According to the NCUA, the agency approved 25 mergers last month for a total of $457 million in assets. At the same time, there were zero new charter applications. Only nine mergers were approved in February, but the assets still totaled $134 million-and, again, no new charter applications.
The leading reasons listed for these mergers: expanded services, poor financial condition, and declining field of membership. The credit union business model has certainly seen some challenges under current market conditions, and these are just a few of them.
First, credit unions do need to look seriously at expanding services relative to their fields of membership. For example, a credit union that started 50 years ago in a church basement and only offers passbook savings accounts will have a hard time surviving in today's financial realities.
Certainly, members of a credit union like this have progressed in their financial needs with the help of the credit union. And, it only makes sense that once you teach your members the importance of saving and actually get them to do it that you provide them with the next step in their financial lives. This could include funding a loan to purchase a used car, offering them a low-limit credit card for unexpected emergencies or granting them their first mortgage.
Smaller or less sophisticated credit unions do not need to have all the expertise in-house to do this but can partner with government entities, CUSOs, other credit unions or other third parties to bring expanded services to their membership. Once a credit union has helped lift their members up toward saving and fiscal responsibility, you should not be sending them down the street to a bank for their other financial needs. These are the members you want to continue cultivating.
Niche credit unions are very important to their members as well as the movement, but that doesn't mean you don't or can't change. Reluctance to change with the times will lead to stagnation and lack of diversification in hard times. The credit union might feel safe from the woes of the real estate market if it didn't make mortgages, but if the credit union had made mortgages in the first place, its members could have been saved from the predatory loans they can no longer repay and are forced to move, taking their business with them.
And in today's economy and following the NCUSIF capitalization efforts, it's no wonder many credit unions are in poor financial condition. For some, it's just a sign of the times, and they'll get past it. For others in unfortunate locations, like Nevada and California, they may not have the wherewithal to move beyond the real estate decline before property values turn up again. And still others were operating under unrealistic assumptions. Whatever the reason, the credit union system should delve into these issues, such as whether field of membership restrictions are keeping credit unions from geographic and member diversity, as well as product concentration risk.
Field of membership restrictions, despite banker protestations, have always been a hallmark of credit union operations and a key argument for why they're different than banks. The NCUA introduced the trade, industry or profession charter back in 2003 to help credit unions serving various troubled industries, such as the airlines, to maintain their roots in the industry they served without going down with the ship. For example, Aloha Airlines FCU (now simply Aloha FCU) was granted a TIP charter in 2008 to serve all air transportation employees working in Hawaii from aviation regulators to support staff. This type of innovative thinking is needed once again to help credit unions stick with their roots while evolving with reality.
The financial services market place is oversaturated, so some consolidation is a good thing to prevent the type of overly competitive market that led financial institutions to chase yield into the darkest corners that helped create the current economic turmoil. However, credit unions would be wise to make a decision to shift with the times and let the other guys merge into extinction.
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