Read more articles in our strategic planning archive. Sebastian will be speaking at CUES CEO/Executive Team Network.

Bucky's New Deal
Proposed charter option trades taxation for 'increased authority'

By Karen Bankston

August 24, 2009

This is bonus coverage from "Revisiting Taxation" in the September issue of CUES' Credit Union Management.

Creating a charter for a new type of financial institution-a federal financial services cooperative-amounts to modernizing the credit union concepts written into state and federal laws in the 1920s and '30s, suggests Wendell "Bucky" Sebastian, CEO of $1.9 billion/204,000-member GTE Federal Credit Union, Tampa, Fla.

Sebastian's proposal for a new charter has a lot to get people talking, including the idea of accepting taxation "as a trade-off for increased authority" and a cap on CEO compensation at 20 times the average employee total compensation, which he says is in direct response to the recent outrage over mega-million-dollar salaries paid to the heads of big banking conglomerates. (The proposal also requires that CEO and senior management salaries be listed in the annual report.) Specifically, the FFSC plan calls for:

• A not-for-profit cooperative with a volunteer board elected by members and chartered, regulated and insured by the NCUA
• The automatic appointment of the CEO as board treasurer
• No field of membership restrictions
• No restrictions on type of lending
• Access to alternative capital
• A risk-based capital formula
• Taxation at the corporate rate for earnings in excess of operating expenses, dividends and reserves beyond 12 percent of total assets
• Compliance with Community Reinvestment Act reporting
• Option for membership capital shares, with the dollar amount set by each cooperative and
• Conversion from an FFSC to another charter (say, a bank) only after all existing reserves are paid out to current member/owners.

The new charter also permits credit unions to leave behind a name that Sebastian claims is too confusing to too many people: "Up north they think you're a labor union; down south they think you're a communist."

The idea for a new charter grew out of "many conversations with many people over several years" lamenting that alternative capital is not available, that all credit unions are risk-rated in the same way, and that field of membership and business lending restrictions hold credit unions back in the marketplace, he says.

The financial cooperative charter is not for all credit unions, Sebastian adds, but there might come a point, as a result of change in sponsorship, geographic scope or technological reach, when it makes sense-especially dollars and cents. At that point, credit unions ought to have the option for a new business model and regulatory structure without giving up their member-owned, not-for-profit status, he says.

Karen Bankston is a free-lance writer and editor and the proprietor of Precision Prose in Stoughton, Wis. She writes about credit unions, business and technology.

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