“Shock and Awe” or a “Calling Out”?

NCUA's cautious first step has unsettled presumptions for credit unions and has challenged our confidence in each other. Will our faith in each other be strictly limited to the resources we manage, or can we rise about the disappointment and price we all must bear to sustain a cooperative model that is more needed than ever?


Two days after NCUA’s announcement of its corporate stabilization effort, a senior spokesman when asked what the initial credit union reaction was, paused and then said, “Shock and awe.”

Anger is certainly widespread. The entire credit union system has been energized.  Thousands have attended webinars to learn about the facts. Individual credit unions, trades associations, and many related organizations have sprung into action. Many are expressing opposition saying they will not let these first efforts stand.

I believe NCUA’s initial step to set up a means for managing the potential of large investment losses in the corporates was well constructed.  NCUA has “called out” the credit union community to develop the most cost-effective solution and to re-create a better corporate network for the future.

The Next Steps in the Process

            NCUA has provided the architecture to address the corporate network’s collective possible losses.  Simultaneously it has set in motion at lease five processes to minimize those losses while maintaining full daily corporate activity and evaluating all future options.  These processes include:

  1. Independently tracking trends in the corporate investments’ market valuations by hiring Pimco.  This data can be used along with a corporate’s pricing procedures and auditor’s estimates to constantly “size the problem” before finalizing initial NCUSIF reserve funding by credit unions.
  2. Meeting one-to-one with each corporate to implement supervisory agreements as a condition for share guarantees and to strictly control immediate actions;
  3. Beginning the rule-making procedure to allow wide discussion and consideration on the best role and future structure of corporates;
  4. Developing steps to assist credit unions facing the most serious delinquency problems, now burdened by the added costs of this action;
  5. Initiating efforts, in parallel with trade associations, with appropriate committees in Congress and the Treasury to seek ways to enhance both credit union and CLF-NCUSIF options in the current financial crisis.

These actions were temperate, well thought out, and foreclosed no future options. The Agency has asked the entire credit union community to resolve the corporate challenge by being more than a source of funds. This structure gives credit unions an opportunity to affirm who they are and what their cooperative capabilities should be for the new world of financial services that will arise from the current economic crisis. 

E Pluribus Unum?

With NCUA having taken this deliberate approach, the issue now facing some credit unions is reconciling their individual institution’s self interest with the well-being of the movement.

Some have initially answered this question by proclaiming there should be no future corporate network and asserting that their only responsibility as credit union directors or CEOs is to their own memberships.

Certainly many credit unions have reached the stage of financial maturity that they could go it alone.  This is a tribute to the leadership and progress that credit unions have achieved since deregulation by which market forces, not a government charter, determined the future of a financial institution.

But did we come through deregulation merely to become another set of 8,000 individual institutions competing with for-profit entities distinguished only by a different organizational structure?

Will credit unions continue as a movement (unum) or will we just all go our many separate ways (pluribus)?  What insight does the last hundred years of credit union history (and 75 years since the Federal Credit Union Act was passed) provide at this critical moment?

A Public Policy Covenant

Credit unions were started because of market failures.  For-profit firms either could not or would not serve consumers on equitable terms.  For over 100 years individual states and the Congress have passed credit union chartering laws as alternatives for consumers because of the shortcomings of privately owned, market-driven financial providers.

Credit unions are supposed to grant credit when and where others will not and on terms that are in the member’s interest.  Credit unions are to encourage thrift in their member-owners, not gain on the part of a few shareholders or insiders. 

For this role in society, credit unions have been given an exemption from one of the universal commitments of for-profit and even many mutual firms: the requirement to pay taxes on their earnings. 

Because cooperatives have a different structure with no capital except member shares, common values were required to succeed. Trust and dependence on one’s fellow members have been a distinctive part of the credit union movement’s fabric.  These values continue today to be affirmed in many credit unions’ mission statements.

But these values that undergirded cooperation in the start-up years did not just replace private capital.  Cooperation is how the movement thrived.  We relied on each other to create organizations, CUSOs, insurance funds, and the corporate network that serve all credit unions--large and small--equitably.

These values are not merely an intangible emotional legacy or temporary partnering tactic.  Real cooperative dollars finance the credit union insurance model; they provide the resources to start organizations as diverse as CU*Answers and CUNA Mutual, foundations and literally hundreds of local chapters, CUSOs and community contributions.

Cooperation is credit unions’ competitive advantage.  It is why a member with little resources but good character can come in to get a credit card, car loan, or even a first mortgage on the same basis as a well-to-do member.

Cooperation is why a $3-million credit union in South Dakota can provide meaningful services and a choice in the way a billion dollar credit union does in Washington D.C.

Do We Still Need Each Other?

NCUA’s cautious first step has unsettled presumptions, revealed troubles that lay behind appearances, and challenged our confidence in each other.  In this time of extraordinary economic crisis, NCUA is asking every credit union whether the cooperative model as conceived and inherited by us will endure.  Are we willing to pay the costs of interdependencies, not merely reap the benefits?  Or do we, like the for-profit firms, admit this is bigger than we can handle, and thus like them also go to the public purse?

The corporate crisis is a test, not just of our financial wisdom and resources but also of our confidence in each other.  Almost every CEO, director, and member who now belongs to or works for a credit union did not create that institution. We are all the beneficiaries of a legacy, one which is not merely composed of financial resources and accumulated capital.

This legacy, which we all enjoy and work with, was formed over generations and built on trust in each other.  It is a result of the work and “sweat equity” of members who believed in helping their fellow factory worker, office employee, church member, school teacher, military draftee or volunteer, fireman, and government employee. 

Credit unions are institutions built on the willingness of individuals as members or individuals as leaders of their organizations to cooperate for the greater good.  Congress affirmed this vision nationally in 1934 in the middle of the Great Depression based on the evidence of state-chartered credit union pioneers. 

Now that legacy is challenged.  Will our faith in each other be strictly limited to the resources we manage, or can we rise above the disappointment and price we all must bear to sustain a cooperative system that is more needed than ever?

NCUA did not answer this question for the credit union community.  In fact, every generation must answer that question for itself.  All NCUA has done is given us the chance to reaffirm our faith, for it is a belief, that together we will be able to do things that none of us could ever accomplish on our own--even if we have billions in assets.

I believe credit unions will respond with renewed vigor, determination, creativity and, yes, even fervor for the movement.