Category: Observations

When winter comes, can spring be far behind.

My first crocus arrives.

The US leads the world in COVID deaths and is third only to UK and Italy measured by deaths per 100,000 population.

Why?

I watched the Mars rover landing live. It was exciting, joyous and uplifting.

The first messages back from the rover were just as inspiring. They will be in collections of “memorable quotes” from now on.

Rover texted: “I have found my forever home!”

And this was followed by: “Perseverance and Ingenuity will take you anywhere”–the names of the two AI vehicles which had successfully landed minutes earlier.

So I have decided to join them. Below is my boarding pass from NASA. Mars certainly seems to be a friendly neighborhood planet, especially with so much intelligence already there.

The only question is how am I going to spend my 1.1 billion frequent flyer miles?

From CUToday February 24, 2021: “The African-American Credit Union Coalition (AACUC) plans to induct five credit union leaders into its Hall of Fame at the Virtual Induction on March 1, 2021.

Each One a Stellar Leader

“This year’s honorees are shining examples of professional excellence.”

An Iconic Leader

The only honoree I personally know is Jim Blaine. A reflection on his selection.

The fresco artist Fra Angelico (1387-1455) was a member of the Dominican order, whence the “Fra” or “Brother.” He is a canonized saint whose feast day is celebrated on February 18.

In the leadup to Fra Angelico’s canonization, Pope John Paul II is said to have pointed to the artist’s Vatican frescoes and remarked, “Why do we need miracles? These are his miracles.”

That comment is an insightful reminder of the lasting contributions when ordinary human responsibility is given to an artist.

Jim combines the competitive discipline of a CEO with the artistry of a poet. His succinct pronouncements have the ring of truth, a rare quality in a digital era. State Employees Credit Union NC became a towering presence in his tenure as he was fully public and transparent in his motivations.

He stayed at the forefront implementing credit union purpose. His leadership demonstrated how member well-being can be the incontestable outcome of cooperative design.

An iconic leader guided by higher principles and universal truth, he eschewed contemporary fads preferring to enhance credit union legacy strengths. In that conviction, he acknowledged the needs of every soul, equally.

Two principles guided Ed Callahan’s tenure as NCUA chair.  One was his positive motivation.  In his many public comments,  he never summoned  fear about the future; rather he always presented examples of hope and progress by the movement.

The second was his belief in the enterprising spirit of human nature.   He believed ordinary men and women had created an extraordinary cooperative system  that deserved the respect and support of regulators.  In his own words:

“Our movement does not exist because it was created from the top down. Rather it was created from the bottom up. We did not tell Congress we wanted to be “safe and sound” institutions. We always knew that if we were lending to our members there was risk involved. Serving came first; safety and soundness was a means to the end of serving.”

Ed Callahan, Callahan Report, May 1999

The stay-at-home pandemic induced isolation has caused many to clean out years of storage.  And find forgotten keepsakes, even treasures.

I discovered two complete copies of the July 21, 1969 Boston Globe, with the headline: Man Walks on the Moon.  The half page black and white fuzzy photo was printed right below.

What should I do with them?  Who might find them uniquely useful for instruction or other use? Should they just be put in this week’s recycle bin along with this week’s papers?

In a nutshell this illustrates  an issue every credit union professional will confront in the twilight of their career.  What to do with all the records, memorabilia, recordings and  newsletters one kept of their professional years?

The emotional meaning and possible historical value that caused them to be set aside, will not matter to one’s heirs.  When downsizing, the easiest thing to do with these basement or garage-stored boxes  is to just throw them out.

But might these individual and industry documents, newsletters, and recordings be valuable to future researchers seeking first hand accounts of credit union history and critical events?

Without an ability to easily access historical records–both public documents and private collections–the movement can lose touch with its past.  Most importantly personal records can help future generations appreciate the “human capital” that laid he foundation for today’s system.

One CEO’s View Why History Matters

“I wish I had kept the phone numbers and emails of CEOs that are now gone from view. Ex-CEOs that could tell what they wished they had done when they faced downward curves to the end. I worry that lessons lost and archived outside our industry are what is needed now.

Some might say that we missed nothing; we witnessed progress and the natural march towards an industry’s maturation. But that sounds like short-term winners talking to me.”

Randy Karnes, CEO CU*Answers, February 2018

This valuable, vital role is one the Credit Union Museum is expanding through its archiving and library functions.  This effort warrants everyone’s support, especially those wondering what to do with their personal archives.

 

“Credit unions are small, yes very small. But it is vital that America not say they are too small to be worth the effort of keeping them around. Because if nothing else, credit unions keep alive a principle—that principle is freedom of choice.”

Ed Callahan, Callahan Report, June 1997

Two Washington Post news articles present why the choice that Ed championed, even of smaller institutions, is vital for society today.

