Too Small To Succeed?

December 17, 2012 at 7:08 am 3 comments

imagesCAI2JFLKOn Friday, I eavesdropped on a conversation hardly ever mentioned in mixed company and only referenced in murmurs among close friends:  is bigger better?  Specifically, should the credit union industry be encouraging smaller credit unions to merge and, if so, under what conditions? That was the subject of a frank Webinar hosted by NCUA’s Office of Small Credit Union Initiatives.  Bill Myers deserves credit for broaching the subject, which needs to be more systematically considered, not only by individual credit unions but by the industry as a whole.  The presentation is going to be available in about two weeks and I would urge those of you who did not listen to do so then.

Over the last decade, more than 2,100 small credit unions have been gobbled up and this trend is likely to continue.  Do you feel like your credit union is being pressured to merge by NCUA?  According to Mr. Myers, if it is in decline and particularly if it is in PCA “it actually is a push.”  He noted that “small is not a sustainable state.”

To many in the industry, the demise of the small credit union is a lamentable trend since the small credit union, it is argued, embodies more of the credit union ideals than its larger counterpart.  The smaller a credit union, the more likely they are to literally “know their members” and consequently have an approach to the business which best reflects the needs of the people who started the credit union in the first place.  Conversely, there are those who argue that economy of scale allows larger credit unions to provide more reasonably priced services to a larger group of people and, to the extent that the credit union grows, it is reflecting member sentiment in favor of its services.  I am firmly in the second camp of thinking, but no matter what side of the debate you’re on, I think the way in which the discussion is being framed largely misses the point.

First, what is a small credit union? From a regulatory standpoint, it is currently a credit union with $10 million or less in assets but that number will soon be changing, most likely up to at least $30 million, once NCUA finalizes proposed regulations.  But assuming we can come to a consensus about what small is, should we be giving it special protections or enhanced scrutiny?  If a small credit union has a demonstrable plan for growing to meet the financial needs of a group of people with a desire for their services, then obviously we as an industry should be willing to push back against heavy handed regulations or aggressive examiners.

But to the extent that a credit union is doing little more than sitting on capital while its membership base fades away, then NCUA is right to encourage mergers.  The statistics don’t lie:  the vast majority of smaller credit unions that merge do so because it makes sense.

Entry filed under: General, Regulatory. Tags: , , , .

BS(A) Regulation? To Survive, Credit Unions Need More Flexibility

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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