Expect More Bank Charter Conversions: Consultants
Alan Theriault, founder and CEO of the Portland, Maine-based CU Financial Services, would not say whether the $209 million Monterey Credit Union is a client, but he did say many of the credit unions that have converted to a bank charter were his firm’s clients.
Theriault said he would not be surprised if the credit union industry saw a number of other institutions, both privately insured and federally insured, change charters in the next 12 to 18 months.
“If you see what is going on now, with NCUA talking about increased capital requirements, I think any reasonable board out there is going to have to examine all its charter options,” Theriault said.
While not commenting directly on Monterey’s situation, Theriault observed that as a privately insured credit union, Monterey would not have to seek regulatory approval for the conversion before sending ballots to its members, unlike federally insured credit unions.
“Credit unions apply to regulators early in the process because that’s what they have to do for NCUA,” Theriault said. “Not because the other regulators necessarily require it.”
He also observed privately insured credit unions would not necessarily have to comply with NCUA disclosure rules that mandate three sets of disclosures about the pending charger change before members vote on it. Likewise, the credit union would not to apply for insurance to the FDIC until later in the process, he said.
Monterey Credit Union has sent ballots to its members about changing to a bank charter, but has not applied with any regulator or the FDIC.
Richard Garabedian, a partner with the Washington, D.C., law firm of Luse, Gorman, Pomerenk and Schick, also consults with credit unions about converting to bank charters. He also said there will be more attempts at charter conversions in the months ahead.
“I am working with two, right now,” Garabedian said, “so I think you are likely to see them come up from time to time.”
He also acknowledged that nothing in principal would prevent a privately insured credit union from converting to a bank charter and obtaining FDIC insurance. However, Garabedian pointed out the FDIC may not be eager to insure an institution that has not had federal insurance for years.
If a credit union has had NCUA insurance, the FDIC may have a greater level of comfort with how the credit union has been regulated, Garabedian said.
Theriault acknowledged that the FDIC has taken a conservative approach to insuring new banks in the years since the Great Recession, but said the agency has been looking at all charter applications with a careful eye.
“It’s not just credit union applications that have gotten additional scrutiny,” he said.