Just a Member

While the Olympics are over, the stories of international sporting lessons are not.  These sometimes transcend individual athletic feats and tell of hard-fought life challenges.  One of these stories is about the Norwegian Women’s Beach handball team.

The team was fined $1,500 euros for wearing “improper clothing” in the sport’s Euro 2021 tournament.

The European Handball Association’s Disciplinary Commission fined the players for their protest in refusing to wear the regulation bikini-bottom to go with midriff-baring tops.  The rules require the bottoms be “a close fit and cut on an upward angle toward the top of the leg” and a maximum side width of 4 inches, according to International Handball Federation regulations.

Male players are allowed to play in tank tops and shorts no longer than 4 inches above the knee.

“It’s not [appropriate clothing for] the activity when they are playing in the sand,” stated Norwegian Handball Federation President Kåre Geir Lio.

Norway’s Ministry of Culture upon hearing of the fine said: “This is completely ridiculous! How many attitude changes are needed in the old-fashioned international patriarchy of sports?”

Old-fashioned Patriarchy

The belief that those in authority have the exclusive right to set the rules is not limited to sport.

Scholar, teacher Dr. Beatrice Bruteau (1930-2014) wrote about this human failing as follows:  The theme that explains many of our political shortcomings is domination. We see it in the way decisions are made in our families; in the way orders are given at work; in the way social life is structured in our city by gender, race, and wealth; in the way our industry or profession relates to its competitors or its market or its clientele; in the way governmental agencies function. . .

Domination is a relation that does not work the same in both directions. One commands, the other obeys. One shows respect, the other accepts it but does not return it. One gains privileges from which the other is excluded. 

Positions of power, whether elected, appointed or even earned, can distort an occupant’s assertive self-assurance.  Once in office it is easy to presume wisdom inherent with the responsibility.  The next step is exercising authority without consulting or even acknowledging the various constituencies most affected by the leader’s decisions.

Think no further than NCUA Chairman’s Harper’s recent requests for changes to the legal structure of the NCUSIF, expanded legislative authority for the CLF, or a new complex three-part capital structure for credit unions.  All were proposals drafted without consultation or even demonstrated need by those most affected.

One only hopes that the courage and spirit of the Norwegian women beach handball resides somewhere in credit union land. Otherwise, credit unions may all end up wearing the same  “close fit, cut at an upward angle, with a maximum width of 4 inches” uniform rules justified by nothing more than “old fashioned patriarchy.”

Surely the biggest human failure is not learning from failure. 

The turnaround of Municipal Credit Union, which NCUA took over two years ago, continues with a six-month ROA of 3.65%.  This strong bottom line raised the net worth from 4.42% to 6.32% over the past year, even while total shares grew 14.2%.

Kyle Markland is the third CEO NCUA has put in the credit union since appointed conservator  by the  New York regulator in May 2019.  He is the only interim leader with a previous credit union CEO track record.

NCUA’s Conservatorship Actions in 2019

On May 17, 2019 NCUA conserved Municipal shortly after it reported a first quarter net worth ratio of 7.6%, delinquency of .77%, and an allowance account funded at 150% of total delinquencies, positive ROA—and no taxi medallion loans.

Just 45 days later in the June 2019 call report, the newly arrived NCUA conservator reported a $123 million YTD loss reducing the net worth to 3.41%.  No reasons were provided.

By the end of 2019 the credit union had undergone a miraculous turnaround.  It reported a $30 million net gain in the 4^th  quarter alone and a total improvement of over $40 million since the  June 2019, $123 million loss.

The June 2021 Results in Context

NCUA’s third CEO selection arrived in mid 2020. The recovery remains steady.   So how did this extraordinary performance in the first six months of 2021 compare with earlier activity?

The credit union has grown to $4.2 billion in assets at June 2021, continues to add new members, and has over 50% of its assets in investments with ¾ less than one year maturity.  Loans are flat and delinquency continues to decline to .54%.

Two other numbers suggest a slightly more modest assessment.   For 63% of the net income is due to significant changes in expenses from the prior year. The provision for loan loss shows a net reduction of $12.6 million for a total reversal of $22.8 from the expense reported the prior year’s first six months. Miscellaneous expense also shows a recovery of $15.4 million a $24.5 million reversal versus the expense of the prior year.  Perhaps a bond claim payment?

Together these two “reversals” contributed 63% of the bottom line.  Without these, the ROA would have been 1.3% still excellent, but not as spectacular.

When Transparency is Lacking, Credibility is Forfeited

Since NCUA’s conservatorship in May 2019, Municipal has reported operating results ranging from the sublime to the ridiculous.  These include a quarterly loss of almost $130 million to a $30 million positive net two quarters later.  The two expense “reversals” totaling $47 million in 2021 are not as spectacular, but raise questions about how such dramatic change happens.

Without clear public explanations the impression is that the performance numbers are either entirely uncertain, or subject to great variation not seen in any other credit union this size.  Either option raises the issue of what is the credit union’s real operating capability versus seemingly arbitrary changes in accounting valuations.

