions of member-owners’ capital, the cooperative system may lack the capacity for self-correction.  Industry hegemony, not cooperative purpose, becomes the institution’s endgame.

How much longer will Congress or public policy think tanks not pose the existential questions: Why does America need a financial system that emulates its competitors, but with a tax exemption?  Will NCUA become part of Treasury’s financial oversight, just like the OCC?  Why have two federally managed deposit insurance funds that provide the same function?

“It Makes No Sense:” One Analyst’s Assessment

Yesterday’s post gave a brief history of federal regulatory evolution, It  tracked the various federal governmental departments that shepard credit union’s evolution.  And subsequent events under NCUA as an independent agency. This is that author, Ancin Coolley’s  concern, about where the coop movement stands today.

 When you read credit union regulatory  history and go back to the arguments, it keeps bringing me to this point: the FDIC and other agencies did not want credit unions. And it calls to mind the question, why did they not want them? 

They did not want them because credit unions were not treated the same way as other financial institutions. They were viewed as something that drifted into a social-services posture.   

And honestly, the more I dig into the history and the legal history, the more it feels like I’m finding out Santa Claus isn’t real. The more I learn about the lack of standing for members in court, and the reality that there’s often no remedy for members against directors who effectively give away capital, the more disorienting it feels.  

It’s like there’s the reality I want to believe in, and then there’s the legal reality of what a credit union actually does.  

And what I can’t even begin to reconcile conceptually is this: credit unions want to maintain their tax exemption while also purchasing banks. In good conscience, I can’t even argue against someone who says, “How are you going to maintain your tax exemption if you’re buying a bank, when you were originally given a tax exemption for not being a bank?”   

It makes absolutely no sense.  

Editor’s Note on Cooperative Purpose:

Congress added the following language to the Federal Credit Union Act on August 7, 1998.

The text was included as part of the Congressional Findings in Section 2 of Public Law 105–219, also known as the Credit Union Membership Access Act.

This specific language was crafted to affirm the Mission and reassert that credit unions serve people of “modest means.”

The Congress finds the following:

  1. The American Credit Union movement began as a cooperative effort to serve the productive and provident credit needs of individuals of modest means.
  2. Credit unions continue to fulfill this public purpose, and current members and membership groups should not face divestiture from the financial services institution of their choice as result of recent court action.
  3. To promote thrift and credit extension, a meaningful affinity and bond among members, manifested by a commonality of routine interaction, shared and related work experiences, interests, or activities, or of an otherwise well understood sense of cohesion or identity is essential to the fulfillment of the public mission of credit unions.
  4. Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most state taxes, because they are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means.
  5. Improved credit union safety and soundness provisions will enhance the public benefit that citizens receive from these cooperative financial services institutions.
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Live Video of the Largest Credt Union Conference

In my December 9th post I included a preview from NCUA’s Video Network of the largest credit union conference ever held to that point in time.

That short 20 minute overview gave NCUA staff’s instructions for the meeting plus an introduction to the content for examiners and credit union attendees.

After the event was over,  video highlights were edited and shared in NCUA’s Edition 18:  The December 1984 National Examiners Conference in Las Vegas. 

The 55 minute of outtakes focuses on three topics: common bond, the role of the regulator and the future of credit unions. Speakers include  state regulators, CU CEOs, NCUA staff and other federal supervisors such as  Richard Breeden, Martha Seeger, Ricard Pratt. NCUA Chair Ed Callahan provides opening and closing remarks, plus comments on what makes credit union’s truly unique. 

The conference is also covered in depth in NCUA’s 1984 Annual Report.  However the video captures the events live  including reactions from among the 3,000 attendees.

Why This Event Is Relevant Today

Although this special gathering concluded 41 years ago, the event still speaks to credit unions today in that:

* It demonstrates the multiple participants within the movement working  in shared purpose.
* Speakers showcase  leaders of the coop system– regulators, credit union professionals and experts in financial services.
* Critical issues in this era overlap those today: mergers, taxation, competition, innovation and the fundamental  advantage of cooperative design.

History Matters

From the truism “there is nothing new under the sun, to history never repeats, but does rhyme” there are multiple ways to learn from past events.

This video shows cooperative leaders in their most articulate and thoughtful approaches to the future. NCUA’s conference agenda of over 300 sessions of breakouts and general panels captured the movement’s advantage of sharing expertise and experience for everyone’s benefit.

