In the wake of the banking crisis, I have deliberately been divesting as much as I can from the irresponsible and greedy banks and financial institutions like Bank of America, Citibank, Chase, etc. and instead using banks and investment companies that avoided predatory lending practices and didn't take TARP money. So banks like TD Bank and companies like USAA have become my main investment and credit options. And I must say I have been pleased with the switch in almost every way. TD Bank and USAA in particular have good customer service, are less likely to charge countless fees, and overall seem more responsible both financially and socially.
With Financial Reform in Congress, USAA has been doing something unusual: They have been contacting their customers and urging them to contact Congress and urge a change in the Volker Rule to better suit USAA's methods of investing. I am torn. My gut reaction is to feel disappointment...another financial institution fighting reform. But I also find USAA's approach to be focused, measured and careful. So I am wondering what others think about this. See below for USAA's position. [UPDATE AT BOTTOM]
Here is the letter sent out by the CEO of USAA to customers:
USAA CEO ROBLES: Please Contact Your U.S. Senator Today
Posted on Apr 22, 2010 | Category: From the CEO
Rarely in our 87-year history have we turned to USAA members to weigh in with elected representatives on an issue of great importance. But, we are now.
The U.S. Senate currently is considering legislation (S.3217) that would impose new rules on the nation's financial services industry, including USAA.
As the leading provider of financial services to America's military community, USAA supports financial services reform.
However, the current Senate bill would disproportionally impact USAA because we are a unique and fully integrated association. USAA is not like the banks and other companies that helped bring down our economy, and we never took a penny of TARP funds. We do not engage in the harmful practices this legislation seeks to resolve.
If unchanged, the bill would:
* Prevent USAA from managing the association's portfolio as we have for the past 87 years.
* Jeopardize our ability to continue offering many of our competitive products.
* Limit our ability to return money to our members. Last year, USAA returned $1.2 billion to our members in the form of distributions, dividends, and bank rebates and rewards.1
So, we are asking all USAA members and employees to urge their U.S. senators to amend a portion of the bill, known as the "Volcker Rule," to eliminate its effect on a company like USAA. Please know that this legislation does not impact individual member's investments.
Regardless of the outcome of the legislation, USAA will remain a unique and enduring association that's all about you — the military and their families.
Please take action on this matter by immediately contacting your U.S. senator. You may click here to access a special website that will enable you to quickly send an e-mail message to your senator.
Thank you for your help and support,
Joe Robles Signature
Josue (Joe) Robles Jr.
Major General, USA (Ret.)
President and CEO
1$1.2 billion includes amounts returned to members, associates and other customers.
USAA has gotten a great deal of feedback from customers, mostly it seems in support of Financial Reform. To answer this feed back, they have the following response:
S.3217: USAA Responds to More Member Questions
Posted on Apr 29, 2010 | Category: Latest News
Our stories about Senate bill S.3217 have generated more than a thousand comments in our Newsroom. Many of you have asked for more details to better understand why USAA is asking members to urge U.S. senators to amend the Volcker Rule provision of the bill. Here are answers to your most frequently asked questions.
Q: I need a simple explanation of the impact of the proposed bill in Congress to better monitor financial institutions; how precisely will the bill jeopardize USAA's current practice?
— Posted by Edel
A: The portion of the bill known as the Volcker Rule would prevent our bank and insurance companies from investing the association's money in corporate bonds and traditional stocks, in a consistently prudent manner.
If the bill were to pass in its current state, it would likely result in:
* Higher auto and home insurance premiums.
* Less competitive life insurance products and annuities.
* Limits on our ability to return money to our members, as we did last year with $1.2 billion in the form of distributions, dividends and bank rebates and rewards.
Q: Can you be more specific about the necessary financial practices that you claim are at risk?
— Posted by Please Explain
A: The Volcker Rule would prevent our insurance company from investing the association's assets in such things as corporate bonds and traditional stocks, which make up a sizable portion of our investing portfolio. USAA is able to offer competitive products because we are able to prudently invest in a diversified portfolio — in fact USAA's portfolio saw a positive return in 2008 while the S&P 500 ended the year with a -37% return.
