Category: NCUA

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When Silence is NOT Golden

Learning when to speak up is an art in both personal interactions and leadership of a public agency.

Words are critical in times of crisis and uncertainty.  But the three NCUA board members  have embraced silence as their preferred form of leadership.

Emptying Out the Federal Government

Entire agencies in Washington and across the country are being dismantled and staff arbitrarily let go.  Every agency  including the FDIC, the FTC board  (an independent agency) and all those on which the public relies from the CDC/NIH, to the VA and Social Security are being taken apart.

These radical reductions are not about fraud or efficiency.  It is to break these agencies’ ability to deliver their basic services to the public.  Services approved and funded by Congress.   It is an attack on the core responsibilities of government and the citizens which depend on these services.

Where is the NCUA Board?

For at least the past year, the NCUA board members have been literally missing in action.  There have been extended member  absences due to medical or family leave.

Borad meetings have been routinely cancelled.  Scheduled meetings have had micro agendas such as updates on internal programs while the difficult challenges of credit union direction are ignored.  These chalenges include the growing spree of bank acquisitions and the pillaging of credit union member reserves by CEO’s in mergers,

Their inaction has been bipartisan.

The Current Uncertainty

This month the press reports NCUA has held two closed board meetings to discuss “personnel matters.”  It is obvious the agency must respond to the administration’s imperative for drastic staffing cuts.

This is an issue that affects every credit union and its members.  This is not about policy, but the abillity of the regulator to do its core job of examination and supervision.

In a democratic system, the ultimate arbiter of power are the people.  In town and city across the country individuals are rising up to protect their interests responding to the disabling of key government functions.

But no one is standing up for NCUA because there is nothing to stand up for.  No plan, no pending organization redesigns.  Total silence.

When the time comes for action to protect credit union interests, there will be no platform to defend.  The troops will have been off fighting for CDFI funds, or to modify the CFPB’s structure or a myriad of other potential changes sorted out in every other part of government.

Moreover all this time the industry will reserve its biggest efforts and in conversations with top leadership in government, protecting credit union’s federal tax exemption.

No federal government agency can save itself from a targetted effort by political leadership to tear it down.  Only the public who rely on these services can do so.   And it is happening.   Because the press and agency employees and former employees are speaking up in other purges to inform the public about what is happening.

But not so at NCUA.   This is not the time for board silence.  Rather united efforts balancing new realities with ongoing responsibilities should be presented as in everyone’s interest.

Where is that plan and the basis for credit unions and their membersto support it?

 

 

 

 

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The Critical Role of Credit Union History Right Now

Recently I contacted the Library of Congress (LOC) to see if they had copies of Report on Credit Unions.  This monthly printed publication was begun in January 1957 and continued through the mid 1980’s.

Here is what the librarian found in the search of their records:

I am sending you the title page of the Report on Credit Unions published in January 1957–the only issue we have in the collection. I also noticed that it was cataloged as a monograph, not a serial. 

I ran another search in the Ulrich’s Periodicals Index using the ISSN number–I have attached the record from Ulrich’s as well. Ulrich’s shows a different publisher, but the original publication might have been bought at some point by CoVest Reports, Inc. listed in Ulrich’s. The serial appears to have been a bi-weekly newsletter which might be the reason it wasn’t collected by the Library.

I searched Google books and found the title mentioned in several publications:
Congressional hearing from 1963 which refers to volume 5, issue no.3, dated March 15, 1963 published by Reports, Inc., Kent, Conn.


In-plant Thrift and Loan Services by Banks and Credit Unions (1959) by Rudolf Modley – the name on the 1957 issue–cites several articles from Report on Credit Unions.  

That is the extend of the governmental records of the Report’s  “first draft of credit union history” published during  this consequential time of credit union expansion including the era of deregulation.

The Report was cited in Congressional testimony, linked above, as part of the debate during the President’s tax message in 1963.   The reference to the Report was not about taxation but rather the necessity for supporting quality supervision of credit unions citing an Illinois example.

The Absence of Historical Records

When attempting to write a brief account of Ed Callahan’s years as Chair of NCUA I learned there was no repository for trade association publications or the numerous private newsletters that tracked the industry prior to the era of online media.

CUNA Mutual had sent their records to the Credit Union Museum.   NAFCU when it closed down in 2024 apparently had no repository of their numerous magazines and weekly newsletters to chronical their founding in 1969.  Similarly I could not locate a source for CUNA’s weekly and monthly printed publications.  State league newsletters were similarly not kept.

I contacted NCUA to see if the 21 NCUA Video Network VHS tapes created in the Callahan era had been saved.  No copies could be found of these special reports which, among other recordings, included live excerpts of the first, and only, national examiner’s conference.  There were two hour long live recordings of sessions with examiners led by Rex Johnson and a Harvard Business School professor to enhance examiner analysis and supervision skills.

Why the Past Matters Now

History may not repeat itself, but it does rhyme.   At the moment NCUA leaders are confronting the challenge of becoming more focused and efficient following policy guidance of the Trump Administration.

In 1981/2 the Agency faced a similar challenge but for very different reasons.   The credit union system was in crisis.  “Survival” was the priority according to CUNA President Jim Williams when introducing new Chair Ed Callahan at the February 1982 GAC convention.