Comments were sometimes controversial and often in disagreement, for example the need for a common bond.  Or, “Trust in a financial institution is like virginity; once you lose it, it’s hard to get back.”

The conference was also a celebration.  Just two months earlier  the NCUA board approved regulations implementing a completly different approach to the NCUSIF’s financial structure.  Instead of copying the other federal insuers annual premium approach, the new design used  cooperative experience to create a new m;odel built centered upon  an “evergreen” 1% deposit.
Most critically it showed how a credit union regulator and the movement can work together for enhancing the future for tens of million member-owners.

What  Attendees Remember Today

Clifford Rosenthal: A personal memory of the big conference in Las Vegas. It was a big deal for me; I was new to my role serving as head of the National Federation. I still have the little lucite piece that was given to attendees.

Paul Horgan: (credit union  CEO) Two recollections: NCUA and the Vegas meeting.

The meeting was innovation at its best.  Communication was the key feature.  Goodness, that was 41 years ago.

On Ed Callahan: Don’t remember the exact month and year but recall having the privilege of driving Ed from the Brainerd, MN airport to the league meeting…on the long drive I criticized the capitalization plan, he really listen then replied “Okay tell me your better idea.”  

I guess today’s takeaway is “enjoy your friends before it’s too late.”

Mark Wolff (former NCUA  employee):

Thank you for your post about the National Examiners Conference and for sharing the promotional video. Wow, watching it (and me in it!) was like going back in a time machine!

Being in the NCUA public affairs office at the time, I remember the sustained promotional effort to generate awareness and attendance. Along with the video I seem to recall regularly highlighting the conference in our newsletters and press releases  that NCUA sent to credit unions at the time and in board members’ speeches to CU groups.

During the conference I remember being struck by how many people had attended and how crowded the hallways were between breakout sessions. At the time I’d never seen anything like it. We all had a nice feeling of accomplishment afterward.

The CODA

Three months later at the 1985 CUNA GAC conference, Chairman Callahan announced that he, Bucky and I would leave the agency.  His term as Chair still had two and one half years remaining.  His explanation was, “We’ve done what we came here to accomplish.”
He said his future goal was to work with credit unions to develop the opportunities presented by deregulation.  One of those outcomes was the founding of Callahan & Associates.
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An NCUA Camelot Era

Everyone has highs and lows in their personal and professional endeavors.

Some  of my most fulfilling moments were the ten years Ed, Bucky and I worked together in credit union regulation.  First in Illinois, and then at NCUA for three and a half years (October 1981-May 1985).

One of the educational communication efforts we launched was the NCUA Video Network.  The initial film was in partnership with the Illinois Credit Union League, What is Deregulation?, periodic productions chronicle NCUA’s priorities and information vital for credit unions to be aware of.

The final Edition XX was called The Callahan Years.  It is a live, unscripted interview by a moderator with Ed, Bucky and me.  It responds to criticisms, some voiced about our leaving two plus years before Ed’s term expired.  More importantly, it is a discussion of the many ways the agency changed to meet the new era of open competition versus government assigned charter franchises.

This 30-minute review captures the joy and learning that happens when people work well together.  I was fortunate to be a part of a team that stayed together even as we went our separate ways after founding Callahan & Associates in 1985.

The ten years we spent learning from each other  and from movement leaders was a Credit Union Camelot experience for me.

Listen to this summary of this pivotal period in NCUA and credit union history.  It is a moment of remembrance and thanks for this special professional interlude.

(https://www.youtube.com/watch?v=DrfG5PiObB0)

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IRS 990 Filings Should Be Required for All Credit Unions

Last week a proposal that federal credit unions be required, as state charters must now do, to file an annual IRS 990 was reported.

There is useful information in the IRS form that is not available elsewhere, including details about the compensation of the CEO, senior managers and board (when applicable).

Here is a link to a sample for the largest state charter SECU-North Carolina at their fiscal yearend, June 30, 2024.  The initial pages are similar to call reports. Additionally, many yes-no questions about governance link to data in the subsequent schedules.

This full report would be even more valuable if the data of the two federal credit unions closest in size, Navy and PenFed, were available for comparison.

One part of this initial data includes the question about the disclosure/availability of thefiling to the public.  Most credit unions only check this option:   Upon request  In other words, filed, but not readily available.

