Category: NCUA

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Freedom and Credit Unions as America Celebrates Her 250th

One of America’s founding ideals is captured in this poem with its familiar and oft-quoted  final lines from her “silent lips:.”

The New Colossus

Not like the brazen giant of Greek fame,
With conquering limbs astride from land to land;
Here at our sea-washed, sunset gates shall stand
A mighty woman with a torch, whose flame
Is the imprisoned lightning, and her name
Mother of Exiles. From her beacon-hand
Glows world-wide welcome; her mild eyes command
The air-bridged harbor that twin cities frame.
“Keep, ancient lands, your storied pomp!” cries she
With silent lips. “Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!”

Emma Lazarus, written in 1883, on the Statue of Liberty

Freedom, Liberty and Opportunity

One of many possibilities beyond the  “golden door” was begun some 25 years later during one of America’s earlier progressive reform eras.  St. Mary’s Bank, the first credit union,  was organized in 1909 by a priest to help workers in a factory  with small personal loans.  From that small seed, today’s cooperative financial system has grown to $2.5 trillion serving tens of millions of American consumers.

More than seventy years later, a new era of credit union potential was launched. This new chapter was described  by the Chairman of NCUA in his Three Freedoms speech to the Massachusetts CUNA league’s Annual meeting on November 3, 1984.

Freedom is commonly understood to be free from something that limits or controls an individual’s actions by fear, want, arbitrary rules or sometimes coercion.

But freedom also  enables individuals and society to undertake collective efforts essential for living in communities in which interdependency is crucial for the well being of all. This “empowering” opportunity is how Callahan  described the transforming outcomes of deregulation for the credit union system.

The changes in government’s role had provided a new context where credit unions were enabled to make decisions not previously open to them.  The upshot of these multiple efforts were described as three freedoms

* Freedom of security: credit unions have their own unique cooperatively structured  insurance safety net (NCUSIF) and liquidity fund (CLF).

* Freedom to compete: credit unions could now make their own business decisions on products, services and interest rates for members;

* Freedom to serve: credit unions now decide who their membership will include (FOM choice).

Cooperative  design combines individual choice in an interdependent-cooperative financial system founded on self-help, self-governance and self-reliance. Not private capital or ownership  or government subsidy.

By 1984, the foundation had been set for a quarter century of  deregulatory leadership by cooperatives until the regulatory backlash from the 2008 financial crisis.

With its focus on personal financial opportunity, credit union purpose promotes  the country’s founding pursuits  of life, liberty and happiness.  Cooperative choice is a special American innovation entered though Lazarus’ golden door.

A Sleeping Giant Within the New Colossus

In his many credit union presentations, Ed  Callahan described credit union’s future potential as a “Sleeping Giant” or “America’s best Kept Secret.”

This was also a vision in an American folk and labor protest song written in 1948 by Les Rice.  He was an apple farmer in Newburgh, New York, who also served as president of the Ulster County chapter of the Farmers Union.

He wrote a song out of frustration during the post-WWII years. As small-scale farmers were being squeezed by large agricultural corporations that dictated the prices for produce and overcharged them for supplies.

The lyrics in The Banks Are Made of Marble contrast the  labor of working-class people, including farmers, seamen, and miners, with the vast wealth of the banking and corporate elite.

The repeating chorus points out the stark inequality: the vaults are filled with the wealth that the working class sweated for, while real people struggle.  The last two stanzas predict the rise of banks owned by the people:

I’ve seen my brothers working,
Throughout this mighty land,
l prayed we’d get together,
And together make a stand.

Then we’d own those banks of marble,
With a guard at every door,
And we would share those vaults of silver,
That we have sweated for!

(https://www.youtube.com/watch?v=umMTkHnnJag&t=13s)

 

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Credit Unions & America’s 250th Celebration-History’s Lessons

Today credit union  momentum for the 250th birthday of America was interrupted by a Supreme Court decision. The 6  – 3 conservative majority ruled  the President had authority to fire members of independent agency boards established by Congress to be partially shielded from total Presidential direction.

The decision overturned almost 100 years of precedent. It means Trump’s firing of NCUA board mebers Harper and Otsuka will  be upheld by lower courts where the case is on hold.   Trump  may then choose to select two new board members to join his recently nominated Chair John Crews, a republican working in the Treasury Department.  Or he could leave the positions vacant.

This event and its conseqences will be greeted with mixed reactions by credit union supporters.

But history can also provide us perspective to the current moment.  And more importantly, point the way forward.