The broad policy agenda was for credit unions and NCUA to respond to the new era of deregulation.   For NCUA this meant a complete reorganization of the agency to prioritize field examinations and supervision led by the six regional directions.   The DC head office reduced the number of staff departments from 16 to 2, an Office of Programs and an Office of Administration.  The Executive Director, Bucky Sebastian, was also the General Counsel.

The recently created DC consumer examination team which planned to employ as many as 50 personnel was in turn transferred to the RD’s. Every examiner had responsibility for completing an annual safety and soundness and compliance exam for every FCU,

The result of this reorganization placed operational responsibility on the RD’s, not central office staff. It led to a reduction in agency budgets for three consecutive years along with the lowering of FCU operating fees annually.  The agency including the CLF and NCUSIF had been designed for the open competition in which the credit union system completely outpaced their banking and S&L counterparts for the decades to come.

The Relevance for Today

Instead of trauma and closed door board discussions, these 1982  changes were done openly and with clearly stated administration and policy goals.  The messages were delivered via the video network with the first tape a credit union panel discussing the challenges of deregulation.

Public board meetings were taken “on the road” with the first held in historic Faneuil Hall In Boston MA in 1982.  Weekly press releases covered both agency initiatives and credit union progress.

But finding the contemporary public record of these events is very difficult.  When the past is lost, or worse ignored, then the present is left adrift.  When there is no understanding of how past events, there is a tendency to believe that only the present matters.

When disruptions occur whether from market or economic forces or changes of administration, the tendency is to protect the status quo, the known.  This is the result of bureaucratic incumbency.   It is only human nature for those at the top of an organization or career to protect their legacy.

The best way to understand the need and inevitability of change is to know the past.  This is particularly critical if those with ultimate responsibility are not familar with credit union, let alone NCUA, history. That familiarity can not only provide lessons but olso hope that change is necessary for an even better future.

That was the outcome of NCUA’s 1981-1985 makeover.   One would hope it would be the result  in today’s NCUA leadership deliberations.

 

 

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What It’s Like to be a Federal Employee Today

This is a reprint of a March 6, story by WTOP news radio for Washington, D.C. This is typical of many reports interviewing current employees.

One must wonder how NCUA staff is feeling and thinking about their future.  For credit unions who have federal employees as members, now is the time to reach out and prepare a helping hand.   Remember, these are the owners, not customers.

‘Morale is not great’: US Fish and Wildlife worker says she’s bracing to be fired

Some U.S. Fish and Wildlife Service workers were recently advised by a superior to ensure they have their latest pay stubs and whole records saved, in the event they’re among the next federal workers to be fired.

Workers would only have 30 minutes to compile everything in the event their access card is deactivated. It’s better to be prepared, he told staff, than to be fired and have personal items remaining in the office afterward.

As President Donald Trump’s administration and the “Department of Government Efficiency,” make changes to the federal workforce, some staff members at the U.S. Fish and Wildlife Service are on edge.

They’re keeping bags near their desks so they can be prepared, according to one worker who grew up in Southeast D.C. and currently works for the agency. She asked not to be named in order to speak freely.

“It’s just hard to imagine what it’s going to be like to walk away from this,” she said.

The agency oversees biosecurity, helping to determine what animals and plants should be brought to various parts of the country. Workers are also tasked with protecting endangered species and upholding the Endangered Species Act. A worker preventing an animal infestation of planes and parts was among those who was fired, she said.

But recently, she said, 20% to 30% of her colleagues have lost their jobs, putting that mission in jeopardy. Their access cards stopped working, and they received a termination letter that cited poor performance, she said.

When the deferred resignation offer came out, she overheard one of her coworkers asking whether he should trust the message. She advised him not to, but another colleague recommended she tone down the skepticism.

Some agencies have pushed back on some of the administration’s directives, she said, and the Fish and Wildlife Service has had meetings about how to handle memos and executive orders.

“Our meetings are like, ‘Well, let’s take some mindfulness time. We all have to care for you,’” she said.

She and her colleagues have also taken issue with the way some of the administration’s memos have been worded.

“’You’re a drain on the public, and they voted, they’ve made their choice clear, and they don’t want you,’” she said. “I mean, that’s essentially the way these memos open.”

DOGE’s approach, she said, starts from the assumption that there are too many workers, “and we’re just going to fire people, and that’s going to solve the problem.”

She’s tried offering some of her desk items to her colleagues, but they won’t accept, fearful that they might not have a desk soon.

“The morale is not great,” she said.

In the midst of all the uncertainty, “I don’t expect to be employed.”

 

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Kyle Hauptman’s Interview with a Financial Journalist

Ryan Tracy is a former Wall Street Journal Reporter and now a freelance financial reporter.

His interview with Chair Kyle Hauptman in February was published February 28, in the Capital Account, a paid subscription service. The full interview was provided by NCUA’s public affairs office as  published in the newsletter.

The Q and A is very candid and covers most of the top regulatory issues from taxation, to bank purchases and OD fees.  Hauptman is asked about his future plans.  There were no questions on the state of the industry or specific credit union performance topics.

Please post your reactions or questions you might like to see asked in the comments section at the end of the article.

The Writer’s Introduction

Friday Q and A: This is a singular moment to be in charge of a financial regulator. In just five weeks, the president has issued a flurry of orders to federal agencies, calling on them to reduce their staffing, bring employees back to the office and start running all their major actions through the White House. The very idea of an “independent agency” has been called into question.

