Category: NCUSIF

Posted on

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

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

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

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

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

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

The Impact of NCUSIF On Coop Regulation

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

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

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

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

From Cooperative Partner to Financial Overseer

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

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

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

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

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

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

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

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

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

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

The NCUA’s Future

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

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

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

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

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

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

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

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

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

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

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

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

It makes absolutely no sense.  

Editor’s Note on Cooperative Purpose:

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

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

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

The Congress finds the following:

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

Balancing the Old With the New in 2026

When implementing NCUA’s practice of turning around problem credit unions versus liquidations or paying to  merge, the key success factor was finding experienced capable turnaround managers. One name was frequently mentioned as an example by  NCUA Regional Directors (RD) in this talent quest.   Only after leaving NCUA did I meet him.

Jeff Farver was the CEO of San Antonio Federal Credit Union (SACU), now  Credit Human, for almost 22 years–July 1990 to retirement January 2012.

In early 1990 Farver was asked by  NCUA RD John Ruffin to take over NCUA’s largest problem conserved  credit union.  By 1995 this insolvent  $650 million coop had achieved a 6% net worth.

Becoming a Problem Solver

SACU was not Jeff’s first rodeo.  In the 1970’s, he had joined a small Florida bank as comptroller just as interest rate turmoil upended traditional assumptions about investment management.  At Eglin FCU in Florida, he resolved a deeply flawed investment strategy as investment manager.

Based on this success he was hired as CEO of Chattanooga TVA FCU.  Upon arrival, total assets were earning 8% and the cost of funds was  8.25%.  The investment portfolio in 1981 was $5 million underwater due to Fed Chair Volcker’s rapid double digit increase in short term interest rates.

His success in these three previous problem situations caused NCUA’s new Region 5 RD John Ruffin to again reach out to takeover San Antonio Credit Union, the industry’s largest problem case. The credit union was $25 million insolvent with troubled business loans, fixed rate real estate loans underwater and no proactive recovery strategy.  He took 90 days to assess the situation and then negotiated a partnership with NCUA to inject a NCUSIF capital note, incentive targets and forbearance for time to implement product and business changes to restore solvency.  By yearend 1995 he had achieved his 6% net worth objective set in his workout goals with NCUA.

Recently Jeff shared thoughts from a decade of post-retirement  mentoring college business students.

I describe his advice from five decades as balancing the tried and true with the new.  A timely quest  at the beginning of the year.

A Turnaround CEO’s Learned Wisdom

The reason I bring the balanced scorecard concept  is that I do believe in balance!   If an organization and its leadership “over-plays” diversification of its customer base and takes away resources and  “pricing values” from its existing customers,  it is putting at risk the customer base that brought its current success.  

Further, the question must be answered how  diversification impacts existing customers in the short term and more importantly in the long run.    Leadership must articulate the pros and cons of growth for growth’s sake.

In 2000, SACU’s  indirect auto lending was 60% of our earning assets and 70% of gross income.   I recognized that gas price hikes or recessions could adversely impact our delinquencies, charge offs and financial workout.   Also real estate lending was a commoditized market with narrow interest spreads and Interest rate risks causing surges in demand or declines of loan volume. 

Entering a New Market

By luck I interacted with several manufactured home lenders  in trouble financially. With GNMA’s help,  SACU took over the servicing of their GNMA  loans, hired their staff and entered this new line of lending. 

Months later Jamie Dimon in the Bank One merger chose not to continue the Manufactured Home lending business. I went to Seattle and convinced 34 Western region mobile home lenders to become credit union employees.  They generated $200 million in new mobile home loans the next year.

These new business lines generated improved Interest rate spreads, allowing us to pay our existing members better savings & CD interest rates.  Moreover, our manufactured home loans averaged 200 basis points less than bank or other lenders’ interest rates.   

When I retired in 2011,  SACU had $1 billion in indirect auto loans and $1 billion in manufactured home loans.   SACU’s diversification  was a win for our member savers and  our new  MH Loan borrowers.  It is the cooperative model at its best.

