Chip Filson
The White House
Washington D.C.
July 2, 1936
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY
What do you think of some
publicity on Federal Credit Unions?
I understand 1,479 of them have already
been organized, with an estimated
membership of 205,000. We might do
something to push this. They are
popular.
–F.D.R.
My only question is, who brought this opportunity to FDR’s attention? That is the kind of “Washington presence” credit unions should have today!
In CUInsight’s Sunday jobs report, there are credit unions listing 10 to as many as 40 job openings in this weekly post. In addition to individual senior management positions, the most recent numbers ranged from a high of 23 to a low of 7 openings per credit union.
Finding and keeping employees is getting tougher. In a recent presentation by Economics Professor Alan Gin from the University of San Diego, some of the macro trends show why today’s labor market is so competitive.
All traditional measures of under or unemployment segments are the lowest levels in the past 15 years.
Secondly, the labor force participation rate is at its lowest since the 1980s. He cites four factors contributing to this structural decline:
Tactics for responding to this tight labor market are vital. Retaining and growing current staff becomes more urgent.
Other efforts include automation (how many credit unions answer the phone with a live person), moving jobs to different areas with less tight labor markets, process and productivity improvements, and outsourcing.
Whether the situation is short lived or a more permanent feature of the evolving economy, the need for new ways to find and retain the right staff will be a critical factor in many credit union’s ability to grow and to serve members well.
Recently the CEOs of the Business Roundtable issued a policy statement that proclaimed the purpose of the corporation is to promote “an economy that serves all Americans.” Hopefully that would embrace the vital role of cooperative credit unions.
The Chairman of the Business Roundtable is Jamie Dimon, who is also CEO and Chair of JP Morgan Chase and Co. The statement is a positive example of a vision for corporate America that transcends the single-minded pursuit of shareholder value.
But the challenge is more than an expanded purpose statement as we are reminded in the following comment:
“There is evidence of deep-seated cultural and ethical failures at many large financial institutions. Whether this is due to size and complexity, bad incentives or some other issues is difficult to judge, but it is another critical problem that needs to be addressed.”
William Dudley, President, New York Federal Reserve Bank, November 7, 2013
This observation was years before Wells Fargo’s decade long mistreatment of consumers became public.
From the 2008 Filene study: The Credit Union Brand: What is it good for?
“For years now, it seems that credit unions have placed themselves more and more in the bank brandscape, and our research supports this conclusion. What a pity that credit union members think that credit unions are just another bank. But when you look at credit unions, what is there about them that signals to consumers that they are not banks? The buildings are often designed to look exactly like a bank. Consumers conduct their financial affairs in a similar manner. Often even the advertising shouts “bank!” These signals do not go unnoticed by consumers. And, it appears that some credit union management may have felt that credit unions as financial institutions didn’t get the same respect as banks in the past; thus a natural reaction would be to try to make credit unions more like banks to attain the same status.“ (page 41)
At a time when many credit union leaders see NCUA board members announcing new regulatory agendas in virtually every speech, it is helpful to remember this counsel from a former NCUA Chairman:
“The only threat to credit unions is the bureaucratic threat to treat them for convenience sake, the same as banks and savings and loans. This is a mistake, for they are made of a different fabric. It is a fabric woven tightly by thousands of volunteers, sponsoring companies, credit union organizations and NCUA-all working together.”
Source: Chairman’s letter: NCUA 1984 Annual Report
The Nova Scotia Co-operative Council in celebration of their 70th anniversary have teamed up with presenting sponsor Atlantic Credit Unions and a grouping of other sponsors to host “A conversation with Barack Obama” in Halifax at the Scotiabank Centre in Halifax.
Wednesday November 13, 2019 6:30pm
$115 – $325
The web site reports the 9,000 seat auditorium was sold out almost immediately. Now that’s an eye-opening brand impact!
Corporate credit unions have labored under a very detailed risk based capital rule (RBC) for almost eight years. At the end is a footnote from a corporate’s audit showing the reporting required by the rule which demonstrates four very different outcomes:
As of December 2018 these ratios range from 6.26% (leverage) to 44.07% (total risk based). These single numbers actually simplify the multiple ways the ratios can be presented by using different ways to calculate the average asset denominator.
Two other columns show the regulatory minimum ratios to be considered “adequately capitalized” or “well capitalized” under the rule..
There are a total of 12 numbers for a reader to compare to evaluate a corporate’s capital status at a point in time—before undertaking any trend analysis.