This week, we sat down with one of the new Trump administration officials grappling with those directives. Kyle Hauptman was tapped by the president soon after the inauguration to head the NCUA, where he’s been on the board since 2020.

The promotion doesn’t exactly mean he’s fully in charge: The other two members are both Democrats, putting him in an unusual spot. Still, Hauptman is no stranger to jobs that come with challenges. His office decor includes a frame preserving two of his old business cards, one from Lehman Brothers where he worked until 2008 and another from Mitt Romney’s ill-fated campaign for president.

Hauptman’s response to Trump’s executive orders is pretty simple. He plans to comply. But he also explains how the credit union overseer’s track record is a bit different than other financial watchdogs. . . One top goal: stamping out regulation by enforcement. What follows is our (lightly edited and condensed) conversation.

The Q and A

(subheads added)

Capitol Account: How do you describe the NCUA for people who don’t know what it is?

Kyle Hauptman: When I’m at conferences, like with fintech, I say it over and over again: `You know what the FDIC is for banks?’ It’s like that, except that we insure about 4,500 credit unions – and are the regulator for about two-thirds of those…The rest are state chartered. There’s about the same number of credit unions and banks in America…but there’s 10 times as much money in the bank system…There’s no such thing as a trillion dollar credit union.

Hauptman’s Prior Career

CA: How did you get into this job? You worked in finance earlier, and then on Capitol Hill.

KH: I’m a career switcher, and one of those people who is finally doing what they should be doing. I was a bond trader for years. I was mediocre at it…My first love was always policy and politics.

CA: You were working at Lehman Brothers when it filed for bankruptcy in 2008? Did that drive you back to Washington?

KH: Being at Lehman during the collapse reignited my interest in policy, [by seeing] just how D.C.-dependent those final weeks and months and days were.

How Hauptman Views the Chair’s Role

CA: You’re now the chairman of a three-person board, with the other two members being Democrats. How are you approaching it?

KH: This place wasn’t all that partisan to start with, but it definitely changes some of my priorities in terms of what’s feasible. There’s some internal things that I think we can get done. I’ve noticed with all the executive orders, talking to other agencies, that some of them vest a lot of power in the chair. [The NCUA] is more board-centric.

CA: How are you handling Trump’s executive orders?

KH: We’re just going through them one by one, complying. Not trying to get in the news.

CA: Is the sheer volume of the directives overwhelming?

KH: We do what we have to do. They provide some opportunities for us too.

CA: One of the orders tells independent agencies to run their rules and legal interpretations through the OMB. Some people have described that as a sea change. How do you assess it?

KH: My plan is to comply…My guess is for the short term, the administration would probably like any rules that I put through. On the other hand, I don’t know, given [that] I’m a minority chairman, there will be particularly impactful rulemakings happening or ones that would be controversial.

NCUA Staff Changes

CA: How are NCUA employees handling the return to office mandate?

KH: We’re a little different than other agencies…the majority of our staff is what the government calls mobile workforce. Meaning they’re not supposed to be in an office.

CA: What’s their job?

KH: Examiners. They’re in all 50 states…They’re not supposed to be in a chair at a desk any more than a park ranger or a lifeguard at a national seashore… We only have three physical offices in this country, Tempe, Austin and here.

CA: How many people work in your Northern Virginia headquarters?

KH: Put aside contractors, I believe about 650…We’re about 1,200 employees [overall].

CA: This is the first week workers at NCUA are back full-time. What are you hearing?

KH: It’s definitely a change for some because, outside of the Covid period where the office was literally locked…anybody who wanted to be in the office always could. So [the return] would only affect those who obviously didn’t want to be.

CA: Do you think you’re going to lose people?

KH: Possibly…I don’t have any data yet.

NCUA and Trump Policy

CA: What’s your view on how NCUA fits in with the administration’s broader push to streamline the administrative state?

KH: At least at the financial regulators, there’s a perception [that] some of them got out over their skis versus what they were statutorily required to do. We are above all things an insurer. So as an insurer, we don’t have any incentive to do [things like] regulation by enforcement.

CA: What do you mean by that?

KH: We have no interest in having credit unions have reduced capital, which is what would happen if you fine them $50 million for something. They may deserve it, but they’re down $50 million in capital. That’s the same as $50 million of loans that went bad they had to write off. Some of the problems I think the administration is trying to root out were less of an issue here.

CA: Industry has spent the past four years complaining about the Biden financial regulators taking an enforcement-first approach. Do you see that changing now?

KH: There [are] two kinds of regulators: honest ones and ones that do regulation by enforcement…Myself, and I know some of my new colleagues who are running other regulators believe that in America, the sequence of events is: Write rules, then enforce them.

CA: Have you run into other agencies doing things that you’d call regulation via enforcement?

KH: There was a settlement between the [CFPB] and Wells Fargo. And in the settlement, Wells Fargo had to, regardless of state law, deal with auto loans a certain way…Our examiners and credit unions were saying, okay, is this the new policy?

CA: Was it?

KH: I asked the CFPB…What do I tell my examiners, and what do we tell the credit unions? And the answer was, ‘Send them the Wells Fargo settlement and a link to our supervisory priorities.’

CA: The upshot is they should have issued a rule?