Here's an example:
Imagine if you were investing for your retirement and the government told you that you could only place your money in CDs and money market accounts. An individual limited to investing only in these investments may now have the risk of not achieving the needed returns for retirement that could have been achieved by a more diversified portfolio including a mix of bonds and stocks. USAA needs the same ability to manage the association's assets in a similar diversified manner.
Q: Extremely disappointed with USAA for coming out against financial industry reform and for urging their members to do the same. USAA is a wonderful, responsible financial institution — many are NOT. We need the regulation to keep those institutions in check, and I would think USAA would be 100% behind that.
— Posted by Heidi B. on Facebook
A: USAA supports financial services reform. USAA is not like the banks and other companies that helped bring down our economy, and we never took a penny of TARP funds.
USAA is seeking to adjust one portion of the bill — commonly referred to as the Volcker Rule — to exclude insurance companies' investments. These investments are already strictly regulated by the states, and we prudently manage these portfolios.
It is very rare for USAA to ask our members to contact elected officials, but the potential impacts of S.3217 on our member-owned association are so significant that we felt compelled to involve members, employees and friends. It is incumbent upon our USAA family to join in defense of the association.
Q: How will the "Volcker Rule" impact military families who already make significant sacrifices to serve this country?
— Posted by Need a better email
A: The current bill does not impact individual member's bank accounts or insurance policies. However, if enacted in its current form, the rule could result in higher auto and home insurance premiums and significantly lower rates on fixed annuities. This could result in a direct impact to all members' pocket books.
Q. Why are the returns on government securities not enough to produce a sustainable rate of return to pay policyholders?
A. USAA has prudently managed its portfolio using diversified investment tools. Based on a historical analysis, had our investments been limited to government securities, the association's rate of return would have been reduced substantially. Such a reduced return would clearly impact our ability to competitively price products and return money to our members.
Q. Won't the lack of investment choices be offset by not having as much overhead for portfolio managers?
A. USAA manages our portfolio internally with very little cost to the association. Based on a historical analysis, the reduced returns would far outstrip any overhead cost.
Q. What does USAA propose to protect citizens from the excesses of large banks that gamble with their deposits? Is there an alternative other than just say "no"?
— Posted by SoDisappointed
A: USAA is seeking a narrowly crafted amendment that would maintain Volcker Rule investment limitations on banks and other depository institutions. USAA supports financial services reform. USAA is asking, however, that a provision within the bill be amended to ensure that it does not interfere with USAA's ability to continue to serve the military community and their families. The amendment USAA seeks would apply both to USAA and other insurance companies who — like USAA — are subject to well-defined state insurance restrictions on their investments.
Q. Are you positioning USAA for future risky investments? I hope not. We need rules; deregulation of the financial markets has been devastating to the country.
— Posted by Eagleshadow
A. Insurance company investment portfolios are already subject to well-defined state insurance restrictions on their investments. Further, USAA is committed to prudent management of our portfolio — in fact USAA's portfolio saw a positive return in 2008 while the S&P 500 ended the year with a -37% return
.
Q. Since there is no way to excuse USAA from Section 619 without also excusing the AIGs of this world, why not lobby simply to change the word "prohibit" to "restrict" and leave the specific application of the provision to the rule-making criteria spelled out in subsection (g)?
A. Based on what we know about the AIG situation, the primary problems at AIG were caused by other operations within the AIG corporate structure not related to insurance or even traditional banking. The current language of the Volcker Rule applying to insurance operations wouldn't have prevented those problems. The AIG issues principally arose with instruments with little transparency or regulation. The focus should be on regulating the instruments causing the issue. Other aspects of S.3217 focus on regulating derivatives of the type employed by AIG.
I also want to highlight a particular comment to the CEO's letter that brings up more fundamental issues and probably deserves discussion (e.g. would S.3217 address the fundamental problem the comment brings up? Would USAA's changes fatally alter reform? etc.)