Information not provided in other required call reports includes:

Schedule I:  Cash grants and Other Assistance to Domestic Organizations and Domestic Governments.

Schedule J: Compensation-Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees.   Also, Loans to and/or From Interested Persons including those funding split dollar life insurance-a retirement benefit described at the end of this post.

Schedule O:  Supplemental to Form 990 includes information on governance,  elections, salary oversight process et. al.

Should Federal Credit Unions Be required to File this IRS form?

I believe it is in the interests of individual credit unions and the industry that federal charters be required to file the same data as state charters.

Here’s why this filing should be standard operating practice.

Transparency is critical to democratic governance and accountability for credit unions’ elected leadership.

Compensation for CEO’s and senior staff (and when permitted board members) is the single most important indicator of personal stewardship of members financial assets.

It is vital in organizations that receive a tax exemption to maintain accountability in return for this benefit.  Especially so when most credit union competitors pay taxes.

State charters have been disclosing this information for over five decades. There has been no downside from the practice.  Public disclosure is a responsibility in return for this significant exemption.

There are problems with the practice, however.  The due date for filing is the 15th day of the fifth month after the fiscal yearend.  That would be May 15th or November 14th for December or June fiscal years.  Many credit unions seek an extension; for example the SECU report was filed on May 29, 2025, versus the November deadline.  This means the information is often a year old.  Ideally the report would be sent to all members in their Annual Meeting information, as part of the year’s financial report.

Filings  Reviewed as Part of Examinations

Also when seeking specific reports via public sources such as Pro Publica, it is not unusual to find that some credit unions are apparently not filing.  There appears to be no regulatory enforcement or review to see if the information is correct.

Failure to file for three consecutive years results in a revocation of a credit union’s tax status-certainly a safety and soundness problem. No state charter should be approved for merger unless the most recent IRS 990 is available, as that information is critical to understanding the required Member Notice compensation disclosures.

Credit unions should support this 100% public filing for the movement.  That would demonstrate public responsibility and respect for the member-owners.

 Summary of 990 Filing Requirements for Credit Unions

All state-chartered credit unions that are tax-exempt under section 501(c)(14)(A) are required to file an annual information return with the IRS (either Form 990, 990-EZ, or 990-N), with the specific form dependent on their financial activity.

There is no asset level that completely exempts them from this filing requirement.

The specific form to be filed depends on an organization’s gross receipts and total assets:

  • Form 990-N (e-Postcard): For organizations that normally have annual gross receipts of $50,000 or less.
  • Form 990-EZ: For organizations with annual gross receipts less than $200,000 and total assets less than $500,000.
  • Form 990: For organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more.

Federal credit unions, in contrast, are exempt under section 501(c)(1) and are not required to file an annual information return with the IRS.

Failure to file the required return for three consecutive years will result in the automatic revocation of the organization’s tax-exempt status. The IRS provides resources on the Form 990 series filing requirements on its website.

Split Dollar Life Insurance-Employee Benefit Description from SECU NC’s latest 990 IRS filing.

SPLIT DOLLAR LIFE INSURANCE: THE CREDIT UNION HAS GRANTED NONRECOURSE LOANS FOR LIFE INSURANCE PREMIUM PAYMENTS TO SELECT MEMBERS OF SENIOR MANAGEMENT. THESE LOANS ARE COLLATERALIZED BY THE ASSIGNMENT OF THE CASH SURRENDER VALUE OF EACH RESPECTIVE LIFE INSURANCE POLICY. THE POLICIES ARE OWNED BY THE EXECUTIVES AND THE OWNERS HAVE SOLE CONTROL OVER THE LISTED BENEFICIARIES. UPON DEATH OF THE INSURED, THE PROCEEDS FROM THE DEATH BENEFIT OF THE LIFE INSURANCE POLICY ARE USED TO PAY THE OUTSTANDING BALANCE AND ACCRUED INTEREST OF THE LOANS. THE LOANS ARE CONSIDERED NONRECOURSE AND AS SUCH, THE CREDIT UNION HAS RECORDED THE BALANCE AS THE LOWER OF THE OUTSTANDING LOAN BALANCE PLUS ACCRUED INTEREST, OR THE CASH SURRENDER VALUE OF THE LIFE INSURANCE POLICIES.

