In Today's Environment, the Small Credit Union's Days Are Numbered
On May 20, I posted remarks on BRUEN Credit Union Blog (www.cbruen.com/blog) about the failure of a very small 213-member, $175,000-asset and, surprisingly, 50-year old credit union with a delinquency rate of 40%.
I subsequently received criticism from the Credit Union Times Editor-in-Chief Sarah Snell Cooke for making the following observation: "It is my opinion that there are credit unions that are too small to exist. How small? Guess I would start by finding ways to shutter anything less than $1 million and then raise the bar from there."
Whether one likes it or not, in today's complex operating environment the small credit union's days are numbered. It has become nearly impossible for the over 1,000 credit unions in the NCUA peer group under $2 million in assets to successfully achieve the minimum regulatory standards expected from a federally insured financial institution.
These 1,000 credit unions represent 14% of all credit unions but serve just 0.44% of the members and hold about 0.11% of the industry's assets.
It is unlikely that extremely small credit unions can or even should make any impact on the payday lending or pawnbroker marketplaces as Cooke also suggested-they lack the resources, training and skill set to do so successfully. Thinking that small credit unions can sufficiently fill that niche is a false hope.
To smaller credit unions the regulatory compliance load alone is crushing. Even credit unions in NCUA's largest peer group like First Entertainment Credit Union shudder under the regulatory compliance burden. We often worry that we are too small to survive the immense weight of these ever-increasing compliance requirements piled onto our backs.
How many tiny credit unions are compliant with the Bank Secrecy Act, not to mention the huge alphabet of consumer lending and related regulations? What are their internal controls, where are their qualified and trained compliance personnel, and who does their independent testing? And the inevitable congressional enactment of the Consumer Financial Protection Agency promises to exponentially increase the compliance burden on credit unions of every size.
Although I am very empathetic about the smaller credit union's plight, I am most concerned about the impact on the industry image and on First Entertainment's reputation as a fellow credit union.
All credit unions regardless of size, share the same last name. And when the media headline reads, "Ninth Credit Union Fails," it does not include the size of the institution. Most readers are left with the impression from the headline that credit unions are dropping like flies. The typical newspaper or website reader never gets beyond that headline to learn how tiny the failed credit union really was. Six of the nine credit union failures this year were credit unions with assets less than $6 million.
No amount of wishful philosophy, tactical political calculations or modest means pretense can change the uphill economics of being a small credit union. It has become nearly impossible for a small credit union to fulfill consumers' needs and do so in a safe and sound manner-an expectation that Cooke also articulated. So let me repeat myself-I would start by finding ways to shutter anything less than $1 million and then raise the bar from there.
First Entertainment CU