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The FDIC Has an Epiphany – Moves to a KISS Approach for Using Only a “Simple Leverage Ratio”

September 25, 2019 by Randy Karnes Leave a Comment

Credit unions knew this all along

I have been trying to write a witty blog on this all morning. I wrote a few thousand words focusing on “I told you RBC was a bad idea.” Then I switched to “how much money have we wasted debating RBC and do examiners feel bad now that the banks are seeing the light” and have recently scooped them by giving regulatory relief first. Then I moved over to studying all of Chip’s comments on the fact that world regulatory leaders understand that liquidity save organizations in tough times, not goofy long-winded complex models for capital (wow, forgot how much that guy can confuse issues with the facts). Finally I just gave up on being right and the glories in rubbing the NCUA’s nose in the investment they made in RBC, and decided to write you a more direct piece: a call to action.

In the blog yesterday, Vic Pantea sent a call to action to the NCUA Board of Directors and gives them the CYA they so badly always need. You can simply follow the lead of other smarter agencies and take the credit for the right decisions. But what should you and I do?

Simple: Add our voice to the cry for the NCUA to come to its senses NOW. To rally the support of your lobbyist, trade organizations, and peers to amplify the call by simply communicating our hopes over and over. Push everyone to advertise a CU WIN: the FDIC adopts a proven CU model for evaluating capital adequacy. To call out that in the end, the FORMER FDIC Vice Chair (Koenig) was right: RBC is a burden, not a safety and soundness improvement. While BASEL might demand a way for large international banks to communicate with a common language, RBC is not what anyone needs in the community banking or credit union industries. It’s a loser and CUs want it gone, and wiped from the NCUA’s game plans.

Oh by the way, CECL is no better. So put a P.s. in every message you write and let’s refocus the agendas for the NCUA in 2020, right now! Help the NCUA tell the FASB people that approaches that need 10 years and constantly moving deadlines, are generally dead on arrival. Here is to the KISS (Keep It Simple Stupid) movement moving through the NCUA team like a wildfire. What a glorious vision after all.

Tell Me Why I’m Wrong.

Should the NCUA Follow the FDIC’s Lead?

September 24, 2019 by Randy Karnes Leave a Comment

Below is a letter Vic Pantea recently sent to the NCUA Board of Directors advocating for abandoning risk-based capital regulation on the grounds that the FDIC gave it up for its regulated banks under $10 billion. Do you agree with him?

Subject: FDIC Final Rule on RBC for Community Banks under $10 B

NCUA Board Members:

On September 17, the FDIC adopted a final rule which defined the optional simplified measure of capital adequacy for qualifying community banking organizations. Also known as the community bank leverage ratio this rule was required by the Economic Growth Regulatory Relief and Consumer Protection Act. Under this rule all community banks less than $10 billion in consolidated assets and maintaining a tier 1 leverage ratio of greater than 9% will not be required to report or calculate risk-based capital.

I hope that this action by your fellow agency will bring to a final and well-deserved demise any NCUA efforts to develop risk-based standards for implementation in credit union leverage calculations. I feel that it has been proven since our earliest discussions that efforts to implement RBC in the nation’s credit unions was an ill-conceived regulatory intrusion into safety and soundness calculations. Certainly, this FDIC decision should quickly bring to an end the use of funds necessary to continue the study of RBC approved in the June 2019 Board Meeting.

I look forward to your individual responses to the FDIC final rule and the subsequent board actions necessary to remove the regulatory threat of RBC for all credit unions under $10 B.

Thank you.

Vic Pantea

Why should we do our best to change the NCUA Board Member selection approach?

June 17, 2019 by Randy Karnes 1 Comment

For a future that would get our NCUA leaders focused on comments like Jelena McWilliams

This week, June 19, you will see that CU*Answers is trying to rally NACUSO to help us push CUSOs towards some big projects. My favorite is an effort by CUSOs to impact the selection process for the NCUA board of directors. For ten years, or more we have not seen a NCUA board member step up and rally a single project that was designed for a growth initiative, for a cooperative consumer-owner initiative, or for any initiative that was pointed at the chance to expand our members’ sense of well-being. We simply suffer the government’s assigned “snow fence installation crew” – the people that wrap us in safety and soundness and corral us behind fences designed to stave off storms. We need leaders with new mindsets and sincere intent, because they have felt stifled in their lives too.