Don’t Forget the Core

The key issue still today is how do mergers, expanded market  reach, bank or third party loan acquisitions, and new services provide value to existing members whose loyalty created the basis for further expansion? Without balance, credit unions could lose the relationship advantage that is the basis for their continued success. 

 

 

Posted on

Tomorrow’s NCUA Board Meeting-A Special Opportunity

There are two agenda item’s for Thursday’s meeting:  approval of the 2026/7 NCUA budget and a report on the financial status of the NCUSIF.

This will be the first board meeting since September 18.  Chairman Hauptman has implemented a practice of holding meetings only when needed versus. a fixed monthly event.

The Critical Decisions for the NCUSIF

This year end financial estimate for credit union’s unique cooperative fund is more than a financial update. In the past, this meeting has set the upper cap on the Normal Operating Level (NOL)which determines when the surplus from fund  earnings must be returned to credit unions as a dividend.

A dividend from NCUSIF operations has not been paid since 2008.  The dividend demonstrates  stable performance by the industry.  It also acknowledges credit union’s evergreen commitment to main 1% of insured shares as the principal earning asset for the fund. In contrast the FDIC relies primarily on open-ended premiums assessments for its revenue.

The Latest NCUSIF Financials

As of the October 2025 financials posted yesterday, the fund’s full year outlook is very positive after the first ten months.

Net income of $222 million is $10 million greater than the same period last year with operating expenses near the same level at $204 million.  The provision for future losses is funded to $240 million up  $10 million from a year earlier.

The fund’s yearend external audit is underway.   Assuming no surprises, it is straight forward to forecast the probable yearend outcome and the ratio of fund equity to insured shares.

This dynamic spread sheet model using actual data for the first ten months, estimates a yearend ratio of .3101 of retained earnings to insured shares.  The historical upper cap from 1984 initial implementation to 2017 in the NCUSIF was .30.   This cap was only raised in 2017 to accommodate temporarily an influx of funds from merging the TCCUSF surplus. This current projected earnings would result in a dividend of $200-$250 million with a30 NOL cap.

A Unique Leadership Opportunity

After the year end true-up of insured shares, the total ratio of 1.3% means the NCUSIF is fully funded.  In addition, there is more than $240 million in reserves, already expensed, to cover insured losses.

Chairman Hauptman is in a unique position to re-establish he NCUSIF’s historical cap of 1.3%.  Until the 2017 short term incease in the 1.3% cap, the  upper limit was unchagned even in the 2008/9  financial crisis, Dividends were a regular outcome in the first thirty years following the 1984 redesign.

The federal credit union act authorizes three board members.  As the lone member currently, Hauptman has a chance to restore the fund’s historical cap.  Sooner or later via court action or administration appointments, additional board members will be in place. It is now possible to reaffirm the original legal compact with credit union for supporting the 1% open-ended funding model in return for a stable upper NOL limit.

Restoring the 1.3% NOL cap authorizes  returning  credit union funds to credit members.  It demonstrate the administration’s intent tp limit the inherent tendency of government to always seek greater amounts of money to spend.

Most importantly it reinforces the unique cooperative model of the NCUSIF for credit union members and the public.  Credit union’s collective fund is different-by design.

Finally such action would implement Hauptman’s intention to return to the fund to its 1.3 NOL as stated in December 15, 2022 NCUA board discussion of this issue.  From his statement on the issue that meeting:

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.  (link)

Posted on

Live Video of the Largest Credt Union Conference

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

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

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

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

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

Why This Event Is Relevant Today

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

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

History Matters

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

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

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

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

What  Attendees Remember Today

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

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

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

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

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

Mark Wolff (former NCUA  employee):

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

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

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

The CODA

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

An NCUA Camelot Era

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

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

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

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

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

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

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

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

Posted on

Federal Government Shuts Down-The Importance of Options

In this latest test of political masculinity in Washington DC, the federal government has shut down.

NCUA says it is still open for business.  As evidence  the agency  reissued this guidance from over 14 years ago:

11-CU-05 / April 2011
Planning and Preparedness for a Potential Government Shutdown

This  test of political will and messaging on both sides has an open-ended feeling about it.  No one knows for how long or at what cost this standoff will continue.