Not the First Time for President’s Firing NCUA Leadership

On March 10, 1976, Administrator Herman Nickerson, Jr. of the National Credit Union Administration testified before the Senate Banking Subcommittee on Financial Institutions (chaired by Senator Thomas McIntyre) regarding S. 1475. The hearing focused on proposals to restructure the NCUA from a single-administrator agency to a multi-member board.
Nickerson testified that a single-administrator structure left the agency highly vulnerable to political pressure, stating that under his “day-to-day” tenure “you don’t know whether you’re going to take a position that would be your last day in office or not”. He argued that a three-person board would provide better long-term stability and continuity for regulating federal credit unions. 
In the hearing Administrator Herman Nickerson, Jr. was asked about his vulnerability to being fired, and Senator Thomas McIntyre confidently responded by assuring Nickerson that “it would never happen”.
Merely two hours after the hearing concluded, President Gerald Ford summoned Nickerson to the White House and fired him without cause.
March 19, 1976 Office of the White House Press Secretary

————————————————————

NOTICE TO THE PRESS

The President has accepted the resign.,tion of Herman Nickerson, Jr., as Administrator of the National Credit Union effective upon the appoint ment and quaJification of a succes sor. He was appointed on September 15, 1970. There is no successor to announce at this time.

The Three Person NCUA Board Legislation Approved

Senator McIntyre was reportedly shocked by the firing. He used the incident as a stark, real-time example on the Senate floor to successfully argue that the NCUA must be restructured into a multi-member independent board to protect its leadership from sudden political retaliation. 
This hearing served as a major catalyst in the legislative shift that eventually established a multi-member, bipartisan board to govern the agency. 
(Sources:  Rosemary Hardiman, then a reporter for  CUIS, Gerald Ford Library, AI search for hearing summary)

Today’s Response and the Future of Credit Unions

The three person, independent NCUA board was intended to moderate the extreme policy fluctuations if every President could choose to appoint new regulators who would then implement whatever policy  priorities he wanted.
In contrast,  the theory supporting independent agency status was to ensure experienced, knowledgeable board members  would be appointed to protect and promote the public interest not  partisan political agendas.
Only two NCUA board members could be from the same party.  In theory this assured some public debate or even opposition in policy and agency oversight.
The theory worked for NCUA’s first two chairs, Larry Connell and Ed Callahan. Both were experienced state regulators with direct knowledge of credit unions.   While other board appointments would appear more like political sinecures, agency leadership was in expert hands.
The assumptions of industry expertise and apolitical Chairs ended with the appointment of Senator Roger Jepsen (defeated in a re-election effort) to succeed Callahan in 1985.  Rarely have future Chairs had regulatory or credit union experience with the exception of JoAnn Johnson from Iowa.
She had been Superintendent of credit unions for the state and joined the NCUA board in 2002, becoming chair from 2004-2008.  After returning to Iowa she was again Superintendent of Iowa’s credit unions until her retirement in May 2017.
The vast majority of NCUA board appointments have had little to no credit union affiliation.  NCUA’s board appointments have been filled with former congressional or agency staff members seeking continued federal employment. Some have had strong professional credentials (McWatters) but virtually none had prior credit union associations or knowledge.
Credit unions have long abandoned efforts, individually and as a system,  to identify and promote knowledgeable individuals for NCUA positions.
 Both democratic and republican administrations have used NCUA board seats to reward political loyalists versus those with credit union credentials.
In pactice the theory of the independent agency with expert leadership acting in the best interests of credit union members has rarely happened  Instead  NCUA board appointments have become a backwater for those seeking the prestige, or sometimes the spoils, pf a political appointment.

The  Future of Federal Credit Union Regulation

Just as in 1976, there will be a reaction to the current political excesses and  NCUA’s increasing impotence  shaping the future of the cooperative system.
The Agency may become a department with a single administrator within Treasury, like the OCC.  The NCUSIF merged with the FDIC.
The future may be a more cooperative and innovative state support system.
NCUA may be caught up in a sweeping federal government reform post election or post Trump.
Following yesterday’s precedent in this week leading America’s 250th ,  it is useful to express our future hopes for the country and cooperatives in music.  While this was not my original choice for today, it seems to be one approach to future events when  asking  Who shall wear the starry crown?.
(https://www.youtube.com/watch?v=d2LjgalcsVI)

 

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The Limits of Virtual Meetings and Relationships

One of the vital initiatives  Ed Callahan took as Chairman of NCUA was to take the monthly public board meetings “on the road.”  Over a period of two and half years, public  board meetings wewre held in all six regions. Often in locations that coincided with already planned league or national conferences.

For example the July 1982 board meeting was held in Chicago  at the same time as NAFCU’s annual meeting. That was the same weekend that the Penn Square bank failure occurred.  Because of credit union investments with uninsured Penn Square Bank CD’s, the Board meetingt attracted widespread interest.

Constituents Meeting Their Regulators

The purpose of these outside the beltway public events was to give credit unions a chance to attend meetings and see the board at work. In addition the visits often involved credit union conversations, local newspaper interviews, all which raised the profile of the credit union system and  the movements embrace of deregulation. The visit from DC raised the profile of an areas  credit unions and their contributions to their  their communities.

These interactions created awareness of NCUA’s activity and leadership.  It gave senior DC based staff direct conversations with credit union leaders on their home turf and in the various economic circumstances around the country.

Each board meeting was followed by an open press conference where Chairman Callahan and staff would answ questins from the media and credit union attendees.