So the good news is that Municipal is on the way back.  The unfortunate news, no one knows how or why. If we cannot learn from failure, one thing is highly probable, there will continue to be more failures.

When the causes of problems are hidden then the possibility of others making similar mistakes becomes greater.

Is Municipal’s turnaround the result of skillful management interventions?  Or just adjustments to exaggerated loss estimates?  Was conservatorship a means to cover up years of ineffective supervision?   Is the current CEO, Kyle Markland, free to make long term decisions to position the credit union, or are all his leadership decisions subject to NCUA approval?

The inability to learn from failure is a human shortcoming.  But NCUA’s lack of institutional transparency is a defect undermining confidence in its oversight and judgments.  Municipal is just the latest of a long series in which NCUA hides behind a practice of not commenting on problem cases.

That silence harms the credibility for NCUA’s actions; but more importantly it undermines the regulator’s reputation for the safety and soundness of the cooperative system with members and the public.

During the 2020 virtual exam and work-from-home administration, NCUA reduced its total NCUSIF and Operating expenses by over $64 million. This result certainly deserves a shout out to the NCUA board which oversaw this.

The million dollar question is whether these efficiencies and exam oversight improvements will be sustained? Or might the instinct to make up for “lost expenditures” take over?

The Numbers Total $64 million

The agency’s operating expenses, after OTR transfer, fell by $3.2 million from 2019. However, the $116.3 million total was still $40.6 million, or 54% higher, from five years earlier. At least for one year this inexorable upward trend was reversed.

The greater savings were in the NCUSIF. Administrative expenses fell by over $10 million to $181 million which is the lowest level since 2014.

The largest amount was in the net cash losses (payments less recoveries) for credit union failures. Net cash losses are a more accurate reflection of real performance as the provision expense has shown little or no correlation to actual losses for the past 13 years.

In 2019 the NCUSIF reported net cash losses of $41 million. In 2020 there was a net recovery of $10 million, the first time this has occurred in the past 13 years. This positive recovery was in a year of the worst economic downturn since the Great Recession.

These NCUSIF savings due to a $51 million loss turnaround, plus $10 million in administrative expense reduction added to the $3 million in lower operating costs, together total $64 million.

Sustaining Success by Incorporating Lessons Learned

These numbers are a tribute to credit union resilience and the ability of all segments of the cooperative system to pivot to virtual management. The critical test is whether these virtual gains can be incorporated as ongoing activities so they are maintained when the COVID adjustments are over. Doing so would mean lessons learned that can bring benefits for years to come, even from a crisis. $64 million is a solid achievement not to be lost.

In my Credit Union Museum video, I described NCUA’s approach to credit unions since 2009 as an era of “regulatory backlash.”  The term summarizes the unilateral imposition of rules, premiums and new examination tests after the Great Recession crisis. The agency repeatedly asserted it was an “independent” ruler and  treated credit unions as their subjects.

One example is the creation of the 424-page risk based capital rule which is so burdensome that it has been postponed for almost 8 years.  Meanwhile the FDIC has dropped this as a required calculation.

One reader disagreed.  He said the backlash began in 1998 with the imposition of PCA on credit union net worth assessments as part of the Credit Union Membership Access Act.  (CUMAA)

However NCUA’s record suggest this is not the case.   When the Supreme Court ruled 5 to 4 in 1998 that the field of membership of a federal credit union could only be a single group, a substantial portion of new members added by FCU’s would have been thrown out if CUMAA not been passed.  It was Treasury, not NCUA, that imposed the PCA, in return for their not opposing this legislative change.

NCUA’s Support for the Credit Union System

The following are brief highlights from NCUA’s 2000 and 2001 Annual Reports demonstrating multiple ways the agency continued to support the credit union system beyond its traditional examination and supervision roles after PCA.

This cooperation began in the deregulation era of the 1980’s.  This early effort culminated in the passage of Congressional legislation redesigning the NCUSIF along cooperative principles in 1984.

Chairman Ed Callahan described this Great Victory in this 1.5 minute NCUA Video Network excerpt from 1984.  His central point is how everyone contributed to achieving this unique result.

The Key Themes of a Cooperative Regulatory Approach

The Annual Report excerpts that follow demonstrate the agency’s efforts at cost control, financial transparency, joint assistance programs, and an overt willingness to support cooperative expansion.   NCUA  recognizes and supports the diverse and unique nature of all credit unions, large and small.

They acknowledge their accountability to the credit union system (stakeholders) in their communication efforts and their stewardship of credit union resources.

This was the culture developed in the three decades following deregulation. These are only a few of many mutual efforts that had characterized this most critical cooperative system relationship in this period.

That mutual respect  is what was lost during the Great Recession and is missing in NCUA’s approach to its role today.