1. Efficiency is Not Resilience

The efficiency curse  describes the effectiveness of small farmers adapting more readily to market disruptions of food distribution during the pandemic.   Excerpts follow.

“Efficiency is a wonderful thing. It can result in benefits such as lower prices and better uses of resources. But a hyper specialized system is more vulnerable to disruption; it is not resilient.

“Smaller farmers are doing relatively well. According to Civil Eats, farms with existing CSAs (Community Supported Agriculture) have seen “a massive increase” in memberships since the start of the pandemic, with some reporting a 50 percent bump in sales. One California farmer said, “It took a pandemic for people to support local sustainable agriculture again, and home cooking, and ‘know your farmer.’ ”

“Why don’t we pay as much attention to the benefits of resilience as to the benefits of efficiency? We tend to get good at what we can measure, and it’s easy to produce numbers that support efficiency, such as crop yields per acre. Resilience cannot be easily measured, though. Its benefits are most evident during the catastrophes that can’t be predicted and the trends that haven’t been foreseen.

“One striking thing I’ve learned is that many (industrial scale)farmers and companies lose track of who’s eating their products.

“That sense of interconnectedness is, for me, one of the most powerful and hopeful lessons of the pandemic. People who had never given much thought to where their food comes from suddenly learned something about farms and farmers. Which is to say, they learned about our interconnectedness. The pandemic has shown us that the world is much more connected than we thought.”  END

The “Know Your Farmer,” bumper stickers of the sustainable-food movement might be translated to  “Know Your Member” as the signature phrase for credit unions.

2. Nimbleness and Local Knowledge Beat Big Chains

A second example, “Small Pharmacies beat big chains at delivering vaccines,”showed  how local independent pharmacies were more effective delivering Covid 19 vaccine shots than large retail chains. The reason: “local owners know their community best.”  More relevant for credit unions is the author’s assertion that government policy makers promote bigness allowing “market power abuses.”   The parallel to today’s merger-sales of long-standing sound credit union charters, could not be clearer. Excerpts follow.

“More than a month into the coronavirus vaccine rollout, only about 60 percent of the doses distributed across the country have actually made it into people’s arms, according to federal data — a discouraging display of inefficiency. But a handful of states are far ahead of the pack. At the top of the list are West Virginia, which had given out 84 percent of its doses as of Friday, and North Dakota, at 81 percent.

“Many factors are slowing distribution.  But one key element appears to be the type of pharmacy states choose to work with. While the federal government partnered with CVS and Walgreens to handle vaccinations at long-term care facilities in the first phase of the rollout, North Dakota and West Virginia have instead turned to independent, locally owned pharmacies. Small drugstores are prevalent in West Virginia, and in North Dakota they’re just about the only game around: A 1963 law mandates that only pharmacies owned by pharmacists may operate in the state (save for a few grandfathered CVS locations).

“These small providers have proved remarkably nimble. Meanwhile, CVS and Walgreens have stumbled.

“The vaccination results in West Virginia and North Dakota have prompted a wave of national news stories, noting how startling it is that two rural states relying on local drugstores — the epitome of the old-timey “mom and pop” stereotype — have rocketed far ahead of states like Massachusetts and Virginia, with their networks of supposedly sophisticated chain pharmacies that have largely replaced the independents.

Public Policy Treats Small as Expendable

“For decades, Americans have been steeped in the idea that big businesses naturally outperform small ones. Indeed, much public policy is predicated on this belief. Our antitrust rules bless most corporate mergers on the grounds that larger companies are more efficient. Our financial regulations grease the flow of capital to the biggest firms. And in unstable times, the federal government almost invariably steps in to ensure their survival, while treating small businesses, local banks and family farms as expendable.

 “So ingrained is this ideology of bigness that we routinely overlook evidence to the contrary. The fact is independent pharmacies have been outperforming their larger rivals all along. According to research by Consumer Reports, for instance, local pharmacies generally offer lower prices than the chains. And while the major chains only recently began offering one- or two-day home delivery, most independents have been providing same-day delivery for more than a decade (and most do it free).

Better Results by Being Small

“Independent pharmacies achieve superior results not despite being small, but because they are small. It’s their local ownership that makes the difference. Their decisions are guided not by the prerogatives of Wall Street but by the healthcare needs of their neighbors. Lacking top-heavy bureaucracy and rich with local knowledge and relationships, independent pharmacies possess what you might call economies of small scale. That helps explain why, in the places where they’ve been tapped to provide vaccinations at nursing homes, they’ve been able to quickly map out a plan and efficiently execute it.

“Like pharmacies, small banks derive advantages by virtue of being locally run that big banks simply cannot match: The owners know their communities and their borrowers, giving them access to a rich trove of “soft” information that enables the institutions to extend loans to new and growing businesses on the basis of factors that aren’t easily quantified and don’t fit the rigid parameters of big-bank lending. This is true not only during crises like the pandemic: Community banks account for less than one-fifth of the industry’s assets, but they supply nearly half of all lending to small businesses.