Today’s Public Meetings

Yesterday’s NCUA board meeting was broadcast live, an effort going back years and accelerated by COVID’s cancellation of inperson events.  It is a practical way for many to watch a distant public meeting live or later by video.  While interaction is not sought, the slides and other presentation data can be downloaded by viewers.

Decades later this board live broadcast have replaced the on-the-road visibility which was discontinued after Chairman Callahan’s tenure ended in 1985.

But does it make a difference whether Board meetings are viewed via digital broadcast or in person in a physical serrting?

Why In-Person Matters

Tim Calkins is a marketing professor at Northwestern University’s Kellog Management School.  He uses remote learning sessions in both his class room lectures and private consulting assignments.

The Covid epidemic nade virtual delivery a necessity.  The use of remote, live virtual meetings has continued as an accepted option for many organizational inernal management meetings as well as public events such as member annual meetings.  Sessions can be  interactive and seemingly similar in content to in-person events with the same purpose.

Moreover, virtual  events can be a more effective use of time by both presenter(s) and participants.  No travel, recordings can be made at once, and AI edit summaries produced.  The reach can be  unlimited by audience size, location, or time zone.  What’s not to like?

Following is Tim Calkins’ assessment of why in-person still brings benefits that virtual sessions cannot duplicate from an article he posted last week:

The Project
Over the past quarter, I’ve had the chance to work with a leading company on a competitive situation. There were new entrants in their industry and the company was formulating a response. This was partly a strategy question and partly a political question: getting the team and the senior people on board.

I did the project remotely. I taught a class session for the team on Zoom, had multiple phone calls and then participated in two team planning sessions in a hybrid format.

The Problem
The project is winding down, and I’m not feeling great about it. I think I made a positive contribution, but not as much as I could have, for a very simple reason: I wasn’t there.

This wasn’t a problem for the class session; I can teach effectively on Zoom. It was definitely a limitation in the work session.

There were lots of problems with being remote. The first issue was that I couldn’t hear much of the conversation; I was picking up about 60% of the discussion. I could follow along but I missed some of the context. Then, it wasn’t easy for me to jump in; I didn’t know how I was showing up in the room, so I found it awkward to make a comment. I also couldn’t read the room. I couldn’t see how my comments were being received. Were people nodding and agreeing? Or rolling their eyes?

Perhaps most important, I wasn’t there for the open times: before the meeting, during the breaks, after the meeting. These liminal times are critical when it comes to influencing and building relationships. During a break one can follow-up on a comment, ask a question to clarify a point or just build a relationship.

In hindsight, I should have insisted that to take on the project, I had to travel to the company for the key meetings.

I didn’t do this because my schedule has been hectic, so travel would not have been easy. And the company didn’t request it; they routinely did hybrid and remote meetings.

The Learning
My takeaway is simple: don’t do a strategic project if you can’t be physically present.

I don’t need to take on company projects; I only accept a new program when I think I can add value and will learn something.

Going forward, I’ll pick and choose with a bit more care. I’ll still teach remotely, but I’ll only do strategy working meetings when I can be in the room.

The Opportunity for NCUA or Any Board with Public Accountablity

Might a new NCUA Chairman revisit the idea of taking Board meetings on the road?  Such events could accelerate relationships, learning about local credit union circumstances and most importantly, building trust that can only be created person to person.

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Kyle Hauptman’s Final Call as a One-person NCUA Board

If Senate hearings proceed as planned and Trump’s nominee for the next NCUA chair is approved, todays board meeting will be Hauptman’s final time as NCUA’s solo leader.

As he departs,  NCUA situation is like a suitcase without a handle, or wheels.  The agency is being led by a single person, not the prescribed board.  Its operataing capacity has been reduced by a DOGE induced, staff designed elimination of 20% of its workforce.

Flooding the Zone

Hauptman’s major initiative has been to “flood the zone” with over a dozen regulatory revews  addressing such urgent issues as banks purchase of credit unions versus the operational realities of credit unions purchase of banks.

The agency continues to publish  a repeating loop of bureaucratic processes such as banning people from further activity in credit unions or periodic issuance of credit union data.  When the nexr administrator opens the suitcase, he is likely to find little addressing critical cooperative  or administrative management issues, e.g. the effectiveness of agency examinations.  One indicator is the growing list of summary liquidations from sudden discoveries of significant, long term large operating deficits.

Hauptman has held board meetings “only as necessary.”   His solo tenure of almost 15 months is an example of the shortcomings of a single administrator  without either credit union context or regulatory experience.  However that resume gap is not unique to him.

The Knowledge GAAP

Such appointments, especially as Chair,  mean the learning curve for new leadership is extended and  there is total dependence on the bureaucracy’s agenda.  More critically, there is a lack of relationships and knowledge of the credit union system and its different leadership elements.   It narrows the understanding of issues from both an historical perspective as well as key differences about current system priorities.

The result is that the cooperative system’s uniqueness and capacity are underestimated.   Critical issues are viewed from the more familiar perspective of the banking system.  And the siren call of some lobbyists for the false standard of “parity” becomes a basis for decisions.

