The National Consumer Cooperative Bank

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINAN-
CIAL INSTITUTIONS SUPERVISION, REGULATION AND IN-
SURANCE, COMMITTEE ON BANKING, FINANCE AND
URBAN AFFAIRS,

Washington, D.C.

The subcommittee met, pursuant to call, at 10:10 a.m., in room 2128, Rayburn House Office Building, Hon. Fernand J. St Germain (chairman of the subcommittee) presiding.

Present: Representatives St Germain, Annunzio, Barnard, Oakar, Vento, Lehman, Carper, Wylie, McKinney, Shumway, and McCollum.

Chairman ST GERMAIN. The committee will come to order.

This morning we are beginning oversight hearings on the National Consumer Cooperative Bank that was chartered in 1978 under legislation originating in this subcommittee.

During the long, difficult, trying, and bitter fight to create this bank, I promised that this committee would monitor it closely and provide the necessary oversight. I repeated those promises during the subsequent efforts to maintain funding for the bank during 1980 and 1981.

Some friends of the bank sincerely wish that we could be less public in the airing of the bank's troubles. I respectfully disagree. First, I intend to keep my promises for full oversight. Second, I am firmly convinced that this bank must take swift corrective steps if it has any chance for success, and I am equally convinced that a no-nonsense oversight by this committee can help greatly to speed the process and reduce the chances that the bank's future will be buried in a wasteland of procrastination.

Those of us who espoused the philosophy, the hope, and the promise and dreams of the National Consumer Cooperative Banksuch as myself-have met with total and unbelievable disappointment as far as the performance of the bank, its board of directors, and officers are concerned.

For too long, this committee received reports of an internal administration constructed on the hot lava of confrontation; a growing gap between the bank and its constituency; credit procedures that were either nonexistent or poorly applied; well-meaning square pegs placed in round holes in the organization charts; delays on loan applications which sometimes outlived the coopera

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tives the bank was attempting to serve; and a board of directors which seemed paralyzed when faced with its first hard decision.

As the witnesses from the Farm Credit Administration will attest today, the bank has seized on some of its problems and launched a campaign to make substantive improvements. Some of these are in place. One thing this committee must decide is whether these improvements are enough and whether the changes reach far enough down into the staff structure to turn the co-op bank around.

The bank does have a new president, named only last Friday. This is a necessary step, but as we have seen in other places at other times, a new chief executive does not a new institution make. Bank presidents, like football coaches, seldom deserve all the blame or all the credit heaped on their shoulders.

It would be foolish, and highly inaccurate, if we judged the performance of the co-op bank in a vacuum. As this committee knows only too well, financial institutions of all sizes and shapes have had their problems in this economy, particularly those most heavily dependent on the depression-ridden real estate market. Right or wrong, the co-op bank had nearly 80 percent of its portfolio in real estate and it has not escaped the uncertainties of the marketplace any more than did those mutual savings banks and savings and loan associations, as well as a lot of banks in Tennessee, I understand-which came to the 97th Congress wringing their hands over factors "outside their control."

No analysis of the bank can approach accuracy without taking note of its difficult birth. First, it faced an inordinate delay by the Carter administration in naming the board of directors, a fact which left the bank without an early track record. No sooner had it begun its operations full scale than in rode the Reagan administration with its blunderbuss firing away, launching a wild, noholds-barred effort to wipe the bank and the co-op concept from the economic scene; hardly an atmosphere in which to run a bank and make rational credit decisions.

To reach a compromise with the administration's anti-co-op ideologues, we were forced to convert the bank overnight into a private institution, years ahead of the original schedule for a planned gradual conversion. No sooner had these traumas passed than the bank was hit with the impact of an economy socked by recession and high interest rates.

But, it would be equally inaccurate to suggest that these factors form a solid web of excuses for the misperformance and nonperformance of the co-op bank to date.

The board and management of the bank must come to grips with reality. It will do them little good to anguish over what might have been in the formative years.

The board and management must realize that the way to the hearts and minds of the cooperative movement may not necessarily be through the District of Columbia Bar Association. Many Washington law firms may be chagrined to hear that future legal fees are going to be looked at with as much disdain as those legal fees we have seen to date.

The board and management must meet their responsibility to develop new cooperatives and to reach out to willing community or

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