KH: Not one employee of any regulator would think it was fair, if you got pulled over for a speeding ticket and said, ‘What’s the speed limit, officer?’ And he said, ‘Oh no, there’s no speed limit posted. A year ago, someone you never heard of got a ticket and you were supposed to be aware of how that applied to you.’ That’s not how it’s supposed to be.

On Digital Assets

CA: What do you think of how the NCUA approached digital assets over the last few years?

KH: I’m proud that we are not part of [or] even talked about in Operation Choke Point 2.0 [concerning debanking allegations]. No one’s mentioning us.

CA: How about on the policy side?

KH: We put out two pieces of positive guidance, which during the last four years were two more than anybody else put out…The other banking agencies put out something that caused a lot of harm. [The policy] said you must get written notice of non-disapproval before engaging in – and then it had a fairly broad list – distributed ledger technology, digital assets. I know that banks went pencils down.

CA: Are you in favor of credit unions dabbling in digital assets?

KH: I’m pro-what this country’s about, which is people innovating and experimenting. There’s going to be problems…Every country in the world has auto fatalities. Only some of them have auto industries. The negatives that come from new technologies are certainly going to exist. I don’t mean to minimize them…but the worst thing that can happen is to get all the downside and very little of the upside.

On OD Fees

CA: Your Democratic predecessor set a new requirement, which you opposed, that larger credit unions publicly disclose the income they receive from overdraft fees. Will you change that?

KH: That is my goal.

CA: Isn’t more transparency a good thing?

KH: There [are several] constituencies for publicly putting the gross dollar amount [out]. Number one are journalists, to write click-bait articles that are often devoid of any business or economic sense. The second is people who get political benefit for claiming they’re helping consumers. The third would be law firms that want to charge money. I’m not aware, as a fiduciary of our Share Insurance Fund, that my job is to do the bidding of any of those three groups. We like non-interest income.

CA: What’s your take on the efforts to cut so-called junk fees?

KH: The people promoting these policies will be last in line to help you when you’re short on money…Government itself far and away charges the highest late fees if you’re short on money. Treats you the worst. And it’s not even close.

CA: What’s the impact on credit unions?

KH: Some have eliminated [overdraft] fees entirely, and that’s their prerogative…What they don’t need is somebody [in] the nation’s capital trying to shame them one way or the other.

On Mergers

CA: Credit unions have been buying more and more banks, a trend that has provoked a lot of opposition, especially from community lenders. How does the NCUA deal with mergers?

KH: Our sole role is [to determine]: does the acquisition present a threat to our insurance fund?

CA: The banking industry says that these deals underscore how credit unions get too many tax and regulatory exemptions.

KH: With banks and credit unions, I don’t get involved in any of that back and forth. If the president had, four years ago, suggested I work at the FDIC instead of here, I would’ve considered that. But unless you have more pull than I do. you don’t get to pick and choose what appointments come your way.

CA: So you’re staying out of the fight?

KH: Banks have significant advantages over credit unions, and credit unions have advantages over banks. Banks have higher interest rates that they’re allowed to charge. Credit unions have a lower interest rate cap. Banks can use stock, which is the preferable way to do acquisitions. We know this because 90 percent of bank acquisitions are done using stock.

On Taxation

CA: What about the tax issue?

KH: Some credit unions wind up having as much tax paid as banks. Because if they distribute all of their net income to their members, then that’s basically an S Corp. They’re all paying individual income tax on that…A credit union has an advantage in that if they retain some of that, they don’t pay corporate income tax on that. However, by definition, the issue…has lessened with a 21 percent corporate income tax rate, rather than 35.

On Fields of Membership

CA: There have also been a lot of complaints about credit unions expanding their field of membership – the legal definition of who can join the institution.

KH: Some states like New York have very broad fields of membership. They make it very broad: If you are a mammal that walks upright on your hind legs and you live in the state, you can be a member. That’s a state issue. That’s their prerogative.

CA: What’s your take?

KH: As a general matter the further you get from a focused community, you lose the credit union touch. Because the reason that…delinquencies are lower for what looks like a certain credit risk is because it’s inside the community – a fellow church member, a fellow member of your immigrant community.

CA: What’s an example?

KH: There are nine, I believe, ethnic Ukrainian credit unions…40 percent of their customer service calls are in Russian or Ukrainian. The Ukrainian refugees coming over since the war [don’t speak] English, are unemployed, credit invisible. Everyone would turn them down…The Ukrainian credit unions not only are giving them checking accounts – share accounts is what they call them – but unsecured credit cards. And these folks are doing what new immigrants have always done. They’re driving for Uber Eats and hustling and doing jobs – and they have lower delinquency rates than the average…That is the credit union difference right there.

On His Future Plans

CA: Your term ends in about six months, that’s a pretty short time to be in charge. Do you want to be reappointed?

KH: I think there are a lot of great candidates out there that deserve a shot.

CA: What does that mean?

KH: I don’t plan on leaving for the foreseeable future…The person I took over the seat for was there 17 months after the term ended…I’m going to assume I’ll stick around as long as feasible for my replacement to come. I would be flattered, but I’ve made clear that I’ll do something else with my life and that there are other people who deserve a shot.

CA: What do you do when you’re not running an agency?

KH: I have a 4-year-old who keeps me busy…He comes in here once in a while, and he’s figured out which offices have candy and which ones don’t.