A Vacuum in Dual Regulatory Oversight

There has been a vacuum in regulatory leadership at both the state and federal levels for some time.  It is hard to think of a comment or action taken in either system that addresses important trends and issues in a considered manner. The issues silently observed include purchases of banks, the merger frenzy driven by CEO payouts, the absence of real member governance rights, and zero transparency in credit union strategy and cooperative accountability to owners.

Leading NCUA is not a one-person job,  It requires  both administrative oversight plus  constant  dialogue and initiatives with credit unions, collectively and individually.

An Empty Suitcase

Right now NCUA’s suitcase is pretty light.  It may be easy to lift without a handle.  But sooner or later the movement will experience the consequences of a regulatory system that  has no cooperative agenda or engaged oversight.

As the regulatory grasp and  staff effectiveness erode, this will  create a series of reactive responses to ideological/political priorities or to inevitable external problems or crisis.  The system will be at the mercy of events without informed and committed regulatory leadership.

 

 

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Dollar’s Merger Claim: Merger Guidance From the Experts

Garrison Keillor of Prairie Home Companion fame, is taking his radio performance on the road around the country in one night stands.

Recently he was in Des Moines and drove across the Iowa farmscape prompting this post:

It was dramatic to drive for hundreds of miles and see no barns or silos, no windmill or grove around a farmhouse, the Grant Wood landscape of rural America, and see what corporate industrial agriculture looks like. It looks like Siberia. A place you send people as punishment.

A culture is slipping away that raised some fine self-reliant relatives of mine like my Aunt Eleanor who could handle a rifle, hitch up horses to a wagon, bake bread, plant a garden, throw a baseball, kill a chicken, sew clothing from a pattern, do basic repairs, and speak her mind in firm declarative sentences. The farm made her a strong woman and I say the world could use more like her.

Well, cultures are mortal, just as we are, and it’s a shame when the worthwhile peter out and the worst prosper, such as the culture of consultancy. Some of the stupidest managers I’ve encountered in my life now hang out their shingles as consultants prepared to advise on strategic planning and team building, who when I knew them were adept at strategic blather and creative imitation. I believe that AI will devastate their ranks and soon we’ll encounter them at drive-up windows, consulting on condiments and large vs. medium shakes.

Mortal Cultures

I found myself reflecting on the idea that cultures are mortal in this obsevation  which Keillor titled Looking Around, Not Looking Ahead as I read the following ad via a virtual credit union daily subscriber list:

Dollar Associates has successfully guided over 400 credit union mergers in their 22 years in business.  As their tagline says, “We know credit unions backwards and forward.  Especially forward.”

Mergers as a so-called growth strategy began in earnest following PenFed’s national McKinsey-like strategy of seeking mergers nation-wide in 2016.  The first big success was acquiring Fort Belvoir FCU,  a local well-entrenched competitor.  The standard gambit was promises of a better future combined with multi-year sinecures for the CEO, plus bonuses for senior management, three-year employee commitments or large separation payments to staff.  And of course, nothing for members except a bigger organization.  All details wrapped up with non-disclosure agreements including non-disparagement clauses for everyone who cashed out.

The solicitations were overt.  And PenFed’s over two dozen mergers from a post office credit union in Wisconsin to a Sperry Associates in New York did not add a single member, loan or asset to the movement.

But it changed the merger game from historical rescues of faltering credit unions in return for expanded FOM’s by regulators, into a wide-open pursuit of non-organic growth strategies.  Mergers looked easy, quick and most importantly, the continuing credit union gets paid in-free capital.  Just for taking over a business you already know how to run.

These are not market based transactions despite occasional regulatory utterances suggesting the same.  They are private deals, done in secret without any member input or notice, documented by signed “definitive agreements” and then sprung upon members. Often accompanied with a PR barrage with videos of the two CEO’s proclaiming a new promised land all executed without any member input or knowledge.

This is the merger world today.  Dollar claims to have “guided over 400 credit union mergers” which it would be fair to assume the bulk have taken place in the last decade of the movement’s merger frenzy.

Not Business Combinations But Political Events

These transfers of control of an entire credit union’s operation, net worth, facilities and its legacy franchise value are not business transactions.  The only “negotiations” involve how much the selling CEO and senior staff and sometimes board members will gain from the deal.  If there are enforceable agreements about future commitments, they are never disclosed or done so with the caveat “if conditions permit.”

While members have a say in all states except Illinois state charters which use proxy voting, the process, transparency and information for informed consent is a charade. Almost all votes are returned by mail ballot with the official Board Notice letter urging member approval—as the event has already received regulatory blessing, subject only to the member vote.

The Need for Facilitators and Go-Betweens

Because these are political events not real business transactions, facilitators are needed.  Brokers to quietly solicit candidates, test the waters and make introductions. Accountants, “strategic” consultants and lawyers to draft the private definitive agreements, Most importantly, external professional experts, such as former regulators, to assure boards, for whom this will be a singular and the final event of their tenure.