This event and its aftermaths will only add to the many economic, financial and consumer uncertainties now infecting future outcomes.

This is not the first era of credit union’s navigating broad events outside their control. Recalling previous periods of change can remind that one of the most useful responses is to have options–not merely  hunker down to weather the storms.

When Options Matter

The headline reads:  Federal Credit Unions Eyeing State Charters as Rate Ceiling Hurts. It is from the Business & Finance section of the January 18, 1980 edition of the Washington Star newspaper.

The opening paragraphs:

Some federally chartered credit unions are trying to switch to state charters because the government’s 12 percent interest rate ceiling is shutting down their loan business. . .

In the last year, the 12 percent ceiling on loans has either shut down lending at some credit unions or generally restricted granting of loans in others.

Energizing the Options-NOW

Leadership is the art of changing before you have to.  The Trump administration’s one consistent theme is disruption, if not the destruction, of traditional government functions.

Recently in an NCUA board meeting the single member Kyle Hauptman suggested that it was possible the agency might have no board members in the future.

Whether that was just a hypothetical musing or confirming his interest in another government position is unknown.

But assume that scenario.  No board at NCUA.  What would the administration do?  What it has done with other vacancies, appoint an “acting Chairman” likely from Treasury.  And then begin a process of assimilation like the OCC under that Department for the agency’s future.

Just one of many possibilities created when the status quo is not longer as political checks and balances are completely gone.

To protect the independence, integrity and unique role of credit unions, it may be necessary to go back to where the movement started and gained its credibility–the state chartered system.

State regulators (NASCUS), state insurance options, trade associations and every credit union, whether state or federal, should now be assessing the ability of the states to be their primary regulatory choice.

It is critical to reinvigorate the state chartering system as a real option as the federal government and NCUA seem to be careening away from any stable leadership and certain future.

Credit unions created the dual chartering system that has evolved into serving tens of milions owners.  It may end up being their best hope for the future.  That is just one history lesson from the 1980’s.

 

 

Posted on

Disrupting Credit Unions to Again Become a Movement

(Following are excerpts from exchanges between several CEO’s and a person, quoted below, interested in NCUA board openings)

Yesterday I was reminded about the fever of the small business entrepreneur to state their case in the wrong way that is,  the market capitalization (valuation)  of their firm.  

Their need is to be seen as an initiative or startup with the vision of selling the firm.  The goal of inflating the value not for the motivation of living the journey forward, but for being accepted by an audience handicapping their firm’s success and relevance to attract outside observers.

This is not a good look for cooperatives. Their “worth” was never meant as one ready to be traded, abandoned, or evaluated for observers who have no role building the firm.

The Market’s View

Once our industry started to be valued through the eyes of outsiders as a financial marketplace commodity, we were on the path to attracting all the trappings (inside and out) of those who think like commodity brokers.  These market driven criteria have a hard time with the ideals of community ownership (virtual) where acting and living the purpose is far different from cashing in.  

We sold out the magic of financial cooperatives not for the sake of being understood for our contribution and confidence in people acting together.  Rather the goal became putting a number on who we are.  Cash in, pay me, liquidation values, what was the other guy worth?  We strived to be evaluated and on par with ideals that are not the drivers of our member-owners’ success.

This transformation in outcomes is overseen by an out of touch NCUA and professional agents using criteria and motivation that will distort cooperative advantage for decades to come.

We need to hone the collective lens through which we set our vision for a new generation of leaders and oversight which will inspire cooperative entrepreneurs and the vesting and enthusiasm of American citizen owners.  

The Next Steps

  1. Call for the end of the NCUA – start a movement to highlight the fact that CU’s are not a government burden but an independent system wishing for autonomy.

1.a Separate the deposit insurance fund from government regulation and supervisory oversight.

  1. Take the newly separated cooperative insurance fund administration and refocus it on credit union success and nurturing innovation and leadership.

2 a.  Support a public initiative to prioritize league/trade organizational formats to return to advocacy and away from prostituting for commissions!

  1. Start a movement for cooperative entrepreneurial skills and measures that support CU differentials – in accounting, human resource., asset management, and network infrastructure and execution.  Surge collaborative business design initiatives.