At the heart of this whole issue is the repeal of the Glass-Segal Act in the 90's, which had protected against the kind of financial abuses that subsequently occurred when the barriers between traditional commercial banking and other financial transactions were taken away. The catastrophic result was that bank client deposits were allowed to be used to offset non-banking activity losses.
While I am fully confident that the current management of USAA has not and would not engage in such activity, nevertheless protections need to be set in place that assure that the wall between traditional banking and investment banking and insurance investing are solidly in place.
USAA needs to be specific about the provisions of the Volcker Rule that are damaging to our best interests. There is a much larger issue here that must be addressed, and if the end result is a reduction in the association's overall return on member assets then so be it. Please be specific about the amendment you propose.
I am suspicious of ANY financial institution, no matter how good overall, that sets itself up against what to me are very mild reforms. I actually feel MORE needs to be done to reform our financial system. However, I have to some degree learned to trust USAA in a way I never trusted Bank of America, Wells Fargo, Chase, Citibank, AIG or most of the other predatory, irresponsible banks and financial institutions. USAA seems reasonable here and they are voicing their OVERALL support for S.3217 and are asking only for an amendment to, not abandonment of, the Volker Rule. Anyone out there got an opinion on this?
Update [2010-5-4 9:33:3 by mole333]:
In the comments below is perhaps the answer many of us USAA customers are looking for:
It's actually an easy fix (1+ / 0-)
for them even if the Volker Rule is enacted. Given the company's long and profitable history before Glass-Steagall, it would be a simple matter for it to return to it rather than spend the money fighting reform.
All they would have to do is reconfigure their corporate structure and separate out the insurer from the bank. They could still cross-sell their products to each other without breaking or bending and laws and it makes sense to do it with or without the Volker Rule.
It eliminates the desire to game the system and returns each entity to its core competency rather than being in a position of having to protect bad instruments should that case arise, as I see it.
I think things like great steps of moral depravity are not really taken in great steps; they're taken in little pieces. - Gregory Kouky
by MKSinSA on Tue May 04, 2010 at 09:25:34 AM EDT
This sounds about right to me. Companies often restructure in order to accommodate such laws and still maintain their profitability.
[UPDATE2] Another couple of comments I want to highlight from the discussion below that I feel gets to the heart of this:
Long time customer here.... (3+ / 0-)
USAA was making money long before Glass-Steagall was repealed, and they can continue. If they are addicted to "insurance company investments" to stay afloat, then their business plan needs some review. My insurance rates don't need to go up. Everyone else can take a smaller "dividend" check every year.
I am always leery of answers that don't really answer the question, but always throw in a scary comment about 'we can't keep giving you money back every year...'.
and
I think it's a "we didn't screw up, (1+ / 0-)
so don't 'punish' us with this silly rule" kind of thing.
While that may be true, there are many, many more that DID take advantage of the lack of rules and screwed up. And, if your business practices are sound, you can work within the parameters of the financial regulations put in place.
by PsychoSavannah on Tue May 04, 2010 at 09:53:10 AM EDT
I am starting to lean against USAA on this one. I think they might find the Volker Rule inconvenient, but I doubt it will hurt their bottom line much and even if they don't need it to do things right, other companies do and it is unclear what the basis of the exemption would be.
[UPDATE 3]
A counter view to the other comments in this diary I have been highlighting:
Here's a pretty good explanation I found at moveyourmoney.info.
Rather than taking a position that is considered by some as a vote "against" reform, USAA members can support meaningful financial reform. Tell you Senator that you support an amendment proposed by Sens. Merkley and Levin. The Merkley-Levin amendment would allow an insurance company like USAA whose trading desk is subject to state level regulation to continue its insurance business without being subject to the Volcker Rule restrictions on holding a bank. However, if an insurance company also has a separate hedge fund, private equity fund, or some other Wall Street entity that is not regulated by the state insurance regulator like AIG did, then it would be subject to the restrictions.
Americans for Financial Reform actually did a thorough piece on Huffington Post, arguing, "USAA members can support USAA and support reform."
by CaseStreet on Tue May 04, 2010 at 10:12:04 AM EDT
I am encouraged by the fact that Huffington Post thinks we can have our USAA exemption and financial reform too.