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The Most Consequential GAC Speech in Credit Union History

NCUA Chairman Ed Callahan  spoke to CUNA’s GAC conference in Washington DC on February 8, 1984.

He urged his listeners to support the most vital change in the system since the passage of the FCU Act in 1934.

His title was Finish the Job.  He challenged credit unions to strengthen their NCUSIF insurance fund by backing legislation redesigning it using cooperative principles.

The talk is  11 minutes.  Ed provides an update on the state of the credit union system in one word, “fantastic.” He puts the current situation in the context of 75 years of credit union history.  He describes how deregulation is meeting the needs of the country’s changing economy.

An Advocate for Credit Unions

His closing is a call to support a Better Way for  the NCUSIF.  He asks credit unions to compare the cost savings under the 1% solution to the current two premium model.  And then to champion the change in a bill introduced by Senator Jake Garn.

The recording is from a cassette of the live speech with the video overlays added later.

(https://www.youtube.com/watch?v=1UcXPyUMtic)

This is an example of the profound change possible for credit unions when all parties work together to benefit members.

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GAC: NCUA Board Members’ Most Critical Talks

The annual Governmental Affairs Conference in Washington is the largest and, many would say, the most important convening of credit union leaders.

In the nation’s capital, attendees from around the country will hear from their congressional representatives.  And from all three NCUA board members on the state of agency policy.

Today’s Washington is not a kind place. Tens of thousands of public servants  have been summarily fired.  Many remaining are at best uncertain and at worst fearful for their personal and professional futures.

The pretense of eliminating waste has been quickly demonstrated to be a political fraud.  An unelected,  billionaire, Elon Musk, who recently used a chainsaw to present his approach to responsibility is in charge of this political stunt.

Trump’s purpose is not governmental efficiency. Rather it is  eliminating any federal role that acts as a check and balance over the animal spirits of the “free market” and its billionaire oligarchs.

The NCUA Board’s Opportunity

Institutions, no matter how well funded and designed, cannot in themselves be constraints on abuses of power.  Or destruction of the democratic process.

It is the people who are appointed as well as those who are elected that must exercise this critical responsibility.

For credit unions, their immediate representatives are the three-person NCUA board responsible for the agency’s management.  That is why their views  are so important.

What credit unions want to hear is how they are interpreting their responsibility having taken this oath of office:

I, [Hauptman, Harper, Otsuka] do solemnly swear  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)

The US Constitution requires the practice as explained in this 2019 article:

The reason is simple – public servants are just that – servants of the people. After much debate about an Oath, the framers of the U. S. Constitution included the requirement to take an Oath of Office in the Constitution itself. 

Article VI of the Constitution says, “The Senators and Representatives before mentioned, and the Members of the several State Legislatures, and all executive and judicial Officers, both of the United States and of the several States, shall be bound by Oath or Affirmation, to support this Constitution .  

The author, Jeff Neal,  states the intent:  One purpose of the Oath of Office is to remind federal workers that they do not swear allegiance to a supervisor, an agency, a political appointee, or even to the President. The oath is to support and defend the U.S. Constitution and faithfully execute your duties. The intent is to protect the public from a government that might fall victim to political whims. 

Where Political Power Lies

The three NCUA board members’ remarks in this current effort to concentrate political executive power in one person will be telling.

Will they simply state their role is to “comply” with the administration’s numerous directives of unlimited executive authority over an independent agency?

Or might they simply state their role as guardians of the NCUSIF purse and “protectors of the taxpayer” is their highest duty?

Or will they simply ignore reality and give an AI-like generated talk on regulatory priorities?

NCUA board members’ press interviews and comments at last Thursday’s public board meeting suggest they are still uncertain what their stance should be. One can understand their personal jeopardy and hesitancy to speak up.  In their remarks, all three were like  bipartisan deer frozen by the Trump administration’s headlights shining on all federal agencies.  The sense of an overriding mission was at best formulaic.

But as the board members look out over the thousands of attendees in the convention center, they will see where their responsibility and true power really lies.  It is with the people.  For the grassroots may be slow to mobilize but will be unstoppable when activated for purpose.

The political temptation is to always seek a middle way, a consensus.  All Americans and the rest of the world saw last Friday that we no longer live in “normal times.” When a leader of the free world visited the Oval Office and was publicly scolded by the President and his colleagues for not being “grateful,” for not having any “cards” to play, for “threatening WW III,” we know we are not living in normal times.

The people to which NCUA board members will be speaking at GAC and beyond hold the ultimate authority.  How will they fulfill their oath of office?  The circumstances are not easy, but leadership in crisis is what the Constitution depends on.

 

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Tomorrow’s Critical NCUA Board Meeting:  An Opportunity to Demonstrate the Strength of an Independent Cooperative System

The prime agenda item for Thursday’s NCUA board is the NCUSIF’s year end audit and setting the NOL cap for December 2025.  The political context in Washington at this moment makes this  meeting critically important.

Will the public discussion reinforce the understanding of the Fund’s  extraordinary performance and its unique  cooperative design?   Will its decade long performance of insured losses below a basis point, confirm its critical role in credit union’s unique purpose in America’s financial system?

The Political Context

The 2024 external CPA  audit was released last week.   It continues to show the financial stability of the cooperative system and the strength of its unique deposit insurance model.

