Hood Clarifies NCUA Position on Bank “Mergers”

February 5, 2020 at 9:34 am Leave a comment

In a recent column in the American Banker, (subscription required) NCUA chairman Rodney Hood clarified some important issues related to the small but increasing number of bank/credit union combinations. Typically I try not to pay too much attention to banker hyperbole since there really are more important things for credit unions to worry about than the fact that banker associations don’t like them. But given the extent to which misinformation is increasingly confusing issues surrounding credit union acquisition of bank assets, I was glad to see the Chairman address some important misconceptions.

First and foremost, credit unions can’t merge banks into them. Instead they can enter into purchase and assumption agreements in which they agree to purchase some or all of a bank’s assets. As the Chairman explains “when speaking of credit unions “acquiring” banks, these credit unions are actually purchasing bank assets and certain liabilities in market based transactions. These purchasers could include loans and deposits” but cannot include stock.

This is more than a legalistic distinction. It means for example, that when assessing whether or not to go forward with an acquisition, credit unions have to take into account the compatibility of the financial institution’s customer base with its existing field of membership. In fact, describing these transactions as mergers is like describing an estate sale as a real estate transaction. When a bank, or any other corporation for that matter, completes a merger, it is generally stepping in the shoes of the previous company and taking on all its obligations. In contrast, when conducting a purchase and assumption (P&A), the purchaser is only taking legal responsibility for the assets it purchases.

Then there is the policy issue. Specifically, is there something inappropriate about credit unions purchasing bank assets? Unlike an increasing number of my fellow Americans, I actually believe that the free market works pretty well. Why shouldn’t community banks have the choice of maximizing their assets by entertaining acquisitions by credit unions as well as banks? If I were running a community bank I would welcome any potential purchaser who is going to treat my customers well and give me the best value for my business.

One more thing, the banking associations would be doing a lot more for their average community bank member if they went to congress and advocated for changes in the law which gave them the ability to compete once again against larger banks. Of course this won’t happen. Besides, it is so much easier to obsess about a relative handful of credit union P&As than it is to acknowledge that larger banks are gobbling up smaller banks out of existence.

NCUA to meet with Task Force

The Credit Union Times is reporting this morning that NCUA has agreed to meet with the New York City Taxi Medallion Task Force which released its recommendations for the industry this past Friday. This can only be good news as any resolution of this issue is going to involve NCUA.

 

 

 

 

 

 

 

 

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

Taxi Task Force to NCUA: It’s Time To Get Involved Are you ready to comply with federal securities law?

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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