These volunteer board members need external assurance that they are doing the right thing, because it is irreversible. The so-called professionals will assist getting the necessary regulatory sign-offs-just look at our track record of 400 cases. Trust us, everybody else is doing it as well. You are in good hands.

The facilitators all take their cut of the pie, the vendors who are eliminated get cancellation fees, and staff promised greater professional opportunities. The member-owners receive nothing and lose their accumulated net worth. Most consequential is that  the legacy relationships and goodwill which built the credit union as a community resource to be paid forward for future generations is now gone.

“Looking Backwards”

Invoking Dollar’s hindsight, almost all mergers in this decade long period of private deal making have been of credit unions at least three generations old, with long serving records of meaningful community relationships and contributions.

Per Dollar’s claim, the industry now has lost 400 independent charters, their several thousand volunteer board members, and the CEO and other professional community leadership roles.  Their local and state political standing is gone.

Most importantly their function as an economic intermediary, taking the savings of local members and reinvesting back into loans for those same owners, no longer exists.  For now all these functions and responsibilities are controlled by a new board, often without any connections or knowledge and whose priorities are set following their historical ties and priorities.  The merged entity has no standing or recourse as the new brand and culture assert their sway and  operational model over the merged field of membership.

“Looking Forward”

The facilitators and apologists for this cooperative self-annihilation claim they are positioning credit unions for the future. Consolidation is inevitable, just let us show you the charts.  You need to get ahead of the game before all the “best” options (read payoffs) are gone.  Or worse, there might be a new regulatory change that would make it harder to get your cash prize payout.  Or worse, you may have to be more transparent in your intent and process.

Let’s be clear.  No one knows the future, Change is inevitable.  The current culture and political example of getting yours while you can, may indeed continue.  The animal spirits of capitalism, the drive for monopoly power may infect credit unions so thoroughly that the industry goes the way of the S&L’s.  The big go away.  The small and traditional, still around, but humble, toothless in all except a few communities and a charter neither sought by individuals or desired by the public

But change could also come in the form of a backlash–public, political or regulator.    New coop regulatory  leadership might start asking questions such as,  what is the public duty credit unions owe in return for their federal tax exemption?  What is the common good member-ownership is supposed to inspire?  Are credit unions following their own principles of governance and historical values?  Has cooperative leadership been usurped by self-interested individuals oblivious to their inherted legacy, current members’ welfare and their future generations?

The credit union system knows full well what this period of merger manipulation and self-dealing entails.  For at the same time credit unions are actively buying whole banks as part of their “external growth” strategies.   And in these events, the owners get paid out for their common equity interest and then a premium on top as credit unions can only pay cash, not stock to bank owners.

Certainly, one potential path to the future is the Dollar model.  The firm claims 400 success points to prove it can get the job done.  Cash out now, forget the past legacy, take the money and let someone else worry about the future of your members.

Will That Be With Large of Small Fries?

I may just be like Garrison Keillor surveying the loss of the family farms to the industrial agriculture industry today.   I would prefer a different, more diverse set of credit union options and leadership voices drivng the future.   But sometimes the next generation’s responsibility may be to clean up past excesses before creating something that inspires again.

 

 

 

 

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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.

One of those new charters went o Baxter,  the medical services company.   The company then hired Rex Johnson who was deputy supervisof of DFI’s Chicao credit union office, to be its first CEO.

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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Government Protecting Us From… Government

by Will Rogers, Jr.

I was recently asked my thoughts on NCUA’s current policy priority of ten rounds of rule reviews.  This earlier article makes the point that an ideological driven policy to eliminate to the maximum government’s oversight responsibilities will end up in a backlash.  And put the coop movement in a bad place politically.  Here’s why this prior commentary is more relevant than ever.

It takes a special kind of Washington brilliance for a regulator to decide the greatest threat to the republic is its own discretion and then propose a rule to rescue us from itself. But here we are.

The NCUA has unveiled a proposal that essentially says:  “We hereby forbid ourselves from misbehaving. We don’t trust ourselves either.”

In a normal world, regulators create guardrails for the people they regulate. Only in our nation’s capital does an agency build guardrails to keep itself from driving off the road.

The Rule’s Premise: Reputation Risk Isn’t Real

This proposal seems to assume that reputation risk is some imaginary creature—like Bigfoot, or a cheerful airline fee.

One wonders whether the drafters have heard of a quaint little story called Wells Fargo, where an institution spent years rebuilding trust after opening millions of fake accounts.  But perhaps NCUA thinks that was all just a marketing misunderstanding.

If the agency truly believes reputation risk is fictional, one hopes they never Google “NCUA failures” or, heaven forbid, read their own Inspector General reports.

Who Exactly Is Being Protected Here?

The proposed rule claims to stop NCUA from pressuring a credit union to decline accounts for certain businesses: liquor stores, cannabis operations, burlesque venues, adult-film producers, and so forth.

One might ask:  Has this ever happened? Even once? Anywhere?

No.
This is Washington’s favorite sport: solving imaginary problems so it can avoid the real ones.

