Category: Observations

Yesterday I described the return of Cicada Coop , a life-long credit union fan after 17 years of living “off the grid” underground, so to speak.

Before entering hibernation, Cicada Coop had marveled at the industry-regulatory mutual efforts. In the 2003 NCUA Annual Report he kept, examples included lowering costs of regulation, joint collaboration in planning, transparency in all aspects of expenses including the Overhead Transfer Rate, OTR as a just a few of many examples.

Two Videos Showing NCUA’s New Stance Towards Credit Unions

The cicada and I went inside. I shared two videos of the NCUA chair testifying before Congress in July 2015 to dramatize the change from the cicada’s last appearance. The first excerpt is the agency’s view of its obligation for transparency with credit unions. The Chair explains that an external OTR study by Price Waterhouse recommending more transparency and industry input was redacted by the General Counsel as a “trade secret.” The chair also says putting the agency’s budget on the web “would not be effective” in improving communications with credit unions.

This is the full, live five-minute exchange:
(https://www.youtube.com/watch?v=CiPgW1mgDw8)

The second five-minute video includes several surprising assertions about credit unions and the agency’s relationship to them. Two comments by the chair are “credit unions are not interested in NCUA’s budget” and “credit unions do not represent their members.”

Perhaps the greatest contrast to the environment in 2004 was the statement by the chair that “it is not good government to have the people who are regulated trying to participate in the budget making process of the regulator.”

The Congressman described her position on NCUA’s budget process as, “Self serving, crazy talk.”

This is the exchange: (https://www.youtube.com/watch?v=z-__EgfM2vA)

Coop Cicada’s Questions

My friend’s question is what happened during these 17 years we cicadas are underground? Why the change in NCUA’s view of its responsibility to credit unions?

My quick answer was leadership, especially by the NCUA board. Once a leader decides to limit transparency and accountability and assert independence from the industry, the culture becomes part of the bureaucracy. Individuals become comfortable away from public scrutiny and resist change.

Cicada pondered whether this breakdown in mutual efforts could be overcome. My reply was good leadership willing to disrupt accepted ways could start the process. Also knowing the past, just as he read from the Report, helps everyone understand what is lacking in present circumstances.

Ultimately however change must be collaborative. Because discerning what is best is always hard. The effort must be done together. Like the strategic planning process he described in 2004.

“So do you think credit unions will be here 17 years from now, when my family and friends return?” Cicada asked.

That depends. Coops will be here because they embody some of the best instincts of the human spirit. As for NCUA, that is an open question.

With that, Coop Cicada went up the tree to create the next generation of his species. A process loud and exuberant. Maybe there is a lesson from nature for those without a 17-year horizon.

“Our Act lingers from the time of the paper ledger and wire tugging switchboard operator. We need to modernize the Act . . . and at the same time re-emphasize and recodify just what the first Act meant in 1934: that Americans are savvy enough and community-spirited enough to have and to run self-help cooperative not-for-profit financial service organizations-of no matter what size-that benefit those who join and serve. And on account of that purpose and structure of these organizations, no tax need be levied.”

Ed Callahan, Callahan Report 1990

This is the season for graduation addresses.  A congratulatory pep talk by a distinguished speaker to students ending their time of institutional learning for real world lessons.  The following are excerpts from a 2016 commencement message by Eva Braun a faculty member at St John’s college in Santa Fe, New Mexico.

To clarify the credit union relevance, I might title this portion:  Local in Worldly Coordinates, Grand in Human Scope

“All over the country, speakers who accepted the invitation to talk to you on this last and first day soon began to agonize about a fit subject for this great moment So we call for aid on whatever power will come. As for me, I remembered a recent conversation, with one of our graduate students. I’ll transcribe it from my memory, abbreviated.

Student: “How will my St. John’s education help me to do what I want?”

Me: “And what’s that?”

Student: “I want to change the world.”

Me: “For the better?”

