Chip Filson
The Seated Boxer, an iconic ancient Greek work of art, shows a grizzled veteran of the ring, equal parts resigned and ready to spring into action.
What I like is a sense of respite from competition, the powerful athletic physique and the tiredness that surrounds his humanity. Is he a winner this day? Are there more fights to go? How will his efforts be remembered?
These are questions that all of us encounter, in literal or figurative ways, in our daily efforts.
On that day in history, history
took a day off. Current events
were uneventful. Breaking news
never broke. Nobody
of any import was born, or died.
(If you were born that day,
bask in the inverted glory
of your unimportance.)
No milestones, no disasters.
The most significant thing going on
was a golf tournament (the Masters).
It was a Sunday. In Washington,
President Eisenhower
(whose very name induces sleep)
practiced his putt
on the carpet of the Oval Office,
a little white ball crossing
and recrossing the presidential seal
like one of Jupiter’s moons
or a hypnotist’s watch.
On the radio, Perry Como
was putting everyone into a coma.
But the very next day,
in New York City,
Bill Haley & His Comets
recorded “Rock Around the Clock;”
and a few young people
began to regain consciousness …
while history, like Polyphemus
waking from a one-day slumber,
stumbled out of his cave,
blinked his giant eye, and peered around
for something to destroy.
With exquisite timing during this week’s credit union GAC convention, the Washington Post published an opinion article with the title:TARGETING THIS $2.8 TRILLION TAX SHELTER COULD SOLVE A BIG U.S. PROBLEM
The opinion was authored by Scott Hodge, described as a tax policy fellow and past president of the Tax Foundation.
Hodge provides multiple examples of successful tax exempt, very profitable organizations such as AARP, the Academy of Arts and Science, the Kaiser Foundation Hospital system and the PGA as fellow travelers in the tax exempt panoply of unfair competitors.
Here is Hodge’s paragraph singling out the credit union exemption:
With more than $2.3 trillion in assets, the tax-exempt credit union industry has long outgrown its depression-era roots. Originally exempted to serve working-class people of “small means” who lack access to banking, credit unions are now indistinguishable from commercial banks. They offer mortgages, auto loans, credit cards and investment services—and they’re using tax free cash to buy banks. In the past decade, credit unions have purchased nearly 100 commercial banks, converting taxpaying businesses into tax-exempt ones. Imagine Gold’s Gym buying your local YMCA.
His example of coops buying banks has logic and common sense. As one observer has stated:
I’d invite anyone willing to discuss the original purpose of credit unions and why neither the FED, OCC nor the FDIC wanted to regulate them.
Short answer: Credit Unions are not banks. They are member-owned cooperatives created as a safety net and alternative to banks. As a result, credit unions were granted nonprofit status, were not taxed, and were placed under social services
But would that be a sufficient response to this recurring threat?
State chartered credit unions received their federal tax exemption via an IRS ruling. FCU’s are tax exempt in the Federal Credit Union Act. One consequence of these two processes is that some states have passed franchise or other taxes on state charters. Another critical difference is public disclosures. State charters must file an annual IRS 990 with facts on salaries and benefits of highly compensated employees and list all charitable donations and political contributions.
Coops’ special service purpose was endorsed by FDR in this 1936 note to the Treasury Secretary. The Pesident encourages publicity for these new institutions, supervised bythe Department of Agriculture, saying they are popular.
In the modern era of an Independent NCUA regulator, the agency’s first two board chairs were not hesitantin their support of credit unions’ tax status. (photo from 1981. left to right Larry Connell, PA Mack, Ed Callahan )
Today’s NCUA board has been agnostic on credit unions’ tax exemption saying the issue is up to Congress. This is similar to Board’s silence on the bank purchases referenced in the Post opinion even though NCUA approval is required for every transaction,.
For the first 100 years of credit union formation, all were started with no financial capital with minimal share donations by the organizers. Today NCUA requires at least $500,000 in equity to receive a charter, but that is not how 99% of active credit unions today achieved their net worth.
