The Masks Big Banks Hide Behind: Debating Credit Union Versus Big Banks

In two years one of my favorite TV specials will come back to TV screens across the nation as people tune into televised political debates. The mindless rhetoric, the endless spin, the back and forth as statistics are used like right crosses and left hooks throwing the unprepared participant back onto the ropes. During this time the participants paint themselves one way then turn around and put on another mask and paint themselves another way. 

It would be interesting if we could finally talk through the issues that both credit unions and Big Banks face and take off the masks that Big Banks where as they testify in front of Congress or take to the airwaves downplaying another corporate scandal. 

Picture in the left hand side of the stage the Big Banker who represents the Giants of finance, the largest bank (Citigroup) has more assets, 2.2 trillion, than all US credit unions combined, with a blue suit, coordinated tie, flag lapel pin, and perfect hair standing at his podium. His is the perfect face is but a mask to represent the perfectly masked industry. In the other side of the stage looking much smaller is the credit union member looking like… well most of us.

Big Banker : “The nation’s credit unions get to have their tax-exempt status even as Federal regulators gave billions to the credit union industry due to risky bets on subprime mortgages. “ Then turning to his mask so that the profile side is to the TV camera he continues, “Regulators will supervise $50 billion in troubled assets and issue approximately $35 billion in taxpayer-issued bonds!”

Then pausing for dramatic silence he then adds, “To put it bluntly the credit union industry that has never paid a one red cent in federal taxes is swimming in a butter keg of a taxpayer-funded rescue because of their shoddy lending practices. Now is the time to raise taxes by taxing every one of them.”

Credit Union Member: “By bailout you must be referring to the five corporate credit unions. I want to make sure we are not talking about the 196 banks and all five Wall Street investment houses that have failed during the same time. I know it is hard to remember with all the banks that lined up for government money with open hands. 

We also should set the perspective on market share with total credit union market share in 2007 being around 6%, while total bank market share was around 81%.

On the issue of criticism it is fair that the credit union industry take a hard look at itself. We certainly need to do a better job of understand risk with member business lending with participation loans in sand states. In hindsight we could have been more conservative in some of our investment choices. Like the rest of the nation we believed Wall Street when they were peddling poison to their investors. Yet, during this recession we have continued to lend to small businesses and our local members while you have sat idle and starved the communities in which you operate of the credit they need."

Big Banker: “So you admit it? You did mess up. You are to blame… at last a credit union advocate who sees clearly!

Credit Union Member: "Well, actually I do appreciate your comment because I do think I have a pretty clear picture of the landscape. You mentioned that a taxpayer bailout that should cause everyone to reconsider the tax status of my credit union. This is where we might have to agree to disagree as the last time I looked at the paper it was filled with headlines about the various 190 banks that have failed…of course this doesn’t count the TARP money …170 billion give or take.

My understanding is that credit unions are taking care of their own as each natural person credit union is funding the corporate through share assessments. Credit unions are paying for credit unions. The billion dollar credit union, with hundreds of employees, and small credit unions, with only 3 employees, are all pitching in. As economic cooperatives each is helping to fund and replenish the corporate credit unions.

I am sure you would do the same thing right? I mean you are probably willing to write a check to the Megabanks to help them out. Right?"

Big Banker: “Don’t be idiotic of course we are not wasting stockholder capital giving it to another company. That would be ludicrous!”

Credit Union Member: “No, it would be cooperative. You probably are not aware of the model.”

Big Banker: “We give by paying taxes which is more than you can say.”

Credit Union Member: “Glad you brought that back up. I appreciate that about you. You are very good at bringing this issue up…almost like clockwork. So let’s talk about taxes. The purpose of taxes is to provide value to the citizens of the communities in which we live, work, and worship.

As we all know tax dollars help fund public services and to generate a safety net over which the financial marketplace performs its magical mystery act in which one dollar comes in and hundreds of dollars come out, all the while balancing consumer needs and of course stockholder returns. So let’s talk about value to the citizens of the communities in which we live, work, and worship.

As community based cooperatives credit unions provide value to the communities they serve through the provision of low cost loans, higher dividends on savings, and a cooperative economic profit sharing model that works without the government as middleman. This is a model that both political parties should love- people helping to bootstrap other people.”