Start something worth calling a MOVEMENT again.

On Mergers

  1. Reclassify merger into two transparent market types.

– rescues (with specific criteria)

– mergers for operational gain

  1. Announce a moratorium on mergers coming in 6 months.
  2. Publish an immediate effort for new rules in merger processes and due diligence by members and boards.  Announce new guidelines for explicit tactics around cooperative entrepreneurial ship, consumer-owner engagement goals, and programs for professional compensation over asset enrichment and gains.
  3. Moratorium in place for 12 months.  
  4. After 12 months – implement the new processes.

Your thoughts?  Ideas that certainly fit the times, not the status quo.

Posted on

A Failure to Cooperate and a Turning Point in Credit Union Events

In the March 1985 issue of Credit Union Magazine, the writer of the monthly Capital Events column raised a critical industry issue following the successful recapitalization of the NCUSIF in January.

The concern was whether a stronger, more efficient, cost-effective NCUSIFcould put the private share insurance options out of business.

One CEO of of a private insurer said No.  The changes at the NCUSIF will just lead to healthy competition, and that will be good for everyone.

A Vital Industry Resource

NCUA  believed a strong group of private insurers was a vital industry resource.  They saw it as a check and a spur for Agency oversight.  “The NCUSIF is where it is today because the private insurers showed what could be done. Without them, the NCUSIF could stagnate and credit unions would be left without a viable alternative,” said Chip Filson, Director of the Office of Programs.

At March 1985 there were 15 state chartered guaranty corporations insuring $15.5 billion or about 17% of total credit union savings.  Several pre-date the NCUSIF, but most were chartered in the early 1970’s. They covered about 40% of state charters.

The writer lists events raising the issue of federal deposit insurance sufficiency.  These included large bank failures such as Penn Square and Continental Illinois banks, the scrutiny from the Bush Task Force on Financial Regulation and the FHLB’s request for a special $10 billion assessment for the S&L industry’s fund, FSLIC.

An Option to Backstop the Funds

Because of the NCUSIF legislation, the credit union insurance options were not the primary concern in DC.  However, the NCUA had reached out to the private insurers with an option should there be a public crisis of confidence in deposit insurance.  Specifically, the CLF offered a low-cost liquidity line of credit to the 15 insurers collectively.  Draws supporting a credit unon  which would be collateralized by the credit union’s assets and a joint and several guarantee by all the funds.  It would give the private funds the same liquidity options that the CLF had for the NCUSIF.

The article closes with the note that the private fund’s trade group (ISD&GA) was considering the proposal.  The writer concludes: How the group responds may prove to be pivotal for credit unions and their insurers in the years ahead.

The insurance group did not take up the CLF’s offer primarily due to the joint and several support commitment for draws by an individual credit union or its insurance fund. The result was that political pressure at the state and federal level forced all but two of the funds to close their doors in subsequent years.  These were not financial failures per se, but rather the lack of political support at the state level.

This article some 40 years ago is a  case study of an inability to change or in the writer’s words, confident in the management and marketing skills to hold their own in the marketplace without altering the status quo.

Source:  Credit Union Magazine, March 1985, oages 17-18, by Brooke Shearer)

Posted on

May 1: Time for a MayDay Call for Rule of Law and a Popular Uprising

America is not living in a normal period of federal governmental conduct.  Trump’s largest campaign donor ($275  million) Elon Musk was given a non-legislative, non-elected temporary position. Thus informally  empowered,  his DOGE teams have gone into every federal government and some non-governmental organizations to mandate staff and program cuts.

These cuts and program closures are of Congressionally authorized programs and spending.  This is a pure power play with no oversight, accountability or  any formal authority.

It is total power without limits. In a democracy those who are appointed or elected to positions of power are called leaders.  In an authoritarian government, these individuals are called rulers.

A Fight for the Cooperative System’s Integrity

On April 16 President Trump removed the two Senate confirmed democratic members of the NCUA board. Only Chairman Hauptman, a republican whose term ends this August, remains.  There was no reason given in the firing email. Sue me if you don’t like it.  And both fired members have filed suit in federal court.