Until NCUA insurance was required for all FCU’s in 1970, member shares were equity, ranking last in payout priority in the event of failure. One of CUNA’s concerns about a federal insurance program was that it would reduce members’ ownership attention.
During the bank holiday in FDR’s first year in office when many customers lost savings due to bank closures, credit unions noted that not a single state charter failed in this period. There were no FCU’s until 1934; but just like the states, all member shares were at risk.
Federal share insurance was not passed because of member losses or credit union failures. Rather it was a reward for performance that demonstrated member shares were as safe as insured deposits in banks. It was not untill the mid-1980’s that the Public Accounting Standards Board classified credit union shares as liabilities and not equity in GAAP presentationa.
Even after multiple coop share insurance programs were available, until passage of the Credit Union Member Access Act (CUMAA) in 1998, reversing a Supreme Court interpretation of NCUA’s field of membership rule, credit union capital adequacy was determined on a flow, or earnings set aside requirement.
Net worth was created by allocating 6% of income into a statutory regular reserve account until that total was at least 4% of risk assets. At that level, the transfer was lowered to 5% until a ratio of 6% of risk assets (primarily loans) was achieved. Retained earnings were on top of this required capital account. The tax exemption on net income was a critical factor in coop net worth build up.
A 6% ratio of total net worth to assets was considered well-capitalized. However CUMAA changed the capital creation from a coop model to a banking concept. Now the required ratio was determined by the amount of capital on hand at any point in time versus the flow of earnings into reserves. To be well-capitalized credit unions needed to have at least 7% net worth at all times.
For almost 100 years the tax exemption was critical to building total capital. This was the sole source of credit union bet worth. This process took time before startups could become financially self sufficient without sponsor support or location and convenience advantages.
Member loyalty was the intangible but essential foundation because reserve accumulation could take a generation or more to become self-sustaining. Growing a credit union’s balance sheet from 1998 was now internally governed by the credit unions growth of equity, or ROE.
In his brief history of FCU supervision, Ancin Cooley points out (link) how this founding role of credit unions has been eroded as the founders and builders have left the scene.
Few CEO’s today have had to worry about building capital and ROE performance. There is no external market accountability as there is no stock to be valued and traded. The industry’s average capital ratio is 11%, far above the 7% well capitalized rule requirement. Risk based capital measures are even greater.
Most newly hired or promoted CEO’s, especially in the three decades since CUMAA in 1998, are unaware of how the wealth legacy they now direct was built by generations of member loyalty.
A baseball metaphor for this historical blind spot of incoming CEO’s is useful: “Some people are born on third base and go through life thinking they hit a triple.”
And so the focus of these newcomer CEO’s, often with board blessing, is how to take the credit union to a new institutional level. Not how to enhance the well-being of the member-owners whose relationships were the unique foundation of cooperative success.
Excess capital makes the allure and seeming ease of purchasing banks or other third party assets, and moving beyond community to a financial intermediary, a ready breakout strategy. With the help of brokers and financial consultants the option is hard to resist. Organic growth seems so common place and difficult versus using surplus funds to acquire assets originated by others.
Instead of fulfilling cooperative purpose, the acquisition or ‘”transfer of control” (mergers) of eternal assets becomes the go-to success tactic. A coterie of consultants, lawyers, financial agents and lobbyists will facilitate these instant growth possibilities.
Today GAC attendees will hear urgent appeals for political action protecting the credit union tax exemption. But is that the best framing of the challenge?
Should the question intead be, if our organization were to taxed, would that change our mission? If the answer is yes, then maybe the first response is to discuss whether the vision-mission statement needs a review.
And secondly, what changes are needed for credit unions to continue their unique role for members, their community and in the overall financial markets whatever the tax status?