Regulatory Bias for Bigness

“So, if local pharmacies, banks and other businesses are outcompeting their biggest rivals, why are they losing ground? The number of independent pharmacies, for instance, has dropped by nearly 1,400 over the last decade, to 21,700 — and their market share has fallen from 28 percent to less than 20 percent.

“The answer is that policymakers, convinced of the inherent superiority of bigness, have allowed a few corporations to amass outsize power and wield it with impunity. Rather than compete head-to-head with their smaller rivals on price or service, these huge companies can simply crush them.  (ed. or buy them out via mergers)

“These kinds of market-power abuses are rampant across the economy, but we’ve been conditioned not to see them. Confronted with yet another shuttered storefront, we take it as simply more evidence that small businesses can’t compete.

“It’s not just some hazy nostalgic feeling that we’re losing when independent businesses close. The stakes are much more consequential. We’re trading away some of the most productive and effective parts of our economy. The strong performance by local pharmacies in distributing lifesaving vaccines makes that clear.” END

The Takeaway for Credit Unions

Every time a sound, locally focused and managed credit union merges, the surrounding economy, the cooperative system and the American marketplace is less diverse, nimble and responsive.

It is common to describe credit unions as family. Sometimes the description is indeed accurate as father or mother passes the profession down to sons and daughters.

But rarely would one expect a regulator, and especially the Chairman of NCUA, to embrace the concept.

On April 9, 1984, the American Banker published a story on credit unions based on an interview with the Chairman: “Callahan mans the credit union helm through the seas of deregulation.”

The article closed with this description:

Mr. Callahan, who once held three jobs at the same time and who says he is “used to hustling,” has a varied background. It includes positions as Illinois Deputy Secretary of State, a math teacher and part-time football coach, and a school principal.

He now boasts of having two families, one with over 40 million credit union members and one that includes eight children.

“Just keeping up with a family of eight has kept me running,” he jests.

Two families. That is a regulator who knew where his responsibilities were truly owed.

One of the most famous trademarks of the 20th century is of a dog, perhaps a terrier mix, looking at a gramophone horn, head tilted quizzically. It’s from an 1898 painting called “His Master’s Voice.” Whenever I recall it, I think of the Coop belief in owner democracy, the vital role of the Member’s Voice.

This branding image was based on an original painting by Francis Barraud of Nipper, a dog he inherited from his brother Mark.

https://www.startribune.com/the-hidden-history-behind-nipper-one-of-the-most-famous-dogs-in-the-world/506221042/

The painting was sold to HMV, an early English recording company. Later the portrayal became a logo for the RCA Company in the United States. The picture was marketed in such a way to suggest that RCA recordings were so lifelike that the dog could not distinguish between the sound of his master’s voice on records versus real life. Years later, the Memorex cassette tape company used this idea with their, “Is it real or is it Memorex?” campaign.

But there is another connotation in the phrase “His Master’s Voice” suggesting a deeply ingrained master-servant loyalty relationship.

Unfortunately that interpretation seems more appropriate when reviewing how the “Member’s Voice” is seen today by many CEOs and boards in credit union mergers. That voice is unwanted and unheard. The relationship is not member-owner, but master-servant. Loyalty expected, but not requited.

A Member’s Voice In High Fidelity

Following is one member’s continuing frustration with his post-merger experience in an email shared with his peers:

“Then there is our favorite subject of the credit union merger. The bill pay system they use — to put it bluntly — really sucks. This system requires you to set the date the payment will be issued, leaving you to guess when the payment might be delivered. There is no unique tracking number to trace individual transactions via bill pay as there had been in my former credit union. I cannot think of *any* system I have ever used involving financial transactions that did not afford some way to distinguish one payment from another to the same payee.

“Considering that this merger was not necessary or advantageous to members, I see this as one major reason it would be best to leave smaller credit unions the hell alone and let them do what they were chartered to do and what members expect them to do. Again, if individuals think their institutional management skills are such they wish to enjoy the perquisites their commercial peers receive, then they should go find a for-profit outfit to destroy and live the life of Riley (or maybe Jamie Dimon).”

I wonder if anyone hears these howls? Maybe it’s  time for a cooperative Roaring Kitty!

 

There are three on-going challenges facing the credit union system:

1. Attracting the next generation of passionate co-op entrepreneurs
2. Planting new charters to spark innovation and relevance
3. Enhancing opportunities for those left behind by current financial choices

Credit unions are can now tackle all three with an initiative started by a CEO in California. If successful, the result could usher in a new era in this three-fold challenge.