We need a counterbalance to the two new directors, and we need it soon, before we all pass away from boredom and the ground hog day effects of “been there, done that.” It is time to select someone that is pro-cooperative business models, understands a CUSO’s drive for cooperatives, and someone that might put some heart into the game to inspire our faith in the heart of the NCUA. Can that start with a person, the next appointee, or will it wait for us to push harder to change the selection process? I say try both. Push for an immediate talent to join the other two, push for someone like Sarah Canepa Bang, or even Sarah Canepa Bang… And prepare for a long process to influence the way the next ten administrations select our directors.

We have work to do if we are to ensure that we might have a chance to match the talent and sentiments of Jelena McWilliams on her best day. Here is to better days ahead.

Read the remarks by FDIC Chairman Jelena McWilliams at the CATO Summit on Financial Regulation, “If You Build It, They Will Come”; Washington, D.C.

The Next NCUA Board Member Will Probably Be Cut from the Same Cloth

April 1, 2019 by Randy Karnes Leave a Comment

On 3/28 Chip Filson pushed this to our marketplace. Did you read it? Did you yawn, and then delete it? Or did you think about it and act on it? I can think of a few things to do with this posting:

  • Send it to my board and declare that the future based on these new board members will probably be a lot more of the same – they are cut from known cloth with known track records, and with no new things in sight.
  • I would then send it to everyone I know that might have some influence over this process and say I hope McWatters’ replacement is at least a small if not major course adjustment.
  • I would drop every contribution to the political side of our industry—there are no lobbies that really are as upset as our members are with these leaders—until they decided to do something about the way we assign NCUA board members. I would follow that up by pushing for future administrations to actually have a plan or project for these seat warmers to lead on, if they can lead. Board members are supposed to push for something other than bureaucratic constants.
  • I would then study board members that get appointed to the agencies that lead our competitors and consider the fact that we do not get the same draft picks for our hopes and dreams. Another thing to point out as we think about our political contributions and support lent to others. Have you read the writings or speeches made by Chairman Jelena McWilliams? Wow.
  • And finally, I would send all politicians a message: My Organization Has Left the Building – savings its money to survive the political system’s wake washing up my strategies and hope I have enough saved to avoid being washed away by their actions. Because based on the history that Chip lays out here, there are no players coming to the NCUA that are worth the money to stay engaged.

You might say, Randy hold on here, we can’t change anything by quitting, we need to influence the game. To that I say we have to REVOLT against the current game, and since so many of us just do not know how to really get our politicians’ attention that might be a sucker’s bet. I have no kingdom to offer in exchange for a solution here, just my hope. Chip gets me thinking…..

The NCUA’s role has become writing a check and giving the bad news

March 13, 2019 by Randy Karnes Leave a Comment

Mike Shafer responded to my most recent article and offered a different view of the issue at hand as one in which the NCUA has the unenviable task of performing clean up duty. Firstly, thanks Mike for speaking up on this topic and sharing your opinion!

Thanks also for making my point that the NCUA did what it has always done, and we were all happy to let them off the hook.  We will lightly criticize the NCUA for letting credit unions make this a system issue (raking in CU profits short-term with no plan for the ultimate rainy day), but then just forgive the NCUA when they have to deal with the consequences. Do you sense a pattern here?

Or is it just all part of the game? CUs maximize their independent success for as long as possible and then dump their ultimate failures on the system? Could you imagine if that was the game, and it was stated so directly?  How would people see the design and how would they change it?

One perspective: CUs owe nothing to the system from their independent success year over year. In which case, the NCUA really has no role in assigning some premium or hold back from success against future ultimate failure. Alternatively, credit unions’ ultimate failures are equally divided by the system independent of their successes from the past. In which case, the NCUA really has no role in the end, but to write a check and tell the system about the bad news. (This is the opportunity to improve.)