This week is the annual credit union political Woodstock festival in the Nation’s Capital. There will be vendor halls filled with new and old names; speeches from industry leaders promoting unity and forecasting threats; praise from both sides of the congressional aisles; and non-stop breakfasts, lunches and receptions/dinners to catch up with peers.
Is it possible in this choreographed cacophony that the most important voice and movement issue may not addressed? The concern comes from 2,700 miles away, written by a longtime member-owner and printed in the local newspaper, the Sacramento BEE.
In this week of celebration I believe this person is raising the most important existential issue facing the movement-will anyone pay attention.
https://www.sacbee.com/opinion/op-ed/article314780377.html
The Bee opinion is a current example of the increasing frenzy of secretly initiated intra-industry acquisitions reshaping the unique structure and role of cooperatives.
The proposed SAFE-BECU combination takes the future away from their member-owners. It now rests in the control of self-appointed boards and management’s personal ambitions. Regulatory oversight is entirely absent.
Existential moments in credit union history are not new. In February of 1982 Chairman Ed Callahan, in his first speech to GAC, asked CUNA President Jim Williams the most critical issues facing credit unions. Jim used one word: “survival.”
At that time, the movement counted 20,784 credit unions with $72.3 billion in assets serving over 45 million members. Growth had stalled. Inflation with double digit interest rates and money market funds were taking away shares. Credit union expansion a forgotten dream, investments (GNMA 8’s) were way underwater, and losses were looming high.
Drawing on his five years overseeing the largest state charted system in Illinois, Callahan proposed a new policy following credit union principles of collaboration, self-help, local advantage and ever enhanced member-owner value. The resulting changes in NCUA institutional oversight and industry initiatives created a movement that not only survived but thrived,. The movement transformed to the market driven realities of open competition from the era of government issued licensing for protected financial franchises.
Today the nation’s 4,200 credit unions manage $2.5 trillion in assets for over 140 million members with retained earnings approaching $285 billion. The NCUSIF is overfunded.
Unlike 1982, the system’s present danger is neither financial nor the various external warnings about fintech, stable coin options or other competitive innovation.
Today the existential end arises from two simultaneous practices. One is expanding efforts of self-destructive acquisitions of long-term large sound coops by their fellow credit unions. These efforts mimic the old fashioned capitalistic efforts to gain market dominance by takeovers, not competition.
As described in the BEE opinion editorial, the deals are done in secret with payouts and new roles negotiated by the principals, their advisors and then signed off routinely by regulators. No one represents or protects the member-owner’s rights and financial interests in these deals rife with conflicts of interest.
There is a second social and political factor at work. Today’s political ethos is the example of the strong, ambitious and single-minded pursuit of wealth and dominance, not democratic collaboration. Traditional credit union virtues of cooperation and sharing seem naïve. So leaders will bow their knees, compromise legacies of trust, to those in authority who in turn will stand aside as they pursue their goals of industry superiority.
The movement’s future has been steadily removed from member-owners’ hands through self-perpetuating boards and CEO turnover whose successors have no obligation to the legacy they now control. These changes of control transactions are now greased with payments in the millions of dollars from members’ common wealth.
Can this increasing cooperative cannibalistic destruction be challenged.? As more and more leaders are caught up in what one observer calls the emotional urgency of FOMO risk, can credit unions’ unique purpose be revitalized?
Two sources of hope and example.
The first is a renewed vision and embrace of what success looks like as a coop. Here is a classic, timeless statement by a longtime, very successful CEO, now retired. The Ultimate Vision:
(https://www.youtube.com/watch?v=tE_3-ipOiPE)
The second factor must be the old fashioned calling that all Americans believe in democratic governance. It is not the rich, those in positions of power or the inheritors of wealth that control our future. But We the People.
Scott Rose, in his BEE opinion, is the example Doug Fecher said would be the test of credit unions’ ultimate success. Scott is sounding an alarm for his community’s future. His effort is the same that has animated the best of American patriots for 250 years. On behalf of his 245,000 fellow owners, the greater Sacramento community and the missing regulatory oversight, he is alerting all of us to this takeover of not just his credit union but the entire cooperative model.