This track record  is especially vital in this time of an administration challenging all aspects of federal agency performance.  This includes the federal regulatory structures, including FDIC’s oversight. For some the NCUSIF’s functions appear quite similar.  Could its future also hang in the balance?

It will be vital that the Fund’s uniqueness be affirmed during this update.  Especially these three characteristics:

  • A unique funding model; Every credit union member contributes directly 1 cent of their insured savings dollars to the NCUSIF’s 1% deposit base.  This member-centric capitalization is a direct copy of cooperative business design.
  • Explicit statutory guardrails on fund performance: There is complete and timely transparent reporting marked by the annual  independent CPA audit and monthly public financial postings.   Statutory limits are provided on total balances and a dividend paid to the owners, when this CAP is exceeded. Premium assessments in the event of catastrophic events, are clearly defined.  Premiums have been used only three times in the fund’s 40 year history.
  • The right to withdraw. If a credit union changes its charter or insurer their accumulated 1% deposit is returned. All 1%  deposits are returned if NCUA ceases to manage the fund.

How Board members present the NCUSIF’s demonstrated financial success may be crucial to its continued independence, not to mention NCUA’s.  If credit unions lose their fund in a regulatory realignment, would the singular credit union system be far behind?

Key Performance Issues

We knew yearend 2024 financial outcomes would be superb based on the November 21, 2024 NCUSIF board update as of September 30.  The yearend equity ratio is above .302%  showing the importance of the NOL cap. If it had been at its longtime cap of 1.3%, credit unions could have received a small dividend for 2024.

Will the Board’s discussion of this and other topics be anchored by full transparency, supported by real facts and the historical record versus hypothetical conjecturing?

The fund’s effectiveness is not based on its total assets, but rather, as in all insurance underwriting,  its size to relative to insured risk.  For example, the allowance account at $237 million is set aside from retained earnings.  It equals 1.3 basis points of insured savings at yearend.  Only once in the past ten years have total cash insured expense losses exceeded reserve level.

Specific areas of importance for board oversight include:

  1. How will the NOL cap for December 2025 be set? This limit triggers a dividend when earnings raise the yearend ratio above this number. There was no data provided when the Board set the NOL for 2024.  It simply extended the prior year’s limit,  no analysis provided. Even the detailed assumptions used by staff in the prior two years did not support their 1.33% recommendation. Will  real numbers be provided with full details of any hypothetical assumptions? Or, might the board simply endorse the historical 1.3% cap used in the first 33 years following its redesign?
  2. The greatest internal risk to the Fund’s effectiveness is the management of its $23 billion investment portfolio. Since December 2022, the portfolio’s maket value  has been less than its book, that is underwater.   The portfolio’s 2024 full year return is 2.5%. The overnight cash portion yields  approximately 4.5%.  The below book term portfolio earned just 1.92%.

Yet the fund continues to invest long in November, extending its duration risk, at a time of a reset in what a normal yield environemnt may be.  To sustain the Fund’s equity ratio a yield between 2.5-3.0% is necessary based on 40 years of actual operating results. The critical topic is what will the board require to improve the Fund’s interest rate risk management and turn around this continuing portfolio underperformance?

  1. The fund’s transparency is critical to its public credibility and trust. The allowance account is determined using an “internal econometric model.”   The model’s details and assumptions should be included in the staff’s presentation.

The continued use of Federal, not private GAP accounting misleads, mischaracterizes and  distorts the fund’s actual financial standing.  The terminology and schedules used with the Fund’s accounts are totally irrelevant since the NCUSIF is not an appropriated entity.

Federal GAAP removes specific information accounts from the NCUSIF’s financial statements.  For example is the portfolio’s actual value $22 or $23 billion?  Where is the net income total?  Or  retained earnings?  These traditional GAP terms do not appear.

The federal terms and schedules used are not relevant for the NCUSIF and convey an incorrect impression that the NCUSIF is somehow a federally appropriated fund. Or red meat for an uninformed DOGE analyst.

At a minimum private GAP financial statements presentation should be presented alongside the Federal GAP.  For private GAP is how all three of NCUA’s other managed funds are presented.

I am looking forward to the meeting.   Every credit union should as well.

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A Q & A on NCUA and Trump Policy Priorities

What has been the impact of the Trump administration’s executive orders on NCUA operations? After appointing republican member Hauptman as the new chair of the three person board, have there been other changes?

Following are a series of Q&A’s sent to NCUA last Friday to learn about  further impacts.  Responses were received today from an NCUA spokesperson.

Q. Have NCUA policies on working in the DC office been changed?  If so in what way?  If not changed, what is he current in-office policy for the head office?

Pursuant to President Trump’s Return-to In-Person Work Presidential Memorandum, NCUA non-bargaining unit employees are required to return to office, full time, beginning Monday, Feb. 24. NCUA employees in field positions (mobile workforce), including but not limited to examiners, problem case officers, supervisory examiners, and regional specialists, are not within the scope of the Presidential Memorandum.

Q. Has the NCUA withdrawn job offers since the change of administration?   Is there a hiring freeze?

The NCUA rescinded 12 offers in compliance with the Executive Order instituting a hiring freeze for all federal positions.

Q. Have there been any changes in senior staff responsibilities under the new chair?

No.