After you gotten the bad news over and over, and you went back to the design statement over and over, do you think it reasonable to let everyone off the hook without trying to improve it? (Chip sure does not think that way.) What if we all pushed hard to stop getting the bad news and made the design work better.

  • What happened to the $ represented by the extreme Net Worth? Were they extreme or should they have been seen as mandatory per the RISK? (This is a tough thing to size up – I am not a fan of RBC.)
  • How did the system benefit from the independent success of these credit unions (direct sourcing CUs and the participating CUs)? Is there a reason to rejoice in the net returns to the system even after the failure?
  • Who made the call it was time to declare Ultimate Failure? Here is my bone to pick with the current culture of the NCUA: they did.
  • Who decided to end the CU work out, and stop working with the members? Here is my bone to pick with the current culture of the NCUA: they did.
  • Who decided that writing a check was better than pushing through as owners of the situation with the members? Here is my bone to pick with the current culture of the NCUA: they did.
  • Who likes to benefit from calling it a crisis and being the white knight? Here is my bone to pick with the current culture of the NCUA: they did.
  • Who accepts the design and even justifies the writing of checks, the increasing budgets of the NCUA, and the liquidators profile? The industry does, because it can’t and won’t work to change the design.

Now don’t get me wrong, I have no simple fix to this design. Frankly, I am not sure I need one because I am ok with the net return to the system over the life of member economies (years of gains less the shut down costs model). But what I hate is the posturing of everything as a crisis and that the NCUA is doing a good job, instead of a mediocre one at best.

I am sure that Chip sees the design a bit differently. Perhaps he does not believe in this statement:  The NCUA really has no role in the end but to write a check and tell the system about the bad news.

Maybe he believes and we should too that:

  • The NCUA should do everything in its power to see that the independent credit union completes the work out directly with the members and delays the Ultimate Failure declaration until all is lost.
  • The NCUA should write checks and ensure the ability of the system to complete the work out with the members, not just pay for the problem to be transferred out of the system without care or concern for the impact on credit union owners, their communities, and the sense of our independence as cooperatives.
  • And in doing all of that the NCUA should be accountable for the situation of both success wasted, and failures not managed to the minimal loss.
  • We all should look for more than convenience in dealing with failure, we should look to the pride of helping CU with their independent management of success and failures via a system that pushes them and us not to quit on customer-owners at the drop of a hat.

Tell Me Why I’m Wrong

Read Chip Filson’s response to Randy

Chip Filson deserves an answer from all of us as credit union professionals

March 12, 2019 by Randy Karnes 1 Comment

Is it possible that Chip Filson is the last NCUA critical thinker of his generation or just a one-trick pony?

Read this most recent posting from Chip Filson on CreditUnions.com. Within just a few seconds you will pause and think “Oh, Chip, are you ever going to give up on kicking this dog? Does anyone really think it matters if we critique the NCUA’s action anymore? Does it make a difference?” But then you will read on—I always do. Chip Filson is a friend of mine and I believe his opinions on the system and the NCUA are valuable on many levels.

First, they remind me that the NCUA is not just an insurance firm or a regulator – they were designed to be more. They were designed to foster and separate the concept of a consumer-owned financial system that saw the world through a community lens and with bigger goals than just banking.  Chip might be the last true commentator who had a pulpit focused on wanting the NCUA to be more than just a government agency.

Second, they remind me that you have to look further than today’s headlines to ADD it all up. And while the numbers are getting so large that we round to the nearest billion these days, Chip reminds us that the NCUA only rounds numbers up or down based on their own internal goals to look good. The NCUA is no longer balanced by anything other than its own sense of importance. And board members are no longer the voice of reason, they are simply the promoters of a bureaucrat’s reputation. Chip might be the last true historian with enough perseverance to audit, research, and painstakingly try to sum up the NCUA’s actions in totals to paint stories as lessons for the future, not just sound bites without conscience.  