His willingness to take a stand will create public awareness, debate and an uprising from the grassroots. For as he says, “member-owners, local leaders and potentially impacted community organizations must speak out. What is lost is not simply and accounting abstraction—it is real control of wealth. . . Once approved, a merger cannot be undone.”
Will someone at tonight’s Herb Wegner award festival dare to honor the voice of this member-owner who is calling all of us to remember who we are and what we stand for?
The challenge is both present and ageless. In words of the Bard’s most famous character:
To be, or not to be, that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles
And by opposing end them.
Just spent a week in New York City on a Road Scholar educational program about Broadway Theater.
In addition to talks with multiple production personnel and an actor, we saw live performances of The Lion King, Ragtime and a show in preview, Marcel on the Train. Disney’s Lion King is in its 25th season, the longest continuous performance on Broadway. An example of an innovative, instant and long standing theoretical success.
The 40 authorized Broadway stages are the peak of the theater industry in America, a business that achieved national standing around the turn of the century. I believe there is much to learn from Broadway success that is relevant for coops.
While credit unions in consumer finance and theater’s live entertainment serve very different needs, success in both fields depends on the same three factors: collaboration, community and creativity (innovation).
From high school class plays to college drama departments to the professional stage, every theatrical production is an extensive collaboration of individuals with diverse skills. American University’s (AU) theater department’s recent production of Oklahoma showcased this artistic foundation.
It had eleven leads or main roles backed up with male and female dance and singing ensembles of twenty members. With the six orchestra members, the total performers seen by the audience was 37.
However the list of the creative and production teams was just as long. In addition to director and choreographer roles, there were individuals responsible for Solo Tap Choreographer, Vocal Coach, Fight Director, Intimacy Director, Scenic Design, Wardrobe Crew, Stage manager and two dozen more artistic support positions.
In our New York course, we learned that concept to stage can take anywhere from four to eight years for new shows such as Hamilton or Operation Mincemeat. A revival will require a year or two depending on the production changes.
At every phase of development, the people behind the scenes far outnumber the performers on stage. And that doesn’t include the business, university or 501 C3 non profit organizations backing the artistic undertaking.
To mount a live theatrical performance requires an artistic community plus an external audience (market) hat will be interested in the play’s themes and become supporters.
Oklahoma was Rogers and Hammerstein’s first collaboration. It premiered in 1943 at the height of WW II. The musical was set in 1905 right before Oklahoma achieved statehood. The musical reflects a moment when community was essential for survival. Daily life required cooperation, shared labor and mutual dependence.
One song that illustrates the tension between individual and community well being is The Farmer and the Cowman. It includes this democratic assertion, I don’t say I’m no better than anybody else; but I’ll be damned if I ain’t just as good.
(https://www.youtube.com/watch?v=31BI33T9yTI)
When Oklahoma first opened the the public was living in an era of uncertainty and collective sacrifice. Oklahoma offered a vision of America built on shared responsibility and thriving community interaction, not personal dominance.
The third factor in theatrical success is creativity. While the public in the Tony awards will celebrate an individual’s role, the final result is always a collaborative effort that has resonated with a community of followers and critics.
A theatrical success is timely, with events and characters that resonate in the present, as well as timeless appeal across generations. Oklahoma captures the buoyant optimism that is America in its opening song, O what a Beautiful Morning. It includes a memorable phrase of boundless hope: all the sounds of the earth are like music.
(https://www.youtube.com/watch?v=Ks5TgRRhqvw)
Both cooperatives and theater emerged as industries around the turn of the twentieth century. One spoke to the need for economic justice; the other to the growing search for a national artistic identity.
Both of those needs are present today, if not more so. The same organizational capabilities that created these successful enterprises are still essential today:
Credit unions and theater come in many sizes and complexities. Both are much more than businesses pursuing financial sustainability. They uniquely rely on and energize local communities. In an era of social divisions and individual isolation, Oklahoma shows us how community is formed, challenged and celebrated.
