STATEMENT OF FRANK SOLLARS Chairman of the Board Representing the National Consumer Cooperative Bank Washington, D.C. 20009 Good morning Mr. Chairman, members of the Committee, Ladies and Gentlemen. I am honored to appear before you to discuss the history and operations of the National Consumer Cooperative Bank, an institution which I have served for nearly three years as a Presidentially appointed representative of small business and, since February 1981, as Chairman of the Board. Appearing here with me are the elected members of the Bank's Board of Directors. The Chairman of the Board's Audit Committee, Paul Mohn, the Bank's Executive Vice President, Mitchell Rofsky and the Bank's new Chief Executive Officer, Thomas S. Condit, will make brief statements. Then the Board will be pleased to respond to any questions. MISSION The Co-op Bank was created to fill a financing gap faced by consumer cooperatives by providing direct access to credit and technical assistance, thus bolstering self-help endeavors as a means of strengthening the Nation's economy. While consumer cooperatives, including credit unions, serve about one fourth of the American population, the Co-op Bank's Act restricts the Bank to a small and specialized portion of the American private sector. The Bank is not permitted to lend to credit unions and is limited in its ability to lend to agricultural housing cooperatives. The Board of Directors is finalizing legislative recommendations which, among other things, would strengthen and clarify the market for the Bank's services. We will share these recommendations with the Committee staff in the near future, and would like to concentrate today on the Bank's history. Every word in the Bank's name is important in understanding our mission, our accomplishments, and our future. We are national, committed to building the cooperative sector throughout the United States, with a special mandate to ensure cooperatives are available to low income people. We are structured as a consumer cooperative ourselves, a co-op of co-ops, with a Board controlled by member-elected Directors and distribution of patronage refunds to members. At the same time we are a bank with a fiduciary responsibility to our member cooperatives and to the taxpayers to protect the Bank's assets. ACHIEVEMENTS The National Consumer Cooperative Bank is a new institution with a long term mandate. In the three years since it opened it has made a significant contribution to the development of the cooperative sector in the United States. Like any new business, the Bank has had to adjust to correct for mistakes, but I believe one of the strengths of the Bank has been its ability to respond promptly and flexibly to criticism when warranted. The Bank has $103.1 million in funds in loan commitments of which over $80 million is outstanding. About half of these loan proceeds are to co-ops serving low income people. Other achievements include: о Enabling thousands of tenants to become homeowners, including many that о Helping assemble the first urban cable cooperative in Davis, Improving preschool and grade school education for over 1,000 children, and improving access to a variety of goods and services ranging from optics to food to pharmaceutical supplies. Enabling one new housing or commercial cooperative to form each three weeks of our existence. More than half of these new co-ops were to or for the benefit of low income individuals. CAPITALIZATION AND STRUCTURE The Congress modeled the Bank after the Bank for (Farm) Cooperatives, one of the most successful of all government programs. The Farm Credit System received initial capitalization from the United States Government, became selfsufficient as its loan demand grew, and repaid the taxpayers' initial investent. Similarly, the Bank received $184 million in appropriations to the U.S. Treasury to purchase Bank Class A stock under Title I of the Bank Act, and $25 million of funding under Title II of the Bank Act for the Self-Help Fund, and appropriations for salaries and expenses over fiscal years 79, 80, and 81. Title II funds were for capital advances to eligible cooperatives which did not meet the credit standards of Title I and for organizational assistance, investigations of new services, financial analysis and market surveys and director and management assistance training. The 1981 Amendments to our Act changed the federal Class A stock to Class A notes. The Bank is to begin repaying the Federal Appropriations in 1991. We have made our initial payment to the U.S. Treasury on the Federal capital notes. its The Bank, like the Bank for (Farm) Cooperatives was not expected to sustain itself on its loan volume alone. Thus, the Bank for (Farm) Co-ops was provided its government capitalization initially So that it could strengthen financial position. For the same reason the Co-op Bank was provided its capitalization up front. With these funds, the Bank is financially viable at obtainable levels of loan growth and with a reasonable operating budget. GOVERNANCE The Board has had a very active role in shaping this institution, meeting monthly during these formative years. The Bank is chartered as a cooperative itself and governed by a 15 member Board of Directors, 12 of whom are elected by member cooperatives. The remainder are appointed by the President. Our Act requires that