Third, they remind me that counting on the central planners of Washington and all those that see our business, credit unions, as some fine-tuned social model for justice is becoming more and more fool’s folly. For those who make up the industry have lost much of their fire over injustice, lost much of their indignation of those who would tread on consumers that act to be owners of community businesses, and have lost faith in political structures that cannot see a reason to separate a cooperative system from the evaluations and constructs of for-profit designs for banking and community action. Chip might be the last CU leader that truly reminds me to maintain hope that the NCUA could be more, and that counting on our system to heal itself is still worth the effort.

Today, the article strikes out against the way 8,000 member-borrowers were discounted and forgotten. Yesterday, there were dozens of moments Chip reminded us that the NCUA was off track. But what I am the most dismayed about in thinking about all of these articles is that they never rallied my generation of CU leaders and CU organizations to any recognizable effort to change anything at the NCUA. We have yet to mount any effort that showed us that any administration’s intent for the credit union industry was greater than a quid quo pro nod to a third level constituent owed a favor. We never got anyone’s attention for the effort to build a better NCUA, a better insurance fund, or a better machine to improve our own solutions.

We are capable community, small business builders, but we might be little else if Chip will be the last commentator to try to rally our ire and hopes for bigger things. Tell Me Why I’m Wrong.

You do not see this every day, but now is the time to see it more

February 6, 2019 by Randy Karnes Leave a Comment

A CU industry ICON reaches out to the Washington Post for more light on credit union regulatory agency’s disrespect for 100M American citizen-owners of credit unions

Many of us have long become accustomed to Chip Filson’s warnings related to NCUA excesses and lack of respect for process expectations or rules.  He constantly lets us know that the current administration at the NCUA and ineffective board cares little about due process, transparency, or even the hint of propriety in the use of their power to just wipe out credit union owners’ capital and the future it represents. So when he published his most recent article on the NCUA’s spending $1.5B of member funds, many of us might have just sighed “there he goes again”, and way too many of us might have given up trying to connect the dots with all of the numbers, acronyms, and references to the NCUA’s shenanigans. It is news, but it is just expected news these days.

What was surprising to me was when I read this email from Chip to the Washington Post, because his indictment of the NCUA in his email was much easier to consume, to engage with, and to “feel” as an industry supporter. I have always been able to feel Chip’s passion for the system, and even his hopes that the NCUA would play up. But when I put this article, our industry apathy to the details, and this reach out to the real world together I knew things were changing. Keep going Chip, and keep pushing for people to pay attention.

For now is the time to push harder. With the recent announcement of Rodney Hood for another round at the NCUA as a board member, the recent push to fill the other empty seat, and the pending need to replace McWatters, there could be no bigger reason to try to get the attention of all of the people who might care about those 100 million citizens. Now is the time to push for a different type of leader on the board. Rodney Hood shows no signal, from his past or current activities, that he will change a thing for the better as a future board member. I predict that he will be recycling the agency’s disrespect for all of us with his passive, quiet demeanor of a bureaucrat without the skills to lead.

Now is the time to push the President to actually have a “project” for the NCUA Board. Something that calls for leaders. Now is the time for the administration to do more than dole out appointments as an afterthought. Now is the time for the administration to give the NCUA Board a job! Change the path of the CU industry by actually caring about the owners of credit unions as much as they care about the owners of for profit financial service models. Now is time to push for a new day.

I hate to see icons of the credit union industry (e.g. Chip) pushed to calling on the Washington Post, but now is the time to reach out and demand somebody shines a light on the need for a better NCUA Board with a real agenda. Tell Me Why I’m Wrong.

The tides of change don’t affect the legacies we leave behind

January 30, 2019 by Randy Karnes Leave a Comment

Thoughts on the merger of Progressive Credit Union

I recently read an article from Chip Filson about the merger of Progressive Credit Union, a 16-year CU*Answers client, and PenFed, and it got me thinking. To some the merger may have come as a surprise, but for those aware of what made Progressive so successful for many years, the taxi medallion industry, it did not come as a shock. Rather, Progressive was caught up in the tides of an industry being swept away by Uber and other rideshare services. But instead of serving as a cautionary tale, I think Progressive’s legacy will be one to inspire others looking for that next big thing.