In Saturday’s final performance, the audience of AU students, friends and family, applauded and screamed with joy for what they had experienced. From a play created three generations earlier. And whose message is ageless.
In the show’s finale you can feel once more the exuberance of this unique creative collaboration. Here’s hoping your performance today will leave your audience feeling as good!
From Homer’s Odyssey
“… Whoever draws too close,
… and catches the Sirens’ voices in the air…
The high thrilling song of the Sirens will transfix him…” (see note at end)
Coop CEO’s grapple with multiple challenges and choices. Their strategic judgments are often formed by character not objective circumstance.
As recent events in cooperative land have demonstrated, there are ever present calls by Sirens to enhace one’s power and self enrichment.
This is a story of a CEO who has been solicited incessantly for over a decade to compromise her credit union’s future and her principles.
Madeline Stewart the CEO of Vida FCU had a lot on her plate at the beginning of 2025.
Three special projects included a name and branding change from Ontario Montclair School Employees FCU to reflect their expanded market; the implementation of the new CDFI lending program; and a complete physical makeover of its office.
These initiatives are described in several public interviews with local media. In January 2025 she completed a 30 minute recording (link) with the Western Cuna Management School (WCMS) whose three-year program she completed in 1999.
An hour live radio broadcast in July was also filmed for YouTube. She presented her CEO journey to three interviewers. She began working with Vida in 2000 becoming CEO in 2016. She explains the special resposibilty of the credit union to provide members value and service available nowhere else.
(KCAA inverviewers and Madeline on the far right)
In the KCAA radio discussion (link) she gives multiple examples of special member benefits. No fees for overdraft, courtesy pay or NSF withdrawals. The same rate for new and used auto loans. A Visa card with an interest rate as low as 8.48%.
On the credit union’s home page there is an About Vida video (link) which she introduces. Other employees and members share their experiences with the credit union.
CEO Sewart is out front. All three recordngs focus on the welfare of members. At one point she mentions growing up in poverty. She sought a career to serve those taken advantage of because of financial circumstances.
The name Vida, life in Spanish. refers to both the credit union’s potential market and the goal of lifelong member relationships spanning generations.
She expresses gratitude. She references a 2016 NCUA examiner who completed a zip code analysis of her members. He recommended she apply for the Low Income Designation (LID) regulatory classification. That approval led to the CDFI program certification when expanding her FOM to an entire county.
Her responses to question focus on a singular responsibility-how the credit union makes members lives better. I heard little about asset size, growth rates,technology innovation or other institutional benchmarks traditionally a part of CEO interviews.
However here are some selected performance outcomes at 2025 yearend. $170 million in assets with $84 million in loans operating from a single office with 34 employees serving 10,117 members.
Key ratios: ROA, .96%; net worth, 13.8%; Delinquency, .16%; and a net inerest margin of 3.54%.
Vida competes in the southern California market, a land of giant institutions. The credit union thrives by building local personal relationships. With one location, multiple channels and future “twigs” planned, her team stands tall against all comers.
Just as Homer’s Odysseus hero faced constant temptations in his epic quest, she confronts ever present entreaies to change her voyage of special purpose.
For the past ten years the credit union has been the object of constant credit union and intermediary solicitations.
Here are examples of these mulitple communications:
From: February 5, 2026
Good morning, Madeline,
Bumping this up in your inbox as I’ll be travelling out to California (I’m based in Minnesota) for some client meetings and I’m hoping we can align calendars.
Any chance you’d be available for dinner on Feb 26 or breakfast Feb 27?
As I mentioned, happy to provide further context when we connect by phone.
Thanks in advance.
From: Thursday, January 29
Subject: Strategic Interest
Sensitivity: Confidential
Hi Madeline,
Following on from my earlier LinkedIn outreach, I wanted to reach out on behalf of a CU client of ours that’s interested in meeting with you to discuss a potential strategic partnership with Vida FCU.
