By Ray Birch
TUKWILA, Wash.—Documents provided to CUToday.info provide far more detail into what the $19-billion BECU envisions for a potential cooperative savings bank charter to which it and other CUs might someday convert.
As CUToday.info was the first to report here, the $18.6-billion BECU has asked the state regulator to allow for the creation of a new cooperative bank charter in Washington that would allow it to keep the BECU name should it convert to such a charter. BECU is an abbreviation for its official name, Boeing Employees Credit Union. It is by far the largest credit union in the state and one of the largest in the country, with more than 1.1 million members.
Following a Freedom of Information Act request to the Washington State Department of Financial Institutions, documents provided to CUToday.info reveal how the credit union would like to see the new charter option structured and the powers it might provide, such as interstate banking and access to debt markets.
BECU does stress in its correspondence with the state regulator that it wants to see the one member, one vote structure maintained. In earlier cases in which credit unions have converted to mutual bank charters, the ownership structure changes to one dollar, one vote. But BECU called the one member, one vote structure a “bedrock principle.”
BECU also stated to CUToday.info in an email, that a cooperative bank charter could be beneficial if in the “distant future” a credit union charter may not be advantageous for credit union members.
How Proposal Emerged
The discussion related to a new charter in Washington emerged from the Bank Modernization Act in the state. The Act created a Bank Modernization Task Force charged with reviewing Washington’s banking laws. The Task Force meets monthly for an entire year, and any draft legislation that might emerge would likely not be ready until 2020, according to Linda Jekel, director of credit unions for the Washington Department of Financial Institutions.
“One thing BECU would like to see, under the mutual bank charter, is an option to have a cooperative bank charter. And they asked that if they decide to do a cooperative bank charter could they keep their name,” Linda Jekel, director of credit unions at the Washington State Department of Financial Institutions, told CUToday.info in a previous report.
Linda Jekel
Following that report, BECU told CUToday.info here, it has no intention of converting to a cooperative bank charter, but wanted the option for itself and other credit unions should market conditions change.
In its correspondence with the regulator, BECU does not indicate what limitations, if any, are limiting it under the Washington Credit Union Act. BECU’s Stacy Collins noted here during a session at CUToday.info’s CUTomorrow Conference, the credit union is now growing by between 8,000 and 10,000 members every month.
Maintaining the ‘CU’
The documents obtained by CUToday.info show BECU has explored at some depth what a cooperative bank charter might look like. In a June 28, 2018 letter to Roberta Hollinshead, director of banks at the DFI, BECU included the following recommendations in its comments regarding a draft of a cooperative bank charter in Washington, which the Bank Modernization Act task force has developed.
“In a credit union conversion scenario, a cooperative bank should be able to use ‘CU’ in its legal name or trade name to the extent that ‘CU’ was part of its legal name or any trade name prior to conversion,” wrote BECU General Counsel Mike Ryan. “For example, ‘DEFCU Cooperative Bank’ would be a permissible legal name or trade name if DEFCU (a credit union) converted to a cooperative bank.
“A cooperative bank should not be required to use ‘bank’ in its legal name or trade name. For example, ‘DEFCU Cooperative’ would be a permissible legal name or trade name if DEFCU converted to a cooperative bank,” the letter continues.
In the letters reviewed by CUToday.info, BECU addressed the “confusion” that a savings “bank” name might deliver to communities and to members of the CU that is converting to a cooperative bank charter.
‘Bedrock Principle’
“For many credit unions, cooperative governance and ‘one-member, one-vote’ membership rights are bedrock principles that must be preserved in a conversion to a different charter,” BECU wrote in its June 28 correspondence. “From a practical perspective, in a conversion scenario it would be of paramount importance for the credit union to be able to assure its membership, employees, and general community that the credit union is not converting away from a cooperative governance paradigm and that the conversion will not trigger material changes in corporate governance or ‘members first’ values.”
“These assurances may face unnecessary headwinds if: i) the resulting entity is described in the statute as a ‘cooperative savings bank’; ii) the credit union must convert to a mutual savings bank prior to electing cooperative savings bank governance; and iii) the bank statutes are structured so that cooperative banks are juxtaposed with stock savings bank in the same title,” BECU wrote.
To mitigate those concerns, BECU suggested in its June letter the use of “cooperative bank terminology,” stating, “The bank modernization effort should be structured to authorize ‘cooperative banks’ rather than ‘cooperative savings banks.’”
Distinguishing Charters
BECU recommended that such a move would “clearly distinguish cooperative bank charters from savings bank charters. Cooperative banks and savings banks should be treated separately in the statute, except to the extent that they are governed by common provisions applicable to all banks in amended and restated Title 30. In a conversion scenario, communicating that the end result preserves cooperative governance is harder to do if, statutorily, cooperative banks are
a subspecies of savings banks. In part, this is because Washington has experienced credit unions converting to mutual savings banks as a step along the path of converting to stock savings banks.”