Meanwhile, the real harm that does exist: merger-driven CEO enrichment, member disenfranchisement, sham elections, and sending member savings to buy out bank shareholders’ at premiums, goes unaddressed –because someone must ensure the men’s club dancers of America are free to open checking accounts. The republic is safe.

The Greatest Burden: Fixing What Isn’t Broken

Fixing real problems is difficult. Fixing imaginary ones is far easier, and far more wasteful.

Rules like this drain time, staff attention, and credibility. Worst of all, they distract the agency from the issues actually hurting members:

  • selling strong, local credit unions to distant ones,
  • conducting board elections with all the transparency of a papal conclave,
  • and using member capital to fund bank-acquisition premiums.

But at least NCUA has now protected the nation from the nonexistent threat of ideological debanking.

Reputation Risk: It Exists (Even if NCUA Pretends Otherwise)

Reputation isn’t a theoretical construct. It is the currency of leadership.
It evaporates when leaders substitute ideology for competence.
It collapses when institutions forget who they serve.
It disappears when regulators look the other way, or worse, when they look inward and pass rules to restrain what they themselves might do.

If NCUA doubts that reputation risk is real, a previous post about NCUA’s morally incompetent General Counsel and Chief Ethics Officer has already written the case study for them: A Culture of Impunity, a chapter the agency should revisit with a box of tissues handy.

The Real Absurdity

This proposal doesn’t make the agency strong. It makes it look frightened. afraid of its own staff, its own judgment, and its own shadow.   It solves a problem that does not exist, while ignoring several that are eating the system alive.

Proposing this in order to curry favor with ideological overseers does not enhance NCUA’s standing. It diminishes it. It invites laughter in all the wrong places.

A Modest Suggestion

If NCUA wants to improve its reputation, there is a simpler way than pretending reputation risk doesn’t exist: Let this rule die quietly.  Slip it into a drawer. Close the drawer. Lose the key.

As Will Rogers, senior advised: “Never miss a good chance to shut up.” 

(first published Dec 4, 2025, updated May 1, 2026)

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NCUA’s  Financial Fairy Tales

It is a leader’s deeds, more than words, that create confidence in those who rely on an organization’s performance.

Chairman Hauptman became the only NCUA board member and its primary  publicly accountable leader when President Trump fired his two other board members in April 2025. That Presidential executive  action is still in litigation.

Hauptman has repeatedly stated that his solo leadership will be business as usual at NCUA even citing  previous precedents. One would assume a single point of authority could result in more direct  staff outcomes. Constituent credit unions could have clear direction. No need to compromise to gain board approvals.

However Hauptman’s leadership intentions are not clear.  Are his priorities to implement executive orders from Trump to show his political fealty?  The administration has made no secret of its intent to take a wrecking ball to government agencies.

Or is he motivated by the circumstances  of the cooperative system which NCUA regulates?

How will his previous statements as a minority board member shape his current priorities on regulatory burden or the NCUSIF’s financial structure?

He is a lame duck whose term has expired . He has already been nominated to a board position at the PCAOB for twice his $156,000 NCUA salary.   Does agency staff have any incentive to implement changes knowing a new leader or full board may be just months in the future?

What interest and capability do Hauptman and his team have in managing Agency outcomes? Or are results staff’s responsibility and he is just an orchestra conductor, waving his verbal policy arms?

Hauptman’s  First Leadership Test

It was with great interest, and some trepidation that Chairman Hauptman’s first significant  initiative was to implement the President’s executive order to reduce agency headcount  by at least 20% in 2025.

Later in the year the agency proclaimed  targeted staff cuts had been exceeded.  Moreover,  NCUA was still fully capable of doing its work even with much reduced staff resources.

The Reveal: Annual Costs Went Up, Not Down

On April 1 ,  2026, the NCUA’s 2025 Annual Report of almost 200 pages was published.  The press release included Chairman  Hauptman’s statement:  “As promised, we’ve delivered millions in cost savings to credit unions. Our agency-wide effort on efficiencies has paid off, as NCUA will emerge from our reorganization a nimbler, more focused agency. . .”

However a day later Credit Union Times released an analysis that showed there had been zero cost savings,  In fact the agency spent more on salaries and benefits than the prior year.  Here are some excerpts from the article: NCUA Report Shows Highter Costs for Fewer Workers.

The NCUA’s 2025 annual report released Wednesday showed the agency spent more money on fewer employees last year.

The NCUA went from 1,211 employees on Dec. 31, 2024 to 940 on Dec. 31, 2025 after instituting a voluntary separation program. . . a 23% headcount reduction. . .

The article’s writer created a spread sheet because operating numbers for 2024 had been omitted from the current edition.  His analysis showed the following comparison for NCUA’s most recent two years salaries and benefits:

Employee wages and benefits were $121.7 million in 2025, up nearly 10% from $111.1 million in 2024. Those expenses rose 8% to $102.772 million in 2024 as its workforce grew by four employees.

Based on year-end employment, the NCUA spent an average of $129,461 per employee in 2025, up 41% from $91,718 in 2024.If you divide by the year’s average employment (averaging the year’s starting and ending employment), average pay rose 23% to $113,150.