The power of both law and precedent suggest this action is illegal.  It raises substantive questions about NCUA’s authority and future.  The bottom line is credit unions are in a fight for the financial and legal integrity of their system.

Some credit unions will want to wait and see what happens before acting.  Others will delegate the burden and pay someone else to chart the way forward.  Many will just go on with business as usual.  With all the uncertainties in DC the assumption is that NCUA is at best pre-occupied, or at worst NCUA won’t dare buck Trump’s deregulation stance and stand up to credit unions.

One long-time reader suggested another approach: There is no reason to stand by this board, or jeopardize your voice by association.  They were neither effective as administrators nor wise enough to see the fog of the last administration. .  .

Why not push for the quick organization of a new board and the forward progress it might bring.  In the very least be ready to work with this administration and keep the CU agenda clear of the fall out that will follow.

That presumes a democratic, participatory system.  That is not what we have as illustrataed by yesterday’s announcement of the larest credit union liquidation in at least six years.

The Unilever FCU  Liquidation

Here are the facts last published by NCUA about this sudden $47 million credit union liquidation announced by NCUA on April 30.

At December 30, 2024, Unilever’s total assets were $ 46.7 million; net worth, $4.1 million (8.95%), virtually no delinquency on a portfolio of which 90% is real estate loans.  There are five employees, a single office, and very high average share balances ($29,400) and loans ($58,502), while serving just 1,448 members.

No conservatorship was announced. Instead an immediate takeover with no announced effort to find a merger solution.  No facts or explanation for the los was provided except to say the credit union was insolvent. What caused this sudden loss discovery? Why the instant liquidation?

The absence of any facts or reasons for acting suggests another regulatory-supervisory failure that is just being expensed away with insurance funds.

It reminds one of the situation last July when NCUA suddenly discovered that Creighton FCU had lost 20% of its value in the days right after filing its March 2024 call report.  The newly discovered loss was approximately $13 million in a $67 million FCU.  The credit union was merged with Cobalt FCU. There was no NCUSIF expense.  And no explanation of where the money went.

In the Unilever case, Hauptman, a one-person NCUA board, approved the outcome.  There is no evidence in support of this action.  Zero transparency for the members and the public.  This is what one person rule creates.  Is Unilever just the first of a series of unilateral decisions by Hauptman?

NCUA’s Defense of a One Person Board

On April 18, 2025 two days after the two board firings, the agency published an internal staff memo on the current state of the NCUA Board.  The memo was unattributed and contained no statements by any NCUA person.  It was just an anonymous assertion with these points:

Please be assured that the NCUA has precedent and standing delegations of authority in place to continue performing all operational and statutory requirements under the authority of a single Board Member. No statutory authority, internal legal opinion or other objective fact was provided to support this “assurance.”

In support of this undocumented position, the agency referenced a purported past event:

“During the Bush Administration (2001–2002), Chairman Dennis Dollar acted as a sole Board Member. He held a Board meeting, voted, and took several actions, both administrative and operational. Chairman Dollar recently stated in an article  in CU Today, “The records are in place at NCUA from 2002 that clearly establish the precedent that the Chairman can act as the Board.”

This statement is the most problematic of all.  Immediately after the board firings, Dennis Dollar called them “unprecedented.”  But a day later he claims that his prior tenure is now the precedent to follow this unprecedented event (see same article).

However NCUA presents none of the “records” that Dollar says are in place and certainly references no legal opinion.

What is even more curious is that the official NCUA 2002 Annual Report page 13 states:

Board members confirmed

The highlight of NCUA’s legislative year occurred March 22, 2002, when the U.S. Senate confirmed JoAnn Johnson and Deborah Matz, both serving as interim appointees, to join Chairman Dennis Dollar to complete the three-member NCUA Board.  

According to NCUA’s public account, Dollar’s two colleagues were indeed present, serving as interim appointees. There is no mention of his taking any action to set a precedent for one person rule to be followed in the future.

Following NCUA’s circular reasoning in citing a former board member and then that person confirming it is OK to do so, NCUA closes its staff update saying:

“It is the NCUA’s long-held view that a single Board Member constitutes a quorum when there are no other Board Members. Chairman Hauptman and NCUA’s leadership are equipped with the required authorities to continue implementing the Administration’s priorities. . . 

