Credit union executives are tired and frustrated with theeconomic situation and recall the good old days of a decade agowhen a 1% ROA was practically a given. NCUA examiners are tired andfrustrated with the same things. These situations can lead peopleto speak without thinking or at least use extreme hyperbole.

A blog post by Stephen Nelson, vice president of credit unionsupport at the Utah Credit Union Association, on CUinsight featured an exaggerated scenario between a creditunion executive and an examiner where they exchanged words like“idiot” and “fool.” No doubt this may have happened once or twicein the thousands of exams that took place in the last year. Notsurprisingly, NCUA Board Member Michael Fryzel disagreed and wrote CUinsighta letter to the editor.

A kernel of truth resides in these spats. But when it comes toregulations, some don't realize, consider or care that theregulations usually start with Congress, but the regulators are theones before the credit union executives enforcing theregulations.

Some are so blinded with anger they don't listen to facts thatdistract from their nitpicking at the regulator. At the same time,the NCUA is enforcing things at a more stringent level than creditunion executives are used to. (I know a few CEOs would say it'sstill not enough or not properly focused to protect their creditunions' share insurance deposits.)

This debate over regulatory enforcement has raised an importantissue: the value of small credit unions. One of the more irksomethings I hear in the credit union community is to save the smallcredit unions. Why? Just because they're small? That doesn't cutit.

As Kirbydog9 wrote in comments responding to our story on the dust up, small credit unions are “losing marketshare because of changing economic, cultural and demographicrealities. Forty years ago small credit unions flourishedserving disaffected minorities, rural areas and people of modestmeans. While these groups may still exist, cultural changes,virtual delivery channels and a far broader array of products andservices provided by large financial institutions have filled muchof the void small credit unions previously inhabited.”

Financial institutions in general have struggled to deal withthe nontraditional competitors such as online banks and paymentsproviders and others that use the infrastructure the traditionalguys built. Someone took advantage of your hard work and made thebusiness model cheaper and faster. So what are you going to doabout it?

Online banking is not an extra. It's old school. If you're notthinking mobile, or preferably already there, you're toast. Ifyou're not leveraging help from the NCUA, which it does offer, yourleague, credit unions and others, you're in trouble.

If a credit union is unwilling to honestly look at its businessand see where improvements and efficiencies can be made withdisproportionately high capital that's not being put to good use,then it's time to get out of the business.

If a credit union and its executives are nimble and constantlyworking to improve their members' service the way members want tobe served that's one thing. But some are stuck in athis-is-the-way-we've-always-done-it attitude, or board memberswant to maintain that status symbol, or CEOs are just waiting outretirement.

The credit union is bigger than any one person or its employees.Acknowledge the members' needs and wants. They won't deal with1950s services at bankers' hours forever.

As Kirbydog9 put it, “Most readers of this article believe smallcredit unions are an important cog in the credit union industry,but reminiscing over their golden years and casting aspersions onfederal regulators is counterproductive. Small credit unions needto understand the changing marketplace and collaboratively redefinetheir business models if they hope to remain relevant.”

There are some out there providing small credit unions withassistance, such as CU*Answers and the National Federation ofCDCUs, as well as the NCUA, for those who will take it.

Those small credit unions that will not rely on the cooperativeroots of the industry will fail because they aren't maximizing thevalue of being a credit union. Sometimes it is in the bestinterests of the industry and credit union members to merge.

Small credit unions that are niche players and exhibit strongbusiness sense will have the best chance of success, but if theydon't survive, that's life. Businesses shut down all of the time.The industry can't save the small credit unions just becausethey're small. It doesn't make sense.

Politically the large ones like to hold up the smaller ones andplead, “Please don't heap more regulations on us.” Smart creditunions see the value in that and should make prudent businessdecisions about whether or which smaller credit unions they maywant to assist.

The NCUA is not putting credit unions of any size out ofbusiness. Regulatory oversight is the cost of doing business.Competition is changing the demographics and industry culture. As@eloquentonline wrote in a Twitter discussion, it's economicDarwinism. “CUs feign a collective effort, do they also c acollective destiny?”