I would appreciate the opportunity to speak with you at your earliest convenience.
Here is an invitation from 2021;
Trust you and yours are keeping well so far in 2021.
I am writing to you in your position as Chief Executive Officer of Ontario Montclair School Employees FCU to discuss a strategic opportunity with one of my credit union clients.
We’ve been helping companies grow for almost 25 years now and we know that there is value in bringing parties together for exploratory conversations. We have been engaged by a significant-sized credit union based in California that is looking to proactively grow through strategic mergers.
After researching potential candidates,a merger with Ontario Montclair School Employees FCU has been identified as an attractive strategic opportunityfor our client, due to your location and field of membership.
We approach you because we felt there was an interesting strategic fit and that with our client there might be stronger growth opportunities together to better serve members across California.
Our focus at this time is on opening the door for an introductory conversation and presenting their strategic rationale for a merger
The temptations are not just from external brokers, consultants and vendor go betweens. They come from credit unions. One message communicated via the league offered to pay her expenses fo attend the GAC in Washington DC. Local credit union meetings often lead to conversations such as, would you be interested in . . .
In one messsage, the writer threatened to contact the board chair directly if she did not respond!
These appeals are a constant refrain in her tenure as CEO. When I asked why she didn’t listen to the pitch to know what is being used to tempt her peers she replied.
I’m not open to temptation; I care about my members & employees. I’m sure the conversations would kick everything off with an NDA request. They have been pursuing me for years but they’re ramping up the efforts. relentless!!!
Credit unons are averaging over 150 mergers of stable and sound credit unions per year. The merged credit union members are transferred to a third party’s control, a firm they had no role in selecting and one often with no local knowledge or presence.
The credo of one firm soliciing credit union mergers is: Every company is for sale … for the right equation. But, it takes skill and experience to find them. Some credit unions succumb to this belief, facilitated with the right monetary incentive.
I believe today’s coop leaders remembered in the future wll not be the largest, most innovative or expansive. Rather it will be the persons who declined the persistent calls to sell out their owners, employees and communities. For they keep alive the special opportunity for all a coop’s stakeholders tp sustain their unique mission.
One of the perceived advantages of cooperative design and member-user governance was to make them immune to the ever present capitalist free market mantra that any organization can be bought or sold–it is just a matter of finding the right price.
Cooperatives were not founded to be sold or converted to private ownership. But today that belief is no longer universally held.
Madeline is a credit union believer who leads with deeds and dedication. She is building a legacy much greater than her balance sheet and half century of serving in the credit union ommunity.
It is the character of her choices and the implementation of cooperative’s ideals that will become a benchmark for all CEO’s large and small who will come after.
Editor’s note:
With the avalanche of news about anti-ICE marches, Epstein file updates, military deployments, Guthrie kidnapping, and stock market records, it was easy to overlook an unprecedented arrival in DC.
This past Tuesday, 19 Buddhist monks and their rescue dog completed a four-month, 108 day walk from Fort Worth to DC to pray for peace. One account of this human effort and public response is below. Not only is the story completely out of the ordinary, as one interviewee states, it also gives us hope.
(https://www.youtube.com/watch?v=13I_7f8pH78)
Hope Closer to Home
Yesterday’s SECU-Just Asking blog was about Lending Hope, a community self-help project in Warren County, North Carolina.
Following are excerpts of the Feburary 4th Warren Herald’s story, Ceremony Marks Official Launch of Lending Hope Initiative. (link)
Key elements of the program include:
The Warren Ministries United purpose: “Our mission is to offer small, interest-free loans that assist applicants in managing rent, mortgage payments, utility bills, and deposits.”
The Rev. Philip Sharp, the organization’s executive director, said that local residents who would like to apply should bring the following:
“We will do the application process with them and do a budget with them,” Sharp said.