Student looks totally abashed; I’m a bit abashed as well, for being a smart-aleck. But he took it well, and the ensuing conversation was illuminating to both of us.

At this point, I want to assure you that at a thousand schools this May speakers will be alluding to this conversation. They will bid the graduates “Go forth and change the world,” or, “Go forth and make a difference.”

A language Tutorial

I say, let us have a little last-moment language tutorial. Let us, Johnnie-fashion, analyze the sentence “I want to change the world.”  I, in all candor, will try to show that “I want to make a difference, I want to change the world” aren’t very sensible sentences. So here goes.

This announcement has three parts: first, I want; second, to change; third, the world.

So, first, “I want.” “I want” is about me, and if what I want is to be a “difference-maker,” it’s about my self-satisfaction. Recall yourselves as Juniors, when you struggled with Kant on morality. No one expected you to get it all. As regards Kant, this much may have stuck: He thinks that doing right is not doing what you want, but what you ought; and that, in fact, the only proof of your doing as you ought is that it hurts some, (so) that your mere wanting is thwarted. So when it’s the world I’m planning to change, maybe “I want” should yield a little to “I should.”

Second, “change.” Why exactly “change”? There are many other modes of action beside this current mantra. There’s protecting and maintaining, activating and fulfilling, restoring and reviewing. Talk of mere change is just terminally vague babble—vague promise and vague threat. Its antidote is specific thinking expressed in adequate language. That very requirement, thoughtfulness and its articulation, was an explicit aim of the Program, to which you devoted the last four years.

Third comes “the world.” It’s a big space in which to thrash about. In choosing it as the venue of my action, I’ve pretty much committed myself to the silliest of all maxims of action—another current mantra. It goes: Only if x happens, can y occur. Filling in the most common variables for this formula: “Only if the world changes radically, can little kids learn to love reading,” in other words, never guaranteed. The implied lesson is: Forget about “the world”—stay local and avoid stymieing preconditions.

What is Good?

And now the usually missing fourth part to the saying “I want to change the world,” namely, “for the better.” Your four years with us were, I think, above all intended to give you a head start in answering for yourself the most crucial of human questions: What is good? For making anything better without a view of good seems to me just groping in the murk of possibility.

. . .you’ll recognize two of the ways that the Program and the College were meant to help you with making the here better now. One was that we hope you would find in your reading the elements of your own firm view of what is good universally and therefore what is better in particular. This crystallization is surely still in process for many of you. Much more will go into it than what you learned here, but that learning will be the informing reference of your experience. That ability to specify the universal is the second of the two ways our Program readied you for great deeds.

Now, in the spirit of that specificity, I owe you an example of what I think of as actual action, local in worldly coordinates but grand in human scope.

Local Action-Grand in Human Scope

Most of you will, I’d guess, work in an office at some point. Proper offices have water coolers, Xerox-rooms, galleys with hot-plates. People spend as much time there as they dare. So post a note: “Would you be interested in reading some poetry together during lunch hour? I propose Wallace Stevens’ ‘Sunday Morning.’ Copies are on the counter. Let’s meet next Wednesday in Room 666. Bring your lunch, I’ll bring cookies. Expertise inessential. Signed…” If no one turns up, which is unlikely, keep trying. Something will come to pass.

Before I finish, I need to say that what I’ve done here isn’t quite right: I’ve told you what’s what and you’ve sat silent, except perhaps for an occasional guffaw. All my points were left unquestioned—deep metaphysical maxims such as cookies being essential to meetings and expertise inessential to poetry, and large practical claims, such as local happenings having more actuality than global commotions. Don’t let it happen to you very often, though these occasional one-way ritual performances are also necessary to human life.

So then: I wish you a life of genuine action and of actual happening, a life of as much happiness as you know what to do with—and a bit more. Go forth, find a place you can love, and help to make it “what it was always meant to be.” Go forth and change the world—for the better.”

One year ago March 2020, a national emergency and economic lockdown was declared to deal with the Covid 19 pandemic.