From the 2000 Annual Report

Student Internship Program

The OCDCU 2000 College Student Summer Internship Program was the most successful to date. The program creates partnerships between low-income designated and other credit unions (large or small) and college juniors and seniors to train and develop a pool of potential future credit union managers. The students selected are business, finance or marketing majors.

With technical assistance grant stipends, the 2000 summer intern program matched 29 college student interns with 58 different credit unions. Stipends provided the interns totaled $72,500 in 2000 compared with $67,500 in 1999 for 27 students.  Pg 16

National Small Credit Union Program

The NCUA Board adopted the National Small Credit Union Program (NSCUP) in March 1999. The NSCUP exists to:

• Promote credit union service to people of modest means;
• Increase access to credit unions for individuals in underserved communities by fostering a regulatory environment where small, newly-chartered and low-income designated credit unions can provide appropriate and needed services to members;
• Promote successful, financially healthy small credit unions through appropriate technical and financial assistance; and,
• Facilitate a regulatory environment that empowers small credit unions.

Nearly 500 credit unions voluntarily participate in the program. The NCUA has committed 74 field staff — 13 economic development specialists (EDS) and 61 small credit union program specialists (SCUPS) — located throughout the nation to carrying out the NSCUP objectives.

These specialists focus on increasing access to credit unions and credit union management development through training and mentor relationships. Recognizing the uniqueness of small credit unions and the necessity to maintain an informed staff, OCDCU conducted two EDS/SCUP training workshops during 2000. The workshops focused on increasing access to credit unions, business development, information technologies and alternative capital sources.

Reducing the Operating Fund’s Balance

The 2000 budget projected a $7.4 million net loss to the Operating Fund as the agency continues efforts to reduce the fund balance. However, because of budget savings from vacant staff positions, the net loss for 2000 was approximately $4.1 million. As a result, the Fund balance at year-end 2000 was $2.2 million.  Pg  31 (note: it was $136.3 million at December 2020)

From the 2001 Annual Report

The Board itself demonstrated its commitment to more responsive accountability for agency operations and finances by conducting NCUA’s first ever Public Forum and Budget Briefing, which resulted in stakeholders having a better understanding of the agency’s budget and operations.

Likewise, the NCUA initiated an internal Accountability in Management self-study, which presented opportunities to streamline operations, reallocate resources and improve the overall efficiency of the agency. These important initiatives are being implemented and will remain a high agency priority in 2002.  Pg 5

As part of NCUA’s strategic planning and as requested by Chairman Dennis Dollar, via his Accountability in Management (AIM) initiative, all areas of agency operation are being reviewed to determine efficiency and effectiveness. NCUA’s 2002 budget incorporated many recommendations attributed to that purpose and one result was the consolidation of several central offices.

Consolidation coupled with regional staff reductions, due in large part to the new flexible examination schedule, results in a projected 3.4 percent reduction in staff by the end of 2002 and positions the agency to achieve at least a 4 percent staff reduction by the end of 2003.

Just as the credit unions NCUA regulates and insures continually plan for the future, we will continue to review both the central and regional office structure with an eye toward boosting efficiency and saving cost. We expect many cost saving changes in 2002 — risk-focused examinations, flexible examination scheduling for qualifying credit unions and accountability in management initiatives — will result in an improved examination program and continued good stewardship of agency resources. Pg 8.

In the Future

During my first year as executive director, we made a commitment to establish open, frequent lines of communication with NCUA’s stakeholders. Chairman Dennis Dollar’s groundbreaking idea to conduct NCUA’s first open budget briefing and public forum provided an excellent opportunity for timely, direct input from our key stakeholders. Due to the success of this approach, you can be assured that NCUA will remain committed to providing open forums for gleaning input, which allows for an optimal decision-making environment

NCUA News was produced by PACA and sent to more than 10,000 credit unions and related organizations. NCUA News is often the voice of NCUA for credit union officers and volunteers, those who need to know what is happening in and around the agency. Responding to media inquiries, issuing press releases, advancing media contacts, writing the NCUA News and Inside NCUA, an internal newsletter for NCUA staff, monitoring and updating the NCUA web site and producing the annual report comprise the core public affairs responsibilities of PACA.  Pg 11

Small Credit Union Program

The Small Credit Union Program (SCUP), which is monitored by OCUD, is operated by the regions to promote successful, financially healthy small credit unions (those under $5 million in assets; in operation less than 10 years with under $10 million in assets; or low-income designated credit unions). This is accomplished through appropriate use of technical and financial assistance (e.g., on-site contacts and workshops).

The NCUA Board has committed 78 specialists —17 economic development specialists and 61 small credit union program specialists—to this program. There are 4,381 credit unions that fall within the SCUP criteria that are eligible to participate in the program. At December 31, 2001, there were 721 credit unions participating in the program. During 2001, the regional specialists performed 705 on-site visits providing one on one, on-the-job training.

Another aspect of SCUP is group training, where germane topics are addressed with program credit union officials and staff members. Outreach was in high gear during 2001, with the regions completing 43 workshops. More than 2,100 credit union officials attended these workshops.  Pg 16