Q. Did NCUA employees receive the resignation emails DOGE sent to all federal employees?  Is NCUA staff eligible to apply for this option?

NCUA employees received the same communication sent by OPM about the deferred resignation program. NCUA staff are eligible to participate in this program.

Q. Has NCUA stopped payments under any contracts or programs it administers?

Four DEI contracts have been terminated.

Q. Have members of DOGE or its representatives contacted NCUA or been in NCUA’s offices?

None yet.

Has Chairman Hauptman filled any of his vacant Schedule C  positions?  If yes, their titles and names?

Not yet. When these positions are filled they will be publicly announced.

Currently, Chairman Hauptman’s immediate staff includes Chief of Staff Sarah Bang and Confidential Assistant Natalie More. Three positions allocated to the Chairman are currently vacant.

Q. Who is the best person to contact during this transition period to learn about events?  Should I reach out directly to individual board members? Or, can you set these up?

Please contact NCUA’s Office of External Affairs and Communications.

Q. When is the next NCUA board meeting and when will an agenda be released?

The next NCUA Board meeting will take place on Feb. 27. The agenda will be posted to the NCUA’s website on the afternoon of Feb.20.

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The Source of Credit Union Power: Members Rally to Rebut Banker’s “Hit” Article

“You will pry my credit union from my cold middle class dead hands.”   Words of defiance from a credit union believer. One of hundreds of comments posted last week.(source below)

A leader’s ultimate success much depends on how the person manages the instruments of power.  For some in authority, the point of power is to use it to expand one’s dominion.  Using requires building up an institution’s size, scope of activity and resources to control or dominate.

However, there is another leadership model.These individuals believe that the role of authority is empowering others.  Credit unions at their most effective are subversive of status quo structures. They organize from the bottom up.  By the grass roots, not by investors hoping to make money.  No capital, just personal sweat equity, time and collaborative effort to accomplish common purpose.

This counter-cultural, not-for-profit cooperative design is also the key to  credit unions’ latent political power.  Here is a case study from last week of what this looks like in practice.

Responding to a Newspaper Opinion

Last week the Washington Post published an Opinion article by the former chair of the FDIC, Sheila Bair, titled:   Tax-free credit unions are thriving at public expense.  Her bank in Chesterton, MD, The Peoples Bank, accepted a purchase offer from a Massachusetts credit union “using some of their untaxed income.”

Her article referenced other examples of credit union branding and expansion.  Her recommendation was to level the playing field with community banks by taxing credit unions.  Otherwise, she warned, ““Give them an inch and they’ll take a mile.”

I had used the credit union’s purchase of “her” bank as an example in a blog Time to Ask WHY.  My p;oint was to illustrate the bigger public stage on which credit union actions are now viewed.

I did not foresee the  Post’s readers’ reaction to her article.   When the postings were stopped 253 comments had been submitted, almost all from credit union members.

The members universally defended their credit unions, called the article a “hit” piece, and provided hundreds of firsthand examples of how credit unions provide special member value.

Following are a few examples of the readers’ responses unleashed by this former banking regulator’s critique of credit union’s tax status.

From a bank customer and credit union member:

I have business both with a major bank and a credit union-right now the rate on my major bank credit card is 27.99% (they cut my rate a whopping 2% from 29.99% a few months ago!)

Right now, the rate on my credit union credit card is 8.99%

 You can probably surmise from the above anecdote who gets most of my business… 

From a 30 year member::

I have been a credit union member for 30 years. No hidden fees, low interest credit card, interest on my checking and savings, no service charges, talking to real people, great service, the list goes on and on. I would prefer to never have to deal with a bank again. I’m sure big banks would love to crush credit unions.(Reader comment ratings:  Provocative/Thoughtful 61)

From a member with mortgage loans for 37 years;

I’ve had a mortgage since 1988 on my successive residences, usually with an escrow account to pay property tax and homeowners insurance. Refinancing in 2012 with a credit union was the first time I managed to persuade my lender to include California Earthquake Authority premiums in the escrow account associated with my mortgage.

I’ve been much more satisfied with the service I’ve received from a credit union than from any of the big banks I’ve patronized over the years…. 

A Question posed: The difference, who cares more about you?

Ask yourself a simple question. WHO cares more about YOU as an individual? A big bank or the credit union where you are a member?

Notice that YOU are a member of the credit union – not just a customer. With banks – YOU are just another income source.

A question: Why the article?

Of all the non-profits that exist (and ALL credit unions are non-profit) – why attack the one group that actually takes care of their members instead of pushing propaganda as part of a political agenda?

 Attacking the for-profit Washington Post:

Wow, taking a shot at non-profit banking!?!? Proof once again that the Post is in the bag for corporate interests. Where is the guest opinion on the mis-deeds of for profit banks? Instead of recommending that credit unions return to stricter membership rules, or limit their ability to purchase commercial banks, you go right for their non-profit status. I have not used a for profit bank in 25 years. Thankfully almost everyone on Capitol Hill banks with the Congressional Federal Credit Union (as do I) so they understand the value of a credit union. 

A comment on the Opinion author:

As others have pointed out, Shelia Bair was chair of FDIC during the 2008 financial meltdown. She was a major architect of the TARP bailout of Chase, Bank of America, Wells Fargo, and the other big banks. 

This is an unadulterated hit piece against Navy Federal Credit Union, which is competing with the big banks directly in their consumer banking business. 