What followed was the sharpest one quarter GDP contraction and highest jump in unemployment in history.  No one knew how long or how serious the total disruption of all areas of human activity would be.

Today the recovery trends in the economy and society at large are well underway.  Credit unions are both examples of this incredible turnaround as well as enablers who assisted members through this period of  uncertainty.

Last week’s Trend Watch analysis of March 31, 2021 data by Callahan and Associates, was positive on every front for the cooperative system. Buoyed by a first quarter GDP gain of 6.4%, major balance sheet growth results were in the high teens.

The 19.1% annual asset growth was the fastest in memory, propelled by a 23.1% share increase.  This share deluge led to a 57%, 12-month leap in the investment portfolio. All 64 slides in Trend Watch can be viewed here.

What About Capital Ratios?

The following slide shows the most recent five years relation between capital growth, ROE, and assets.

The divergence between these two growth trends from their long-term historical relationship resulted in a small year over year decline in the net worth and capital ratios. Overall the industry remains very well reserved with a 10% net worth ratio and over $200 billion in total capital.

The Cooperative Capital Formula: Revenue Flows and Retained Earnings Grow

This small change should not concern for two reasons listed below. For the first 90 years the cooperative measure of reserve adequacy was based on a “flow” concept for capital creation. That is credit unions were required to set aside 10% of revenue until the capital/risk assets ratio reached 4%. Then this formula was reduced to 5% of revenue until a 6% ratio was reached.

When PCA was implemented by the 1998 Credit Union Access Membership Act, this measure of capital adequacy was changed from a “flow” measure to a “stock” concept imposed by Prompt Corrective Action ratio benchmarks. A 7% net worth ratio is now rated well capitalized.  Revenue was taken out of the capital assessment.

The first reason:  as shown below the “flow” into retained earnings measured by ROA exceeded 1.03% for the quarter. This is the first time since December 2012 this rate of net income has been reached. Credit unions have no access to outside capital. Retained earnings, their source of capital, is once again trending upward.

The second reason: credit unions managing 98% of the systems assets meet or exceed the 7% well capitalized PCA benchmark.

Many slides in the Trend Watch deck demonstrate sound trends with delinquency lower, tons of liquidity, and refinancing volumes and lower fees helping members save money. An outstanding first quarter for what appears to be a breakout year for the economy.

Credit union performance with their focus on members’ well being are an untold story of this recovery.   Hopefully this extraordinary collective outcome will be recognized by all as affirmation of cooperative design and purpose.

The Lanyard by Billy Collins

The other day I was ricocheting slowly
off the blue walls of this room,
moving as if underwater from typewriter to piano,
from bookshelf to an envelope lying on the floor,
when I found myself in the L section of the dictionary
where my eyes fell upon the word lanyard.

No cookie nibbled by a French novelist
could send one into the past more suddenly—
a past where I sat at a workbench at a camp
by a deep Adirondack lake
learning how to braid long thin plastic strips
into a lanyard, a gift for my mother.

I had never seen anyone use a lanyard
or wear one, if that’s what you did with them,
but that did not keep me from crossing
strand over strand again and again
until I had made a boxy
red and white lanyard for my mother.

She gave me life and milk from her breasts,
and I gave her a lanyard.
She nursed me in many a sick room,
lifted spoons of medicine to my lips,
laid cold face-cloths on my forehead,
and then led me out into the airy light

and taught me to walk and swim,
and I, in turn, presented her with a lanyard.
Here are thousands of meals, she said,
and here is clothing and a good education.
And here is your lanyard, I replied,
which I made with a little help from a counselor.

Here is a breathing body and a beating heart,
strong legs, bones and teeth,
and two clear eyes to read the world, she whispered,
and here, I said, is the lanyard I made at camp.
And here, I wish to say to her now,
is a smaller gift—not the worn truth

that you can never repay your mother,
but the rueful admission that when she took
the two-tone lanyard from my hand,
I was as sure as a boy could be
that this useless, worthless thing I wove
out of boredom would be enough to make us even.