After the budget is completed, those seeking funding will complete an application form that asks them a range of questions, including what help is needed, and the amount that is being requested.
Warren Ministries United will consider such factors as income level and amount. Applicants will be asked to contribute what they can, and the Lending Hope Initiative will make up the difference. The applicant will sign a payment agreement.
“When the money comes back, we will give to someone else in need,” Sharp said.
Donations have enabled the Lending Hope Initiative to have enough money to start and will continue to help fund the program moving forward. Thanks to the initiative, a family who lost their home to fire was able to pay an electric bill so that electricity could be set up at their new home, Sharp said.
Warren Ministries United hopes that the Lending Hope Initiative will prove to be sustainable well into the future.
Does this Lending Hope’s process remind you of a another institution’s role? Except the part about no interest?
A former CEO Doug Fecher used to state his criteria for whether the credit union was fulfilling its mission by asking: “If Wright-Patt Credit Union went away would the members stand up and recreate us? Or would they just go down the street and choose another option?”
He would then often add: We’re not there yet, but that is our goal.”
(https://www.youtube.com/watch?v=tE_3-ipOiPE)
The Lending Hope initiative is one answer to Fecher’s criteria for whether credit unions are fulfilling cooperative purpose. There is one credit union branch only in Warren County, North Carolina. It is run by SECU, the second largest credit union in the country.
Both examples of Hope from a walking prayer for peace, or making no-interest loans to local persons in need, share a common source. They were initiated by religious leaders.
Society often describes these activities as movements. Like the Civil Rights Movement.
I believe that hope is why credit unions were founded. Are we still providing that for our members today?
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 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.
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.
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?
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.
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:
History matters. It provides perspective for how we arrived at our present circumstance. This context can highlight critical prior assumptions. It teaches about successes and failings.
Most critically, knowledge of the past can help identify important issues for future sustainability.
In the summary which follows, Ancin Cooley provides insight about the motivations during credit unions founding era. And what has been lost from that generation’s experiences.
Tomorrow I address the underlying question from this history lesson: What kind of regulator is most likely to sustain an independent cooperative financial option for America?
By Ancin Cooley
Did you know that between 1934 and 1970, credit unions had four different federal regulators, and none of them actually wanted the job?
Here’s the journey:
1934–1942: Farm Credit Administration
When the Federal Credit Union Act was passed, the Federal Reserve and the Treasury Department were the “logical agencies” to oversee a financial institution. Both said “Nah, we’ll pass.”
1942–1948: FDIC
During World War II, credit unions were temporarily transferred to the FDIC. But the FDIC didn’t want them either.
1948–1953: Social Security Administration
When the FDIC pushed credit unions out, they didn’t go to another financial regulator. Credit unions were placed in the Social Security Administration.
1953–1970: Department of Health, Education, and Welfare
When HEW was created, credit unions moved again.
In 1970, the NCUA was established and the NCUSIF created.
What does this tell us?
Credit unions weren’t seen as financial institutions in the same category as banks. The St. Louis Fed wrote: “Credit unions are exempt from federal taxation because Congress views them as member cooperatives and, therefore, quite different from banks and thrifts.”
But why?
Why were credit unions classified differently and given a non-profit status? Many credit unions from that era were born out of crisis. The Great Depression wasn’t an abstraction for the people who built these institutions; it was a lived experience.
From the 1929 crash through 1933, about 9,000 U.S. banks failed. Those failures resulted in approximately $1.3B in losses. (I am sure someone can convert that into today’s dollars)
If you’ve ever known someone from that generation, you know it changed them. My grandmother is 93 years old. She hid money in places we have not yet found. That era shaped how an entire generation related to trust, to institutions, and to one another. Credit unions didn’t grow from a clever marketing campaign. They grew as a community in response to a collapse of trust.
A note on where we are now.
I’ve been wondering why the norms in the credit union movement began to deteriorate about 25 to 30 years ago. I believe the early builders reached a point at which they could no longer protect their institutions.
