Is Bigger Always Better For The CU Industry?
I found myself getting more and more annoyed by a well-researched and well written paper on CU merger trends recently highlighted in the CU Times. The authors argue convincingly that, given pressures facing the industry, mergers can have positive consequences for members of the merged credit union in terms of services and financial stability. In fact, to these authors the benefits of consolidation are so obvious that they are ultimately dismissive of those of us who see in this consolidation trend the seeds of the industry’s demise.
The authors don’t dispute estimates that within 20 years there might be a total of 1,500 credit unions. Instead they argue, “what’s the big deal? If these numbers do indeed come to fruition and population growth remains relatively steady, it would mean that one in three people in the U.S. would belong to a credit union by the end of this period (Pilcher, 2012). So why all the gloom and doom? So what if less than ten percent of credit unions will have less than one hundred million in assets twenty years from now? The industry is experiencing the biggest boom in its history in terms of assets and members, but to hear some individuals within the industry talk about it, you would think that we were two decades from suffering the same fate as the savings and loan industry.”
First, I agree with some of what the authors are saying. Consolidation is inevitable. Mature industries consolidate and credit unions aren’t immune from this reality. Plus, businesses either grow or die; there is no in between. When I see credit unions hoarding their capital without a realistic plan for growth, I know it’s only a matter of time before the urge to merge kicks in.
Where I part company with these researchers is their belief that credit unions can survive so long as they continue to provide great service and products. They argue that “All sides can agree that credit unions were initially organized to positively affect the lives and financial situations of those residing within each organization’s respective field of membership, and this is the lens through which the impact of mergers on the movement should be analyzed.”
This simply isn’t true. There are many banks that do a great job of positively affecting their members’ lives. Credit unions were sanctioned and given a not-for profit mission because everyone needs access to financial resources, particularly those of modest means, and that a cooperative structure allowing people with similar needs to pool their resources together is a sensible way of achieving that goal.
We won’t keep our tax exempt status because we are cooperatives; we will keep our tax exempt status because we are cooperatives that do things that banks can’t or won’t do. To be clear, larger credit unions have ample resources to meet this challenge but only if they don’t content themselves with providing the same services as banks or better. As they grow they have to somehow keep their committed to an ethic of realizing that the little guy is still out there and he needs a helping hand.
With that, I am putting the blog on its annual hiatus. See you after Labor Day.