From:   The Trouble with Poetry by Billy Collins

Recommended by Joseph P Mclaughlin, Jr.

While Warren Buffett’s success and reputation is built on the capitalist market system, some of his observations overseeing his 60 plus companies are also spot on for the credit union system.  Especially so for NCUA and the half dozen or so organizations that play lead roles by size or function.  Some remarks I noted:

1. The biggest risk to a firm: Picking the wrong CEO.  Any organizations come to mind?
2. The most common problem for firms: The myths people have about their own organization.  They are passed on from one leader to the next.  The CEO does not want to critique is predecessor. Subordinates are afraid to speak up.  These myths lead to enormous errors.  What myths are repeated defending otherwise dubious proposals in cooperative organizations?
3. The key to success in running a business: You must be in love with your business to be good at it.   Know any leaders out of “love” with credit unions?
4. The economy is red hot: Not a price sensitive economy right now (supply chain disruptions and scarcity shortages).  A lot more inflation is going on than realized.  How will this affect interest rates?
5. Lessons from last year under covid: You have to be a learning machine.  Right now is very confusing.  We’re in uncharted territory in government policy.
6. Their thoughts on firms providing free online trading apps for new retail stock market investors (the gamification of investing): They are preying on people’s propensity to become addicted to gambling.   Just like state lottery systems which took over the numbers games and pushed the Mafia aside.  These activities are immoral.  An interesting word, immoral.   Any credit union activities that fall under this umbrella?

What Credit Unions Can Learn

Buffet (90 years old) and his partner Charlie Munger (97) were on TV live for over 4 hours, no breaks, taking questions on all subjects before the 20-minute scripted formal annual meeting.

I believe if a CEO and senior leadership were to similarly interact with their members in a virtual annual meeting, the example could increase credibility, confidence and trust in the credit union.

Buffet believes his primary responsibility is to his shareholders, to manage their investments well.  He admits mistakes.  His logic is transparent.  His confidence in his organization is second only to his fundamental optimism about America.

This link is a summary of the meeting Q&A on Yahoo Finance.   Watching even 30 minutes of this multi- hour questioning will show that the Oracle of Omaha is about more than his businesses.   What if credit union leaders publicly affirmed a similar belief in their performance and the cooperative system at this year’s  virtual annual meetings?

In lieu of a personal reunion, my college sends out updates from alumni who wish to share aspects of their life, 55 years after graduation.

One brief observation:

“I’m not traveling much this year nor attending performances of classical music. . .Happy as long as I learn something new each day, talk to someone nice, and cook something tasty.  No longer powered by hormones or ambition.  Very glad to be alive.”

Patelco Credit Union’s 2021 Annual Meeting is being held today virtually. The following is an excerpt from a Credit Union Times story of December 17, 2002 about the credit union:

SAN FRANCISCO-Patelco Credit Union caught the eyes of the credit union community in 2002 when it announced its plan to convert from federal deposit insurance to a private fund.

Patelco’s members overwhelmingly passed the measure to convert to the American Share Insurance fund with 40,734 votes in favor out of a total 66,755 or more than 61%. Only 20% of the credit union’s membership or 38,241 total votes were required for the decision.

Patelco’s conversion was spurred by the credit union’s $480 million in uninsured deposits, which was only growing with the current flight to safety. ASI provides primary deposit insurance coverage up to $250,000 per account and does not limit the number of accounts an individual can have insured. The National Credit Union Share Insurance Fund provides just $100,000 in coverage per account for a limited number of accounts per member.

Additionally, “one size fits all” regulation from NCUA through the NCUSIF was also cited at Patelco’s Web site. The conversion of the $2.9 billion credit union is the largest to date.

While acknowledging the conversion as an individual credit union decision to convert, the switch was not particularly well received by the NCUA Board members. . .

A Reminder for Today

The members’ voice is empowering when called upon.