BECU also recommended creating a “direct conversion from credit union to cooperative bank.
“The draft contemplates that a credit union would: i) first, convert to a mutual savings bank; and ii) second, elect to be governed as a cooperative bank. We suggest creation of a statutory path for direct conversion from a credit union to a cooperative bank (which, pursuant to the preceding comment, would not be a subspecies of savings bank).”
‘Distinguishing’ Governance
BECU also recommended clearly distinguishing cooperative bank governance from savings bank governance.
“The working title of amended Title 30C is ‘Mutual, Cooperative, and Stock Savings Banks’ and the draft addresses governance for three different types of banks. This may cause unnecessary confusion in a credit union conversion scenario. Along the lines of our preceding comment, the juxtaposition of cooperative banks and savings banks in the same title may cause confusion about whether conversion to a cooperative bank is in any way a step closer to a conversion to a mutual savings bank or a form of stock bank. Legally, it is not, but process and structure could feed a contrary perception. For clarity, we suggest that:
i. Even if there are substantial similarities, the statutory provisions that address a cooperative bank’s corporate governance should be separate from the statutory provisions that address the corporate governance of mutual savings banks and stock savings banks.
ii. To avoid any possibility of confusion, the cooperative bank provisions should be situated in a separate title from proposed Title 30C (perhaps a new Title 30E?), keeping amended and restated Title 30C focused exclusively on mutual savings banks and stock savings banks.”
Growth Opportunities Foreseen
In a previous letter to the DFI, dated April 26, 2018, BECU addressed what it said a cooperative bank charter could offer in growth opportunities.
“The new charter would mimic the current governance model for Washington state-chartered credit unions, including board governance and membership rights (one member, one vote),” BECU wrote. “Doing the right thing for our members and preserving cooperative governance are bedrock principles for BECU as we participate in this stakeholder conversation.
“Cooperative banks would have the same powers, authorities, and responsibilities as Washington commercial banks,” continued BECU. “Cooperative banks would be subject to state and federal taxation, would not have membership restrictions, would have the ability to engage in interstate branching, and would have access to the debt markets. We would like to explore the possibility of a holding company to the extent consistent with a cooperative membership structure.”
Just a ‘Strategic Option’
BECU earlier told CUToday.info it has no plans to become a mutual savings bank, saying it has only sought to promote “strategic options” for credit unions.
“BECU is committed to our members and to being a state-chartered credit union,” said Alison Phelan, director of government affairs for BECU, in an email to CUToday.info. “We are not considering becoming a cooperative bank or changing our name. BECU was invited by the Washington State Department of Financial Institutions to participate in a work group to be informed and involved in providing feedback on the Bank Modernization Act, and we provided many areas of feedback on behalf of promoting strategic options for all credit unions. BECU is interested in establishing future options for all credit unions to remain member-owned cooperatives.”
BECU stated that same position in its letters to the DFI, saying in the April and June correspondence that the credit union “does not have any current intention to operate as anything other than a Washington credit union.”
The CU in its April 26 letter emphasized that it is “interested in exploring what a cooperative bank model might look like, especially as BECU considers how any future loss of state or federal tax exemption might impact our ability to deliver service and value to our members, and the regulatory advantages that banking law generally provides with respect to interstate operations.”
Trade Group Opposed to Idea
As CUToday.info has reported, the Northwest CU Association has taken a stand in opposition to any credit union retaining a name that suggests it remains a CU after it converts to any other kind of charter.
Troy Stang
Troy Stang, president of the NWCUA, told CUToday.info the NWCUA believes that "only financial institutions which operate solely under the cooperative principals and under the credit union charter should be able to call themselves a credit union or imply as such.”
In a new statement to CUToday.info, BECU reiterated that it intends to remain a credit union.
“Our state regulator has taken the proactive step of holding open public meetings to consider how banking may look in the future as they develop amendments to Washington’s banking laws,” said BECU's Phelan. “BECU’s participation has focused on contingency planning within the banking code, specifically a cooperative option, for the possibility that in the distant future a credit union charter may not be advantageous for credit union members. When we envision BECU’s future, it looks the same as it has for the past 83 years. We are, and will remain, a member-owned cooperative credit union that is committed to the financial wellbeing of our members and our communities."
BECU was chartered in 1935 with $9 to serve employees of the Boeing Co. The aircraft manufacturer is an enormous employer in the Pacific Northwest and around the world, and an icon in the region.
BECU is also among the best-known credit union brands in the Pacific Northwest (it also has branches in Spokane, Wash., and South Carolina). The credit union, which employs approximately 2,000 employees, has built a significant advertising campaign around the theme “BECU Own It.”