The Rise of the College-University Innovation Incubators

During the past decade, institutions of higher learning have embraced student interest in starting new businesses by offering courses and funding innovation competitions.

A web newsletter the Times of Entrepreneurship recently published a list of the top 20 US university new venture competitions. Out of a total of 65 collegiate contests, MIT was ranked #1 based on total cash granted, in-kind support and number of participants.

The third ranked institution was George Washington University in DC which listed 423 participants in its most recent premier event.

The irony of this ranking is that four years earlier one of the top ten winners was a group of students seeking to charter a credit union for the GW community. More than three dozen undergrads, several faculty and numerous credit union advisors have worked voluntarily on the project to fulfill this student led ambition. Almost $100,000 capital has been donated.

Yet four years later, after numerous submissions, and receiving a “shout out” from NCUA Chairman Hood at his 2020 CUNA GAC speech, this student startup still waits for NCUA approval.

The Drought of New Cooperative Charters

Students, innovators, and persons passionate about a business idea will not wait four years or longer to receive a governmental OK to launch an idea.

NCUA’s chartering process is one of attrition stifling efforts for new credit unions. In 2020 NCUA issued one new charter. The agency’s performance plan for 2021 has a goal of 2.

With this option largely shut down, the energy, curiosity and passions of the next generation of leaders and innovators will go elsewhere. In a generation in which many seek to address vexing social problems with business solutions, the credit union door is closed.

As a result,  students interested in finance opportunities are looking elsewhere-traditional wall street options, hedge funds, venture capital firms and even banks.

Colleges and universities across the country are teaching and encouraging student and faculty interest to undertake innovative business solutions. To compete in the future, cooperatives must be an option for this creative energy.

The Inclusion Challenge

Today’s $1.8 trillion credit union movement was founded on the belief that ordinary citizens could own and control their own financial institution.

This was especially important for those left out of existing financial options. In North Carolina, for example, at one time over 55 credit unions were serving the black communities cut off by Jim Crow laws and practices from banks serving only whites.

As described in UNC’s Southern Oral History Program: https://sohp.org/research/african-american-credit-unions/

“The first credit union in North Carolina was founded in 1916 in a rural community in Durham County, most likely for white farmers, while the first credit union established by black North Carolinians was founded two years later in Rowan County. Black citizens had set up another eight credit unions by 1920. During the 1940s, the number of black credit unions rose to fifty-five, giving North Carolina nearly as many as all other states combined.”

One example of this from an oral recording:

“St. Luke Credit Union in Bertie County was established in 1944 by a group of about twelve African American men with $500. James T. Mountain remembers his father, James T. Mountain Sr., as part of that founding group, explaining why they felt it was necessary because the white-owned local bank would not deal with African Americans.”

Today only one of these black sponsored credit unions remains.

The Trifecta Opportunity

However, a California credit union CEO is trying to do something about engaging this generation of collegiate entrepreneurs, bring new charters to life and enable groups left behind in pursuit of the American dream.

Gary Perez, the CEO of USC FCU launched a project in the post George Floyd awakening to bring credit union services to the historically black colleges and universities (HBCU’s) in America.

There are 107 HBCU’s in 19 states plus DC and the Virgin Islands (http://www.thehundred-seven.org/hbculist.html). Vice President Harris graduated from Howard University in DC which has a credit union, but according to its web site, does not serve students.

Gary brought together a group of nine young leaders (from Filene, CUNA, CUES, the CCUL and several natural person CUs), many of whom are HBCU graduates, to do the critical concept research. His five-page paper describes the need, the opportunity and questions to be answered. (contact information: gperez@usccreditunion.org and direct line is 213-821-7122)

Several of Gary’s young leaders expressed interest in migrating to a new venture startup, just as the GW students have undertaken.

This effort may be furthered by another group of leaders trying to promote credit union solutions for new generations of member owners. De novo charters is one of NACUSO’s “challenge” goals—to mobilize support for new coop startups within the CUSO community.

The Stars Align for a Credit Union Renaissance

College campuses are a vital source for the next generation of credit union leaders should the movement embrace these new venture competitions. Think of the appeal of Start Your Own Credit Union! The self-help model is the ideal path for inclusion for those seeking to realize America’s promise of opportunity.

Credit union leaders, CUSO’s and trade groups recognize these three enduring movement challenges. NCUA’s 1983 Annual Report (pg. 8) “Student Credit Unions Welcomed” demonstrated the regulator’s willingness to support student charters. It described new credit unions at Georgetown, Skidmore, and the University of Chicago promoted by designating them as low income, thereby enabling nonmember alumni deposits to fund low-cost student loans.

That regulatory support today seems to be the only missing piece to launch a new, more diverse and noteworthy era of credit union relevance. This effort could be a winning bet for all three races the movement is in–if NCUA would only step up to the window!