The memo asserts an  anonymous long-held view with zero factual, no legal reference nor any public prior event where this opinion was expressed.  The long held view is  an argument made of whole cloth.

One could just have easily asserted that in any organization’s bylaws or chartering authority where a  quorum is required, the term presumes more than a single board member is necessary to conduct business.  That is a more reasonable understanding of the quorum requirement.

So instead of clarifying Hauptman’s authority as Chairman, Vice Chairman and board member, the three-in-one board situation now, the agency presents a shallow, undocumented explanation to the staff and the public.

What’s at Stake this May Day

The rule of law is at stake.  NCUA has become a basterdized agency with no apparent legal grounding.  Fire the board and turn the agency into  one person rule,

This is the reason for the Unilever FCU unexplained liquidation is so important.  For the most consequential action the regulator can take versus a credit union is to put it out of business with no due process or public accountability.

The action was intended to demonstrate we’re really in charge now.  It is the largest liquidation in six years or longer.  A first example of how  the agency now “will ensure America’s credit unions are safe and sound.”   And if this arbitrary assertion of power can happen to Unilever FCU, it can happen to any credit union.

Credit unions today are confronting a situation where the entity charged with overseeing the legislation and regulation protecting the system, is itself acting extra-legal, unable or unwilling to even defend its current board status.   In other words the agency which enforces the law cannot defend its own legal standing.

Where are the agency’s lawyers so quick to explain the agency’s legislative interpretations?  Did they challenge the firings?  Brief Hauptman?  Were there resignations on principle if there was an obection?

Every NCUA employee took an oath to support the constitution, not a specific person in power.  Where are those individuals of courage and character in the agency?  Silence is consent.  Consent is capitulation.  That is the end of the credit union democratic experiment, unless there is a MayDay uprising starting now.

 

 

 

 

 

 

 

 

 

Posted on

“Take Action Now”

That was the request of O Bee Credit Union President Andrew Downin’s recent letter to his members.

Dated April 18, two days after the Trump administration fired the two democratic board members at NCUA, I thought this was fast action.

The immediacy of the situation was different however:

We need your help. 

A proposed change in Olympia (WA) could directly impact O Bee Credit Union and the services we provide to you and our community. A last-minute amendment was added to Senate Bill 5794 that would impose a new tax on not-for-profit, Member-owned credit unions like O Bee. This amendment was introduced without any public input and ignores the real value credit unions provide. 

This new tax would reduce our ability to offer affordable loans, low fees, and financial support to our Members. It’s not just a tax on O Bee – it’s a tax on you, our Member-owners.

The email closes with this request:

TAKE ACTION NOW*
* This link takes you to a trusted website from our partners at GoWest Credit Union Association.

The letter ends with: Thank you for being a part of O Bee Credit Union. Together, let’s stand up for what makes credit unions special.

What Makes Credit Unions Special?

In this event, the credit union threat is from a change in the state’s tax exempt status. There is direct parallel at the federal level.

But threats to credit unions are more than taxation. Last week the Trump administration took over NCUA.  With a single board member whose term expires in four months, the agency will either bow to Caesar or navigate to keep member-owners’ interest first.

If the latter course is followed, it will need the support and engagement of the members. This existential threat may be harder to rally for member action versus opposing taxation,  No one is for taxes.

But it is critical to point out the NCUSIF logo on the credit union’s marketing materials represents a uniquely credit union designed and dedicated cooperative fund.  Even this email includes the words:  Federally Insured by NCUA.

During the Silver State banking crisis in 2023, the credit union community promoted their separate insurance fund as well as the differences in institutional structure and risk versus banks.

Many factors make credit unions special.   For me the most important takeaway from this communication is not the issue of a tax change or  the current Agency takeover in DC, but rather the request for members to act.

It is member involvement that will separate the credit union issues from the transactional lobbying circus in Washington.   O Bee does an excellent job communicating their credit union’s uniqueness in their monthly messages.

This corporate discipline to stay connected with members is a potent power.  This was the first but not the last time members will be asked to take action in the months ahead.