America’s good bank

January 27, 2012

It didn’t take a penny in federal bailout money. It grew throughout the financial crisis. It has consistently garnered top customer service rankings. And Fortune magazine just named it one of the 20 best companies to work for in America. Meet America’s good bank: USAA.

USAA is a San Antonio, Texas-based bank, insurance, and financial services company with 22,000 employees, serving 8 million current and former members of the military and their families. The company’s roots go back to 1922, when 25 army officers agreed to insure one another’s cars when no traditional companies would. Since then, USAA, or the United Services Automobile Association, has steadily grown.

By its very definition, USAA serves the middle class. It does business only with current and former members of the military and their families. Studies have shown that the U.S.’s all-volunteer military is dominated by members of the middle class, not the elite.

While other financial and insurance companies flirted with collapse, USAA’s net worth grew from $14.6 billion in 2008 to $19.3 billion in 2011. And it has continued lending money while other banks have tightened their loan operations despite billions in government funding to encourage liquidity. It has a free checking account, has been at the forefront of electronic banking, and reimburses up to $15 in other banks’ ATM fees. Its credit card rates are 43 percent lower than the national average.

The firm’s structure is one of its most interesting attributes. Unlike nearly every other Fortune 500 company, USAA is not a corporation.  It is an inter-insurance exchange made up of the people who have taken out policies with the firm. As a group, they are insured by each other and simultaneously own the company’s assets. Instead of paying stockholders, USAA distributes its profits to its members. In 2010, it distributed $1.3 billion.

“USAA is not publicly traded,” Nicole Alley, a company spokesperson, said in an email. “And we take a conservative approach to managing our members’ money.”

The firm is not perfect. A long list of consumer complaints can be found here. Standard& Poor’s lowered their rating of USAA from AAA to AA+ last August but still rates the firm above its peers. And my colleague Felix Salmon correctly criticized USAA’s initial reaction to the Volcker rule, which could bar the company form certain types of trading. It’s likely, though, that a simple restructuring could avoid that.

The reason I’m focusing on USAA is because it represents a different idea about the purpose of companies. It’s also run by former military members, who the last time I checked weren’t considered European style socialists.

Howard Rosen, a Visiting Fellow at the Peterson Institute for International Economics in Washington, points out that the role society expects banks to fill has changed over the last few decades. For example, the share of bank lending devoted to mortgages doubled from 30 percent to 60 percent between 1980 and 2009, squeezing out consumer loans and other bank loans. 

Mortgage lending by commercial banks grew on average by 12 percent a year between 2001 and 2007 while bank lending for business purposes, i.e. not mortgages or consumer loans, grew on average by only 3.6 percent a year. Total commercial bank assets grew on average by 8.6 percent each year over the same period.

In the two years since the end of the recession, bank lending for mortgages and business loans have actually declined, despite a slight increase in bank assets.

“It used to be that we wanted banks to be good corporate citizens with strong ties to local communities,” Rosen told me. “Now all we ask is that banks just do what they  were initially designed to do — provide capital to companies who want to invest in plant and equipment in order to create jobs — any jobs, anywhere in the United States.”

Stephen Green, the C.E.O. of the British bank HSBC, makes a related argument in his new book “Good Value: Reflections on Money, Morality and an Uncertain World.” Green is the only ordained minister who is also the chairman of a major global bank, one that dwarfs USAA and controls more than $2.5 trillion in assets worldwide.

As Stephen Fidler of The Wall Street Journal recently wrote, Green says that “finding real peace,” involves accepting three uncertainties: that the world is imperfect; that we can’t be sure of human progress; and that hope endures.

“As a matter of fact the ethics of the marketplace are almost by definition universal,” Green writes in his book. “Everyone knows about the importance of truth and honesty for a sustainable business.”

Green, the banker, is trying to decode what makes a business good. Perhaps he should look to USAA for advice. USAA isn’t a model for an entire economy. But it is an example of technical innovation and thinking outside the box. We desperately need more of that. And more good banks as well.