How and When Is Member Power Mobilized?

The comments extend for another 240+ reader reactions.   These words are not lobbying jargon, irrelevant numbers or cliches.   They are from lived experience motivated by personal feelings.

Implicit in these words is a readiness for action.  This potential  is the real source of credit union power, not the amount of PAC dollars donated.  It is the member-owner-voter’s relationship with their credit union.

This foundation of the movement is a latent,  “sleeping giant”-a phrase used by Ed Callahan during the 50th anniversary of the FCU Act in 1984 and afterwards.  Deregulation had placed  the responsibility for the future of credit unions back where it started, in the hands of boards and members, not the federal government.

The Immediate Challenge

America is in an era of political disruption. The issue of taxation will undoubtedly arise in several contexts.  But the real challenge of crafting a new beginning, a rethinking of who we want to be, is much greater.  And it may be beyond the grasp of those who seek only to defend the existing co-op status quo.

What is necessary are new models to tackle critical opportunities for clarity about credit unions’ future role in the American economy and members’ lives.

The country is hungry to reset foundations, recommit to fundamental values and for new generations of leaders who can innovate with cooperative design.

We should avoid marketing our fear of change to garner internal support, but rather take this fluid moment to rally our members for a renewed vision of what we can be.

And like the initial founders, or the change makers who led deregulation, this new era can be both frightening and enlightening.  This redesign may involve both government/regulatory relationships and new realities for industry participants taking  responsibility for our future.  It may entail new organizational relationships and partnerships.

If one looks closely the seeds for a new future are already there.  Some have been planted by those seemingly old school; others are in the enthusiasm of a generation that seeks to change the world.  Our skill will be to identify those whose directions empower others with their vision, versus those intent on enhancing their existing legacy returns.

Let the conversations begin.   If you have any doubts about what members value, just go the article and read some of the several hundred more comments.   The members’ voice is there if we really listen.

 

 

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The Art of a Leadership Transition in Government

The country is going through the political throes and formal processes of a complete changeover  of executive and political leadership in DC.  This includes NCUA.

In late 1981 Ed Callahan had been confirmed as the next NCUA Chair. Before he had been formally sworn into the job, I asked what would be his toughest challenge would be.

Ed had been leading the Illinois Department of Financial Institutions for almost six years.  In the Department, the credit union division oversaw  1,200 state charters.  During this time the Illinois system had navigated multiple market and legislative changes implementing deregulation.

I assumed his response to my question would be about greater scale of responsibility, from one to 50 states and from 1,200 credit unions to 16,000; or, the increased size of the agency budget and staff; or, the more complex institutional and political environment in DC.  This involved Senate and House hearings and NCUA membership of interagency committees such as the FFIEC or DIDC.

Ed’s Number One Challenge

His answer mentioned  none of the above areas.   His biggest challenge he said would be  communication.   That is to explain the direction he believed the NCUA and credit unions should undertake and why.

Callahan’s track record and leadership of Illinois cooperatives  was described as deregulation.  At a dinner celebrating his appointment before  going to Wasington, the Illinois Credit Union League presented Ed with a framed sign  he then hung in the Chairman’s NCUA office.  It read:

 Leadership of a Transition

However, what would deregulation look like on a national scale and all at once?

The first effort communicating this approach was a videotaped panel discussion arranged by the Illinois Credit Union League on January 8th, 1982.  The title:  Deregulation, What Does it Mean?

 

(https://www.youtube.com/watch?v=S09QkeNYgBU&t=4s)

The video is 24 minutes. This  conversation was the beginning of a dialogue to change the entire direction of the prior 50 years of federal credit union regulatory practice.

Several factors in this video are noteworthy.  It was a joint NCUA-movement project. The Illinois League sponsored and produced the video.  The panel included Jim Barr, the head of CUNA’s Washington office as moderator, three credit union CEO’s, and Chairman Callahan and NCUA Executive Director Bucky Sebastian.

The format is Q&A.  Hard questions are asked. The dialogue is authentic due to the openness of the conversion.

The most important moment may be at  minute 16.  A CEO responds to Callahan’s deregulation approach  by asking how much influence will credit unions really have in deciding this policy?   Ed’s reply from the February 1982 NCUA Review, which printed a transcript of the video:

“Even though I think credit unions want deregulation, I am more committed to the fact that we have to respond to their needs. If they don’t want deregulation, we will see that it doesn’t happen.”

A second question by Jim Barr is simply.  Why now?  Go to minute 18 for the response.

This video was the first of 20 NCUA created during  Callahan’s three and one half year tenure. It was  one of many efforts to inform credit unions and the public about NCUA actions.  To succeed, this approach required a leader who was accessible, informed  and willing to listen to the industry.

The result was a tenure characterized by joint NCUA-industry efforts that repositioned the system for an entirely new era of market competition.

This video is one example of how the regulator and the industry collaborated so that the movement could thrive well into the future.

Communication went to all constituencies.  These included the public and credit union press, the members, credit union leaders and other agencies of federal and state government,  The outcome included some of the most consequential  cooperative system innovations since the first credit union charter in 1909.

Leadership is never easy, especially in public positions.  Developing and seeing through a successful  tenure begins with the very first communication.  In this transition. that began with a video that still provides meaningful lessons decades later.