With a range of outcomes from 6.26% to over 44% as indicators capital sufficiency, one must ask if the numbers have any meaning at all.
The Delay in Risk Based Capital for Natural Person Credit Unions
In June the NCUA board approved a two-year delay in RBC rules for credit unions. Among reasons given was consideration of yet another leverage rule for complex credit unions in addition to PCA. That would make the rule more complicated, not less.
As shown by the bank regulatory agencies and even more clearly by the corporate RBC rule, the outcomes are so complicated that the data fails to clarify any dimension of capital adequacy; for example does this corporate have too much or too little capital?
It is a tool that confuses, adds burdens and ultimately locks credit unions into a legally-mandated assessment of relative risk among all asset categories.
Natural person credit union balance sheets are many times more complex than corporates whose balance sheets are almost all investment securities. These all have relatively easy market based values for referencing.
Risk based approaches are not only confusing, they can also tilt credit union decisions to increase exposure to whatever the regulatory “safest” relative risk of the day might be.
The simple leverage ratio has served the industry well for over one hundred years including more than 50 since deregulation. RBC might be useful as a tool; but it could potentially drive credit unions off a cliff if it were to be a rule.
CORPORATE FOOTNOTE 11 – REGULATORY CAPITAL
The Credit Union is subject to various regulatory capital requirements administered by the NCUA. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Credit Union’s financial statements. Failure to meet minimum capital requirements would require the Credit Union to submit a plan of action to correct the shortfall. Additionally, NCUA could require an increase in capital to specific levels, reduction of interest, and ceasing or limiting the Credit Union’s ability to accept deposits.
The Credit Union’s actual and required ratios for December 31, 2018 and 2017 are as follows:
In a recent podcast interview by Robert McGarvey, CEO Randy Karnes summarizes CU*Answers’ approach to strategy. On more than a dozen business issues from culture to market analysis, his concise insights are extraordinary.
At a time when supplemental capital for credit unions is a topic of regulatory review and wide industry interest, his comments on the CUSO’s approach to financial soundness, especially capital planning, are especially relevant.
As he explains, for his CUSO patronage by the owners is more valuable than dollars of capital. The reason is that patronage is “belief, persistence and cash flow.” Capital dollars have to be paid back. Patronage sustains and grows.
All of the proposed approaches to supplemental capital will need to be paid back. The real “capital” that has been the source for all credit union’s soundness from day one is the member relationship. Member loyalty, use and trust are the patronage that sustains viability even if net worth ratios fall below well-capitalized.
The reason for 208 assistance in the FCU Act is to allow members to “recapitalize” their credit union over time through their patronage. When PCA or other supervisory actions prevent members and management from recovering from setbacks, the fundamental strength of the cooperative model is compromised.
Almost all credit unions active today, were founded without financial capital. Their financial success is created over years or even decades of member participation.
When the success or status of a credit union is measured by only financial yardsticks, sooner or later, that framework will be found wanting. It overlooks the fundamental difference between a member-owner cooperative and a for-profit financial alternative.
The message for credit unions from this CUSO’s 50-year history may be that all financial capital is supplemental. Longevity requires relationships. That is the cooperative difference and unmatchable advantage.
To listen to Randy’s 34 minute interview by Robert McGarvey’s CU 2.0 Podcast , Episode 47, visit: https://www.buzzsprout.com/268738/1513849-cu-2-0-podcast-episode-47-randy-karnes-cu-answers-for-small-credit-unions
A Labor Day reflection:
In my present position I could scarcely be justified were I to omit raising a warning voice against this approach of returning despotism.
It is not needed nor fitting here that a general argument should be made in favor of popular institutions, but there is one point, with its connections, not so hackneyed as most others, to which I ask a brief attention. It is the effort to place capital on an equal footing with, if not above, labor in the structure of government. It is assumed that labor is available only in connection with capital; that nobody labors unless somebody else, owning capital, somehow by the use of it induces him to labor. This assumed, it is next considered whether it is best that capital shall hire laborers, and thus induce them to work by their own consent, or buy them and drive them to it without their consent. Having proceeded so far, it is naturally concluded that all laborers are either hired laborers or what we call slaves. And further, it is assumed that whoever is once a hired laborer is fixed in that condition for life.
Now there is no such relation between capital and labor as assumed, nor is there any such thing as a free man being fixed for life in the condition of a hired laborer. Both these assumptions are false, and all inferences from them are groundless.
Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. . .
Source: State of the Union Address: Abraham Lincoln (December 3, 1861)