There’s no doubt that Progressive was a long-term leader in leveraging a marketplace for its members and the members of many other credit unions—they positively worked by proxy for us all. Robert Familant and his team creatively encouraged community lending (participation lending) and its evolution to aggregate capabilities to reach more people than they could otherwise have done alone.

And Progressive did leverage the medallion economy to great success, seeing their assets rise with the bubbling medallion prices, which climbed from an average of roughly $200K in 2002 to $1M in 2014, and have since crashed back down to 2002 levels. As new entries into the market disrupted the medallion industry, Progressive, among many others, was part of the wave requiring everyone to adjust to new norms.

No insurance company puts any credence to the idea of working things out, whether it be living through a portfolio of loans, or working through lawsuits, or trying to defend taking on hard roads ahead. They put so much weight on removing the topic from the to do list, that they weight their models for only their goals. While I think that the credit union might have been able to work it out over the long term, the NCUA would never have allowed them to continue riding the roller coaster of adjustment. They doomed the credit union for convenience and a sense of calm—get Progressive and medallions out of the news.

The taxi medallion business was a great business and the lifetime earnings of those who were good at it cannot be denied as anything but positive. It had its phases of wins and losses, but on the balance did very well for Progressive and its members. Its time has run out and so has Progressive’s. Not being flippant here, far from it, I respect Robert, Progressive, and all of the CUs that helped their members through the years based on the economies created by medallions and credit union hard work.

Every generation must learn this evolution of economies and the wins and losses that come with it. To 1) see the constant need to search for opportunities; 2) constantly consider how those situations might be disrupted; 3) avoid the impatience of disconnected regulatory oversight; and 4) see the long-lasting triumph of those who lead into the future without regret instead of clinging to the injustice of what was. There are lessons to be learned, adjustments to be made in the next cycle, and joy over the fact that it worked for Progressive for as long as it did.

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Scale is not everything

January 28, 2019 by Randy Karnes Leave a Comment

Be careful not to dismiss ownership as some inconsequential detail on the path to success

I received a comment from Gregg Stockdale on my last piece, “The risks of vendor consolidation on the credit union industry“. In it he wrote:

“What disrupter of the credit union industry followed this model?  -“Only ownership can prioritize disruption of the status quo, competitors and the core of innovation. Cooperative ownership of our solutions is the key”  Also, “Protecting the decisions and mechanisms for maintaining our differential is the mandate for the future”  –  What differential?  Other than ownership, how is a cu different from a bank?  Cu’s are very bank-like and banks have become cu-like in their service offerings.  The big disrupters have come from outside the entire industry and many are privately owned.”

I agree whether a CUSO, CU, or any other company is a disrupter can be difficult to identify without close examination. But I contend there are many in the CUSO space as vendors, and in the credit union space, when they are judged locally by their consumer-owners (members) who meet or surpass the bar for disruption. Where I think Gregg was off track is his MACRO EXPECTATIONS from these ideas. He dismisses CU ownership as the DIFFERENTIAL that counts. It does count, and it should. Credit unions represent consumer owners, citizen ownership, and ultimately the best of community ownership model in society. Our economy and government should be more aware of that and be more demanding of that differential. If they were, it would be more than just an internal goal of cooperatives to focus on disrupting, it would be a national goal and mandate that they do. For that reason I judge the NCUA not to be a cooperative regulator, but just a bank regulator hiding under a cooperative banner.

Owners, no matter what their type, can internally mandate that their approach to the marketplace be disruptive to their competitors, for their consumers, and for the status quo. We both can be disappointed when their efforts are not STUNNING and APPARENT to the outside world, but their efforts can be real. They can be real one consumer at a time. So when he mentions the “big disrupters” he is scaling disruption with a MACRO EXPECTATION again. Why?

That is the point of my blog – vendor mergers like Fiserv and First Data are based on the MACRO EXPECTATIONS that scale is all that matters. And that when scale wipes out the nuance of niche approaches by simple rolling over the needs of those niche players we lose something, and in our case (CU supporters and believers) we might lose everything when we buy from these vendors.