member-elected directors run for office representing various classes of cooperatives: consumer goods, consumer services, housing, low income cooperatives, and other cooperatives. This diversity of experience results, as can be expected, in a diversity of viewpoints--some of which may be reflected in the question and answer session. MEMBER AND PUBLIC RELATIONS The Bank has been criticized in the area of member and public relations. As a result of intensified efforts over the past months, efforts which have included public hearings, scheduled comment periods and a set of special member mailings, the volume of criticism has lessened. Although these efforts can delay the decision-making process, as is the case of the Development Corporation, we have found that any delay is offset by the value of member involvement. RESPONSIVE TO FARM CREDIT ADMINISTRATION CRITICISM Shortly after taking office, the Board asked the Farm Credit Administration to examine the Bank in the spring months prior to its scheduled year-end examination. We asked for an early examination because we wanted to carefully study the condition of the Bank as made its transition from a government controlled to a member controlled institution. While both Farm Credit examinations (one conducted as of May, 1982; one as of December, 1982) pointed to deficiencies in the Bank's operations, the problems should be viewed in the context of a start-up operation serving a market that is so underdeveloped that it justified the creation of a special government-assisted program. The Board deeply appreciates the assistance of the Farm Credit Administration in recommending that decisive action be taken. This Board has taken such action and will continue to do so. We were pleased to note that in the latest examination the Farm Credit examiners concluded that the Board and management have dealt appropriately with their recommendations in most cases. The Executive Vice President will report on the steps the Bank has taken to respond to the Farm Credit Administration examination. The Examiners expressed their concern that the Board had (prior to the date of their May examination) not approved quantifiable risk standards for the Co-op Bank portfolio. Subsequent to the first examination, the Board adopted portfolio standards appropriate for a "development" bank which must raise additional capital in private markets. We are happy to have this opportunity to meet with you today. The Bank is at a critical juncture. It must balance its own needs for economic self-sufficiency with its commitment for helping to start cooperatives, assisting them in conversion to a cooperative structure, and enabling them to grow. The Bank must assist cooperatives in those markets where they are strongest and open new markets where cooperatives do not yet exist. We must do this on a national basis and use our best efforts to ensure that 35% of our loans are to cooperatives to or for the benefit of low income persons. The Board must also plan toward the time when we begin to retire the Class A capital notes held by the Federal Government. Unfortunately, or perhaps fortunately, the Bank has always faced very high expectations -- expectations held by this Committee, our co-op members, our Board and our staff. As one of the few well capitalized organizations committed to "broadening ownership and control of economic organizations" we have always faced conflicting pressures, not the least of which as been the tension between our fiduciary responsibilities and our development mandate. As a cooperative, we must be a democratic organization which requires the highest standards of management. As a Congressionally chartered bank we are compared to private institutions but must operate as a trustee of public funds. Balancing these tensions has been a difficult task. 1982 ELECTION A consequence of the 1981 amendments to the Bank Act was the election of nine additional directors by the Bank's members. In a fairly compressed timeframe that election was held. There have been some criticisms of the process, and the Board and management agree that future elections should be handled by and not merely with the assistance of a third party, such as an accounting firm. CREATION OF CCDC The 1981 Amendments to the Bank Act also provided a very challenging opportunity for the Bank when the Office of Self-Help and Technical Assistance, funded under Title II, was directed to incorporate in the District of Columbia as a non-profit Corporation. This Bank affiliate is called the Consumer Cooperative Development Corporation. I am pleased to discuss this new Corporation with you. As you know, Congress structured Title I and Title II as two separate, distinct funds with separate, distinct, but related purposes. The objective of the Office of Self-Help and Technical Assistance, as described under Title II, was to assist low-income and other borrowers which did not meet the credit standards of the Bank, and to provide a number of important services to cooperatives. The two funds were intended to leverage one another to enable the Bank to fulfill its mission. With the establishment of the Development Corporation the functions described under Title II will become more visible, and the ability of the Corporation to seek outside funding will, we expect, enable it to increase its level of services. |