 

 

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Volume 1, No. 1 — The Bridge and Credit Union Democracy

This week I explore the integral role credit unions expected to play supporting democracy in America.  Yesterday’s post presented ten principles of cooperative action during WW II when democracies united to fight fascist dictatorships.

Today I describe how this role is framed in the first  credit union publication, The Bridge.

In the Beginning

The first national credit union journal appeared in June 1924.  Called The Bridge, the lead articles included:  Postal Employees Take to Cooperative Banking and New Jersey Credit Union Law Enacted.

But most importantly in this initial edition was the Announcement box centered on the front page.  This column gave the rationale for The Bridge’s name.  It was a metaphor referring to credit union’s fundamental  purpose to promote democracy.

Below is a copy of that front page.  After the photo  is a retyped, clearer version, of this statement of credit union’s role in America’s democratic development.

                   

 

 

 

 

 

 

 

The Paramount Function

Announcement!

May we present “The Bridge!”

Other issues will appear from time to time as the development of cooperative people’s banks throughout the United States warrants.  In seventeen states—from New Hampshire in the north to Mississippi in the south and west to Oregon—there are now credit union laws.  It is the mission of the “The Bridge” to recount further credit union progress as it develops period.

Why the name “The Bridge”? Alphonse Desjardins, great disciple of Raiffeisen and pioneer in the development of cooperative banking in North America, said in his book:  “Success for the young democracies of this continent depends upon the prosperity and worth of life to the millions of working men who compose them.” 

The paramount function of any democracy is to equalize the opportunity of those people who constitute it.  The credit union is in very fact—a bridge; it may be the bridge over which the tenant farmer travels the wide gap that separates him from ownership of the soil; it may be the way that opens the great land of Opportunity to the wage worker who finds his savings the “open sesame” to broader possibilities for himself and his family.

If credit unions, when logically developed on the broadest scale, educate great numbers of our people in the management and control of money; if they result in a better citizenship; if they serve as a great practical Americanization process—the credit union system will prove to be a bridge—over which, as a people, we may travel to a more perfect, a sound and a permanent  democracy. 

Casting around for a name for this record of credit union progress–why not—“The Bridge”

June 1924, Vol. L  No. 1

 

 

 

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The Credit Union Committment to Democracy

On a visit to Seattle a week ago, I found two credit union traces.   The first was a street level branch for BECU near the Pike Street Market on 1st Avenue.

The second  was a listing of books referencing credit unions from the business and industrial section of the Seattle Public Library.  One of the books was The Fight for Economic Democracyin North America 1921-1945 by Roy Bergengren.

Published in 1952 by this co-founder (with Edward Filene) of America’s credit union system, the book tells the founding story  describing those efforts as a crusade for economic demcracy.

As the title suggests, democracy is a key theme for this post WW II cooperative history.  It is more than a movement. Credit unions are integral to America’s  democratic aspirations for equal opportunity.

A Statement of Principles

Bergengren included an example of credit union support for war bond savings drives that proclaims this larger purpose for the cooperative system.  Here is the V for victory poster with the credit union logo and the statements of purpose.

Here are the ten principles retyped for readability.  Some are war related, but others much broader for credit union’s role with members and their communities (emphasis added).

THIS CREDIT UNION HAS ENLISTED FOR DEMOCRACY

  1. Our first objective is to win the war.
  2. We will encourage and promote thrift and the saving of money as a basic personal war service.
  3. We will encourage and promote regular saving by our members and families for security and the future.
  4. We will make loans to foster the growth of stability in our community.
  5. We will urge members to buy war savings stamps and bonds regularly.
  6. We will keep faith with the requirements of the community, state and nation in all our practices and policies.
  7. We will supply our members immediately savings that otherwise might go into channels that would drain the war effort.
  8. We will keep our members mindful that saving, with wise use of the resulting credit, will help shorten the war.
  9. We will keep the records of our progress clear, complete and available.

10.We will maintain the existing democratic character of our credit union and apply the lessons we are learning daily to our postwar democracy.

Today’s Credit Unions

Seventy-five years on, are credit unions living up to the legacy described by Bergengren and passed forward to today’s member-owners?  Is democratic practice described in this statement still a guiding principle?   Most critically, if not, what governance process has replaced it?

As demonstrated this past weekend, many believe America’s political future is at risk.  Can credit unions in their cooperative way show their commitment to maintain the existing democratic character of our credit union and apply the lessons we are learning daily to our  democracy?