Many of the things we are watching today would have been harder to pull off if those original guardians were still in the boardroom. I find myself often whispering to myself, “Now, you know this wouldn’t have gone like this if Mr. John were still alive.”
The people who built many of these institutions carried a lived memory of bank failures. They remembered what it felt like to lose everything. That memory did something important. It created guardrails. Because when you have experienced a trust collapse, you do not treat a cooperative as a commodity.
Next post: how the S&L crisis reshaped the credit union landscape, including the entry of bankers who both helped and harmed the movement.
Editor’s note: I will post my response to Ancin’s insight tomorrow.
For the first 75 years of credit union history, member, share and asset growth was from internal, “organic “ business efforts versus external acquisitions.
Some of the factors requiring this approach were regulation, field of membership limits, the absence of external capital or liquidity, and the cooperative design’s “local” advantage.
After deregulation of financial services became government policy in the 1980’s, many of these constraints were modified. Growth options expanded. FOM regulations were broadened. New membership strategies such as indirect lending were introduced. Credit union leaders expanded their market ambitions.
Today many credit union strategies involve both organic and external acquisition growth tactics.
This market bidding for new members is illustrated by financial institutions’ multiple offers for new checking accounts. Here are some recent cash bounties sent to me:
From an airline credit card issuer:
As a valued Chase customer we’re thanking you with an up to $900 offer. Open a new Chase total Checking account and the new Chase Savings account with qualifying business activities.
One of my credit unions emailed this offer:
Dear Charles,
You can still earn up to $100 when you open a new Patelco Checking and Money Market account. Here’s how.
USAA’s post card appeal had this headline; $400 Cash Bonus. The offer: When you apply for and open your first USAA Classic Checking account and receive a qualifying direct deposit. Offer is nontransferable.
A new local bank, Atlantic Union, promised a $400 welcome bonus in three easy steps.
Not to be outdone, PenFed offers up to $300 for opening a new checking account with a qualified deposit. To receive the full $300 requires an initial $20,000 deposit. The average daily balance must remain above this amount for five months to receive the $300.
Indirect auto loans illustrate the ultimate challenge of external asset purchases. Can these new customers be converted to loyal members. Or is the transacton a one and done event?
Before deregulation the credit union option was itself compelling. Word of mouth was the most common marketing effort. Credit union membership was thought to be a valuable benefit.
One proof of this belief is the many times members moved away from a job or their community, but chose to retain their credit union affiliation-just in case I need it.
In what some CEO’s view as a commoditized financial services arena, the quickest way to grow is to go buy it. These efforts include third party loan originations, purchasing individual participations, acquiring whole banks and the ever present offers to merge facilitated by golden parachutes for the selling CEO.
Is offering a better price sustainable?
Will these “bonus” pricing strategies result in long term loyalty?
Buying growth seems easy at first. The costs and immediate increases in size are seen. The longer term question of whether these relationships last, is down the road.
The tactics of purchasing initial market success raises important questions:
Buying growth is not a unique market capability. It is very visible and easy. Just call up a broker or other third party originator. The real work of relationship building just begins with the booking.
Purchasing growth is constrained by internal resources and market competition. Is attracting new members with a better price the best way to present the cooperative value advantage?
The capabilities and reputation that created a $2.3 trillion ciiperative financial system today were built on a foundation of multiple factors. These included convenience, personal service, local familiarity and a fair price. All wrapped in values centered on collective community care.
The challenge of creating real organizational value is ever present. The answers are not simple and often unique to a credit union’s situation and leadership skills.
The response is not to go back to a prior era or model. Rather it is a simple lesson from generations of coop success. If an organization wants to be a credit union, then it must decide to be one. Not perfect, but at least good. America has plenty of banks.
P.S. Here is a case study published by CUDaily of a credit union expansion effort based on credit union advanages: Why a California Credit Union Intro’d a New Digital Brand in Georgia.