I do believe that CU*Answers is a disruptive force, but not one that will move the world or even vendor analysts. I believe the force mandated by our ownership will move our industry to respect itself via our intent. I believe the force mandated by our ownership will move our industry to see that the cooperative inherent win-win model with consumers is powerful because consumers are the owner. And I believe that that is a disruptive idea for the ages when highlighted, amplified, and sincere in its efforts. So I focus on the micro-disruption of the owner’s intent, the owner’s heart to move things given a chance. Every community’s heart given a chance. I believe that our industry should be concerned when the vendor marketplace consolidations take that chance away.

Thanks to Gregg for commenting and pushing the conversation further.

The risks of vendor consolidation on the credit union industry

January 17, 2019 by Randy Karnes 2 Comments

By now you’ve probably read about the announced Fiserv-First Data merger. In an opinion piece, one person suggested that “small banks and credit unions fear big fintech.”

“Fear” is the wrong word here though. It should have been “CU Thinkers See the Long-Term Challenges in Vendor Consolidation.”

It is not just competitors merging here that should concern credit union planners and leaders. It is the consolidation of focus, project resources, and price to ROI expectations that should worry a niche-based industry like the credit union industry. When the vendor marketplace or the industries that support a marketplace design, like financial services, become so out of proportion with segments of customer niches, then those niches are mandated to more and more.

Those niches, in this case credit unions, struggle with each renewing contract and acceptance of norms other than the ones that they count on to propel their unique success. What appears to be simply buying tactics at one level of the credit union becomes accepting new conditions that change the very culture and business approaches that once were the defining differentiators for credit union success.

  1. Focus – As these super-firms–these glaciers–set their marketplace priorities and execute their plans, they will continue to marginalize credit unions and their drive to be unique in a commoditized, externally defined marketplace. How will CUs set their own unique priorities?
  2. Project Resources – With vendor consolidation combined with resource scarcity we see in the labor markets, these recombining firms have less project management focused on niche marketplaces and the concerns of those marketplaces to project manage CU adjustments and change priorities.
  3. Price – Does a vendor design its prices for its success or to the needs of its clients after absorbing the prices cast upon them? CUs are increasingly becoming price takers and massagers through CU distributors like PSCU, COOP, etc., but less so price innovators through ownership or via their own manufacturing of solutions.

While some segments of the CU industry believe they can grow and keep pace with the scale that can keep them in the game with these firms, other segments will feel these pressures growing. Credit unions are not just struggling with the need to compete with other financial service segments for consumer connections, they are or will struggle to find a vendor focus that does not simply press them into being weaker versions of their competitors via commoditizing of their business models – not just their tools that support their products. And like cancer, one day you wake up and find you’ve been eaten from the inside out, and the body does not respond to the mind’s desire to execute its own plan.

CUs must continue to prioritize their own uniqueness, and that is the ownership model. Cooperative ownership is the key to being the manufacturer of price and culture even in spaces that seem dominated by commodity tones. Pushing to design prices that allow a client to earn out on the investment, pushing to focus resource and project management based on the timing of the client, and pushing to ensure that models for shared and cooperative execution come to the forefront.

We are an industry of cooperatives, and that required sense of connection is important to our futures. Only ownership can prioritize disruption of the status quo, competitors, and the core of innovation. Cooperative ownership of our solutions is the key to:

  • Price Disruption – to ensure our cooperative models can earn the ROI on the prices they pay.
  • Access Disruption – to ensure that the things CUs need are not walled off from them or relegate them to the back of the line.
  • Execution Disruption – to ensure that when service engagement options need cooperative alternatives, they are there.

Protecting the decisions and mechanisms for maintaining our differential is the mandate for the future. Whether it be in our dismay about a regulator who seems as resolved as ever to a one-way model for financial service firms or about the fact that we increasingly rely on vendors where we are only an afterthought in their strategies, we all, the customer-owners and members of credit union cooperatives, should not fear the future. We should simply mandate the future to the greatest extent we can by mobilizing active ownership in every level of our value stack or vertical capabilities.

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