Overall, the NCUA’s operating fund expenses grew 6% to $160.7 million.  (bolding added)

Subsequent Events in 2026

The Times article quoted an NCUA spokesperson explaining that there were multiple incentives paid to meet the agency’s staff reduction goals.  In essence NCUA had to spend more to save money.

I followed up this explanation across all three funds whose costs are paid by credit unions.  So far the trends in total salaries and benefits are exactly the same as in the article-higher costs for fewer employees.

Operating Fund salary and benefits for January 2026 versus 2025:

2026: $ 10,791 million versus 2025: $10.112 million  a 6.7% increase.

NCUSIF does not show separate salary and benefits expense.  However the OTR for 2026 increased by .1% and presumably the salary pass throughs would show he same increase.

The CLF presented its annual budget at the January 2026 board meeting. The initial slide was highlighted by the statement:  CLF’s 2026 Budget is 12% BELOW its 2025 Budget

The CLF will spend less, right? No, instead it will spend more! Through February 2026, salaries and benefits are $329k versus $267k in 2025, or a 23%  increase.   Not the forecasted message of a cost reduction.  This increase funded by almost $1 billion in credit union capital for a facility that has played no role in credit unions since 2008.

The Bottom Line

NCUA is spending more on salaries and benefits so far in 2026 after a 23% reduction in total headcount  at the end of 2025.

The failure to actually reduce expenses shows a lack of management oversight at the highest level of the agency.   One of the truisms of government reorganization when delegated to staff, and not overseen by top leadership, is that success in the staff’s terms is not about cutting back, but about getting more.

If Chairman Hauptman’s words about millions of dollars in cost savings to credit unions is not correct from the agency’s  own numbers, one has to be skeptical of more subjective claims  such as, being a more nimble and focused agency.

If NCUA leadership does not manage their own internal financial trends, what does that suggest about their knowledge of the most critical credit union issues?  Are changes in credit union merger payoffs and fintech investments  leaving regulators in the dust?

Are the current multiple public announcements of NCUA deregulation proposals any more than agency PR “proceduralism”? That is government pretense for appearing to seek change, but nothing is different in the end.

For if NCUA really sought to reduce burden then the largest, most involved and unsubstantiated rule ever imposed on coops, risk based capital, would be at the top of the “burden” list. Or at a bare minimum resetting the NCUSIF’s NOL at its historical 1.30%. This has been the outcome for the prior four years as shown on page 165 of the Annual Report.  But no dividends have been paid to credit unions as board keeps the NOL at 1.33%.

This is Chairman Hauptman’s time at the helm.  There are no other board members to appease.  He proclaims NCUA is doing business as usual. The question is, what does usual mean?

This could be a special opportunity to align agency priorities with actual, urgent cooperative  system needs. Or usual may just be more words, fairy tales, to curry political points or create a  flawed impression of leadership.

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Thoughts on Natural and Artificial Worlds

The view from my desk window.   Nature’s beauty brings comfort and joy.

 

Two AI Moments

Artifical intelligence brings hope with worry.  Credit unions and consumers are using this capability very quickly.

On March 26, NCUA’s acting director of examination and supervision testified before Congress on the agency’s reviews of credit union technology.  Here is an excerpt on AI by NCUA staff:

Beyond supervising how credit unions adopt technology, NCUA is also exploring how technology can enhance our own operations. NCUA is currently using artificial intelligence for content generation, to flag anomalies in Call Report data submissions, forecast loan performance to support risk analysis, identify credit unions with elevated risk, and enhance cybersecurity operations.

The foundational AI  concern is from a post by writer and financial analyst Andy Tobias:  We need — urgently — to figure out (a) how to protect humanity from a superior species; (b) how to avoid economic catastrophe and, instead, harness A.I. for the benefit of all.   (link)

He cites one expert’s observation:  The experience that tech workers have had over the past year, of watching AI go from “helpful tool” to “does my job better than I do,” is the experience everyone else is about to have. Law, finance, medicine, accounting, consulting, writing, design, analysis, customer service. Not in ten years. The people building these systems say one to five years. Some say less. And given what I’ve seen in just the last couple of months, I think “less” is more likely.

Here is the full article, Something Big is Happening.

Andy  recommends this new  documentary that interviews five CEO’s of the  largest investors in AI as well as academic experts.  In sum, the dangers are real as AI become pervasive in all activities.

On  Apple TV:  The AI Doc: Or How I Became an Apocaloptimist.

Watch the trailer here.

Now  back to the yard:

 

 

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A Chance for NCUA Chairman Hauptman to Make His Mark

NCUA leadership is critical to the integrity and character of the cooperative system.

The board whether one, two or three members is responsible for setting priorities and precedents that are the foundation of NCUA’s relationship with the credit union community.

As a regulator of cooperatives and overseer of the system’s mutual solutions, NCUA’s role is much different than other financial regulators.