As you are probably aware all members of credit unions benefit when a credit union prospers. Now on the issue of taxes some things to consider:

• Our members are taxed on the employment income they deposit into their credit union. 
• Our members are taxed on the dividends they earn on those deposits 
• Our members pay sales taxes on the items they buy with money from their credit union share draft account. 
• Our members pay property taxes on the vehicles and homes that they purchase with proceeds from loans granted by their credit unions. 
• The funds that are pooled by the member-owners of credit unions are taxed. 

The communities in which credit unions operate are beneficiaries of the increased spending power and financial well-being of credit union members."

Big Banker: “Those are your customers not you."

Credit Union Member: “That is not correct…see we don’t have customers we only have members. The members are the credit union. However, I do have some good news for both you and your fellow bankers.”

Big Banker: “This nation does not need good news it needs for credit unions to stop using an unfair advantage by going after our customers and driving down our loan rates. It needs for you to stop paying higher rates on deposits. It needs you to give back by paying your share!”

Credit Union Member: As I was saying the good news is that you are always welcome to join a credit union and feel what we are talking about.

Now on the issue of our tax-exempt status if you feel that is such a game changer for community banks you are welcome to convert to a credit union. That would require a few changes which I am sure you would not mind. First you would need to limit your commercial lending and do more lending in under served communities. Be aware this could impact the number of “business lunches” on the golf course. Then there is the stock. You would not have private stock option deals in which you under price your stock so that it is lower for you than what your stockholders can get it. Oh, those cushy board jobs with all the perks and nice salary would probably disappear as well. Lastly, you would need to retain more capital. Four to five percent for bank may fly but as a credit union you need to think about doubling that. Safety and soundness you know. Like you mentioned earlier we don’t want any taxpayer bailouts.

Big Banker: “Silence..." Fade to black as the Big Bank mask continues to smile at the camera. 

New Kings To Protest- The Kings of Wall Street

On this Veterans Day you can’t help but think of the personal freedoms we enjoy in the United States and in many parts of the world. When I think of inspiring documents that changed the course of history perhaps no document comes to mind more than that of The Declaration of Independence. It set forth the moral justification of a rebellion against a long-recognized political tradition—the divine right of kings. The central issue was the fundamental question of whether men’s rights were God-given or whether these rights were to be dispensed by governments to their subjects.

This document proudly proclaimed that all men have certain inalienable rights. In other words, these rights came from God. Therefore, the colonists were not rebels against political authority, but a free people only exercising their rights before an offending, usurping power. They were thus morally justified to do what they did. The power of this thought is incredible. 

Today in watching and reading the headlines it is easy to find ourselves pulled down into the petty arguments that are broadcast twenty four/seven by media to perpetuate ratings for advertisers. Big thoughts and soul stirring declarations seem to be buried and forgotten. At least that is what I thought till a few days ago.

This week I had the opportunity to spend a few days with some unbelievably talented people who had come together to understand seven fundamental principles. These principles are the very bedrock of where credit unions came from.  These principles were inspired by the Rochdale Principles, which were named after the first successful co-op, founded in Rochdale England in the 1840s by a group of weavers.These principles are:

1. Voluntary Membership
Credit unions are voluntary, cooperative organizations, offering services to people willing to accept the responsibilities and benefits of membership, without gender, social, racial, political or religious discrimination.

2. Democratic Member Control
Cooperatives are democratic organizations owned and controlled by their members, one member one vote, with equal opportunity for participation in setting policies and making decisions.

3. Members’ Economic Participation
Members are the owners. As such they contribute to, and democratically control, the capital of the cooperative. This benefits member owner in proportion to the transactions with the cooperative rather than on the capital invested.

4. Autonomy and Independence
Cooperatives are autonomous, self-help organizations controlled by their members.

5. Education, Training and Information
Cooperatives provide education and training for members, elected representatives, managers and employees so they can contribute effectively to the development of the cooperative.

6. Cooperation Among Cooperatives
Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, state, regional, national, and international structures.

7. Concern for Community
While focusing on member needs, cooperatives work for the sustainable development of communities, including people of modest means, through policies developed and accepted by the members.

As you think of these seven principles it is easy at first to dismiss them. Yet, the relevance of the seven fundamental concepts is so sorely needed in the world of financial services. Take the concept of voluntary membership.