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Increasingly, it appears that American managers are corrupt crooks who can never be trusted by either shareholders or by customers. Or is it that the US Government never locks up high ranking felons and so they have taken over America’s organizations? Either way, the future for American management is extremely dim. It is one field where foreign talent is clearly superior.

Posted by txgadfly | Report as abusive

“USAA isn’t a model for an entire economy.” Why not?

Posted by Gillyp | Report as abusive

I’ve been a member of USAA for 40 years. They were the only financial institution set up to handle people overseas for many years, and they are still the best. In my opinion, the reason for the success of the company rests with the fact that the members are true ‘shareholders’. We run the company for our benefit. We don’t run it to achieve record-breaking corporate profits, or to ensure that the members of the board are in the top 10 of highly paid corporate executives. Despite the lack of emphasis on these banking standards, the company is profitable, has grown well and is highly respected. Point taken?

Posted by steve778936 | Report as abusive

As a 39-year member of USAA, I can attest to the quality and integrity of this company. I have never had anything but a good experience with their services. My insurance rates have never gone up following a claim. Claims are handled quickly and fairly. And their banking services are second to none.

Posted by Pete_Murphy | Report as abusive

Obviously, the lesson to be drawn from this is that strict financial regulation is needed across the entire banking industry!


Posted by Gordon2352 | Report as abusive

I’ve been a member of USAA for 40 years. Their service and products are second to none but then again USAA is focused on providing services, not ensuring a high stock price or a 9 figure salary for the president.

Posted by majkmushrm | Report as abusive

The comment that “former military members, who the last time I checked weren’t considered European style socialists” misses a very important point. Historically members of the military have been recruited from conservative demographics. Once in the military, however, they live in the most socialist segment of American society. Where else do you find equal opportunity, genuine meritocracy, education, health care and even housing laid on at the taxpayers’ expense? It is important to remember that the ’50s idolized by current “conservative” demagogues were a time when virtually every male member of society had served in a conscript military where they learned to cooperate with people of other backgrounds and to watch each other’s backs. “It’s all about me.” Not in the Army, baby.

Posted by jlmccreery | Report as abusive

USAA rocks! The banking, web bill pay, insurance–all in one spot. And I never miss having a bricks & mortar institution. They make it very easy to do deposits, etc. I do have little savers accounts thru a local, small bank in order to teach my children about saving money. Totally agree this should be a model for other US institutions. They send me money every holiday season b/c due to low claims they made extra money–hello, what other corporate giant would do that?!?

Posted by kmw26 | Report as abusive

Hey great article… it’s time we educate the public about banks that are actually doing what they are suppose to. USAA is great but not the best. Look up Union Bank, possibly the best bank in the US.

Posted by Heylookatme | Report as abusive

I’ve “only” been with USAA for 20 years, but now bank with them in addition to home and auto insurance. I switched from my local bank for their Teen Checking and Youth Savings for my kids and Deposit@Home for me. No more running to the bank to deposit checks, no more ATM fees for the rare times I need an ATM, better than average credit card rates, and online access for everything. Add in top notch customer service for the few times I have to call (and always get people I can understand – no foreign call centers, thank you very much) and I doubt I’ll ever bank anywhere else.

Posted by virtualchoirboy | Report as abusive

Let none of us forget that the success of USAA lies in the fact that this company’s customer are all on the federal payroll (a socialist model) w/ very regular & perdictable income and near zero risk of capital or time. So USAA does not operate in the real world, but has cherry picked it clients, thus it appears to be better, than it actually is!

Posted by loosehorse | Report as abusive

A great article; however, the author is incorrect when he states that USAA “…does business only with current and former members of the military and their families.” The company also accepts current and former members of the US Foreign Service aka US diplomats.

Posted by gfhermes | Report as abusive