A critical example of this innovative industry collaboration was the  redesign of the NCUSIF as the system’s collective capital fund.  It was a joint effort with all parties making commitments to each other about their future stewardship of this unique federal model.

Many of these undertakings were so vital they were included in the enabling legislation as well as described in detail in the Agency’s Annual Reports and other official communications.

An important agreement to the 1% open-ended funding was the requirement that credit unions receive a dividend when the yearend fund balance exceeds the normal operating level (NOL) fund cap.  The cap was set  at 1.3% by law.

In the credit union Membership Access Act, the board was given flexibility to raise the NOL to as much as 1.50%.  In 2017 the board elected to do this to accommodate the surplus funds from the Temporary Corporate Stabilization Fund merger.  Those excess funds were then used to write off losses in the taxi medallion failures.  But the NOL was never set back to its historical level.

 Hauptman’s NCUSIF Oversight Statement

A critical role of the NCUA board is setting the annual the Normal Operating Level (NOL) cap of the fund.  Earnings beyond this level are distributed as a dividend to credit unions recognizing not only their collective performance but also their open-ended funding commitment with the 1% true-up of their capital deposit.

Kyle Hauptman explained his understanding of this board’s responsibility in a December 2022 board meeting when Vice Chair.  (link) This is the text.

Just to review, the Normal Operating Level (NOL), as described in the Federal Credit Union Act, can be set by the NCUA Board from 1.20 percent to 1.50 percent. The NOL is our desired level of equity in the Share Insurance Fund.

The NCUA Board has the discretion to assess a premium when the equity ratio falls below 1.30, but only to bring the ratio up to 1.30 as allowed by the Federal Credit Union Act.

The 1.33 Normal Operating Level represents the point at which the Share Insurance Fund is required to return funds back to insured credit unions should the equity ratio exceed 1.33.

Now a few months back, I voted, along with the rest of the Board, to lower the NOL to 1.33 from 1.38, where it had been for several years. Now I don’t pretend to know that 1.33 is the magic, perfect Net Operating Level. I do know that, for the moment, moving it from 1.38 to 1.33 is a moot point because the Fund isn’t close to either number.

And if someday we wind up back in that range, the correct NOL level will be a high-class problem to worry out. Given the current rate environment, I do not believe any of us believes we will be getting close to that number. That said, every basis point over 1.30 represents money credit unions could put to good use.

I appreciate the additional information on how the Normal Operating Level is calculated. We need more of this kind of transparency. In the spirit of more transparency, I ask that we acknowledge our responsibility to show why 1.30 is not adequate — as I said, every basis point over 1.30 is money credit unions could be investing in their members.

It’s worth emphasizing that credit unions are doing their part. I would like us to recognize this fact via finding ways to factor actual losses incurred into our loss reserves calculation. After all, the higher the loss reserves, the lower the equity ratio. More importantly, the actual losses incurred year-over-year may be a decent predictor of the fund’s reserve needs. But of course, I acknowledge that insurance isn’t about normal circumstances. The whole point of insurance is for the unexpected, the unusual, the chaotic.

One additional factor in determining the adequate level of the fund’s equity is how well we manage our budget. Coincidentally, the budget is also on today’s agenda. The cost of managing the risk in the fund directly impacts the equity ratio. The more NCUA spends on itself, the lower the equity ratio. NCUA can’t, in good conscience, spend additional millions on programming for ourselves, the 1,200 NCUA employees, while also claiming our Insurance Fund needs more cash.

I realize today’s briefing is strictly about the Normal Operating Level calculation, but I hope you’re picking up what I’m putting down. (underlining added)

Hauptman’s Opportunity

The NCUA stopped presenting any analysis justifying an NOL above 1.3% for the past three years.   In the December 2025 NCUSIF update there was no mention of reviewing the NOL.

I asked NCUA’s public affairs office how and when the NOL for 2026 was set:

The reply: Regarding Normal Operating Level for the  NCUSIF: 

The latest update of this referenced NOL process is shown as: Last modified on  01/25/22.  However, the last two times staff provided their analysis and assumptions for a 1.33 NOL cap the model when run supported a lower cap.  

Hauptman’s second factor in NCUSIF’s net income is NCUA’s operating expenses transferred via the Overhead Transfer Ratio (OTR).  Chair Hauptman’s view is clear:  The more NCUA spends on itself, the lower the equity ratio.

The public affairs office’s March 17, 2026 response when asked about the OTR rate: 

  • The final 2026 OTR is 61.8 percent, 0.1 percentage point higher than the 2025 OTR.  The remaining 38.2 percent of the 2026 budget is collected through the operating fee billed to federal credit unions. Based on a $2.16 million average asset exemption, the operating fee charged to federal credit unions in 2026 will decrease by approximately 24.65 percent compared to 2025. (underline added)

As the sole board member Chairman Hauptman is uniquely able to implement his views on the NOL, or as he stated,  “Pick up what he put down.”

That would be a legacy worth noting and a mutual commitment reestablished.  Or as he so clearly argued:  every basis point over 1.30 is money credit unions could be investing in their members.