Currently one of the biggest arguments on the airwaves is that about the size of government and the role of government. Last month riots were all over the news as France came to a standstill as people went on strike. Last week political futures were made and lost as voters in the United States took to the polls to vote to voice their discontent with the economy. This week students protested in England over the rise in tuition costs.

Now more than ever both sides of the political spectrum are looking for solutions that they can live with. This is where the concept of people having the right to voluntarily join together who are willing to accept the responsibility for the success of the group becomes so powerful. Achieving together what each person could not achieve alone. Achieving economic empowerment for all members regardless of gender, social, racial, political or religious status.

Now I know some of you are thinking I have suddenly drunk the Kool Aid and am going too far into the realm of “peace, love, and happiness.” To the contrary what excites me the most about this fundamental principle is that it is boundless. It crosses the political spectrum. It enables people to help people on a voluntary basis without the need for government handouts. It is bootstrap finance as each person contributes and receives benefit based on their economic contributions.

Take one dollar. We all probably have both lost and found one dollar on the street. What can you buy with a dollar? If you are a cooperative with voluntary membership you can create a foundation that charges one dollar per month for a checking account. What you accomplish with that dollar could be amazing. Imagine doing the following:

• Giving 10,000 dollar scholarships to the children of workers who were fatally injured on the job.
• Giving five million dollars as a grant to start a new cancer center.
• Giving a four year scholarship to every high school in the state (over 350 traditional public high schools) a total commitment of 4 million dollars a year.

All of this achieved by one foundation (www.ncsecufoundation.org) by a group of voluntary members who have joined together to empower one another based on economic participation.

These same types of activities happen in small credit unions with only three people who work to serve a thousand members to large multibillion dollar credit unions.

There should be no doubt what our task is today. If we truly cherish the heritage we have received, we must maintain the same virtues and the same character of our stalwart forebears—industry, frugality, self-reliance, and integrity. We have the obligation to maintain what those who came before us pledged with their time, hard work and their fortunes. The opportunity and obligation for doing so is clearly upon us.

It is up to each of you who read this blog and who work so diligently in the credit unions you work at to speak up and make sure that the principles of our past are written in the business plans of tomorrow. That we do not forget the very principles that set us apart from the people who would love to see us disappear.

Today there are new kings to protest. They hold tremendous power and like the days of old they are oblivious to the struggles of those around them. They are the Kings of Wall Street. Like those before us it is up to us to remind ourselves and those we care about that the Divine Right of Kings has passed.

What Business is Your Bank In ?

I recall being in a class with other business leaders and the instructor stated, “Character is what you do when no one else is looking.” In the aftermath of the Wall Street meltdown and corporate bailouts I wonder if that definition is still appropriate. What exactly is the character of a company? It has to be something beyond the corporate spin and public relations messages that are broadcasted to the masses.


I mean prior to “The Spill” in the Gulf of Mexico one would have thought that some oil companies were anything but oil companies. One oil company had launched a 200 million dollar public relations campaign designed to position its brand as “Beyond Petroleum” with a new sun burst logo. It focused consumer attention on the output of its small solar operation while it appears to have cut corners in other more less obvious places.


The same thing happens in banking. Already Wall Street firms are back at making record numbers while Main Street America and small business owners find themselves frozen out of services and loan opportunities. This week a large BigBank announced that it was closing its subprime sales channel and eliminating thousands of jobs. The question is why did they have that sales channel to begin with? We can all understand why they should close it; nobody should build a sales channel that focuses on making risky loans for high interest return.


Today much of the media is focused on consumer advocacy and many BigBanks are scrambling to reposition themselves. There is a saying that I had heard that Joe Frazier had once stated, “You can map out a fight plan or a life plan. When the action starts your down to your reflexes. That’s where your road work shows. If you cheated on that in the dark of the morning, you’re getting found out now under the bright lights.”


Financial institutions are like people they do have a character or culture. They either are truly consumer focused or not. If they fake it when no one is looking they are discovered under the bright lights. Great financial institutions go beyond profit margins and balance sheets. They create and sustain positive impact in the lives of the people they serve. They are more than slick ad campaigns.


Practical Application:


What business is your financial institution in?
Are they in the business of improving members financial lives? 
If not isn’t it time your members belonged to an institution that was in the business of helping them become more financially secure?