No offense to NCUA or any other regulators, but they are not usually leading edge. They are often reactors. Take new technologies. When NCUA was created it certainly didn't have to worry about say audits of third-party tech providers to protect the insurance fund until online services started to flourish at credit unions. They didn't have to start honing in on subprime lending until one company came in with great success and changed the marketplace. In other words, NCUA is going to be reactive on all sorts of things as the industry changes.
But credit unions that rely on NCUA to protect them are playing a dangerous game. Take the Wings FCU/Continental FCU debacle. The trade associations are vehemently urging NCUA to do something, to step in and protect the cooperative nature of credit unions. It would be nice, but not easy. There's a lot at stake here. If NCUA were to come out and say one credit union can't court another credit union's members in a takeover bid, could they also say one credit union can't market to another credit union within their field of membership? Could NCUA also say member groups shouldn't be allowed to court other members from signing a petition to recall the credit union's board? It's an extra slippery slope.
NCUA certainly has a role in the Wings/ Continental situation. It has to make sure hostile takeovers, like any other merger, are done fairly and equitably. It seems to think it already has the necessary safeguards in place. Maybe it does, maybe it doesn't, a proper review must be done. Since this is a new scenario it is still in reaction mode.
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However, if I were running a credit union I wouldn't wait on NCUA to protect me from a hostile takeover as much as I wouldn't rely on them to make sure I didn't get in too deep with subprime lending. Is it credit union-like, cooperative behavior for one credit union to take over another? Of course not. But let's think of it as competition, get over the obvious emotional elements of a takeover, and fight it. Hopefully NCUA can hone its rules to address any fairness issues of a hostile takeover, but credit unions can't wait on NCUA! At one time, corporate credit unions only marketed within their state lines. When they started marketing outside state lines there was outrage by some corporate credit union leaders, but guess what eventually that outrage subsided and more and more corporates decided to market outside state lines. In the end, the credit unions and the credit union system won. More dollars can stay within the credit union system and credit unions get to diversify among different corporates. I am not saying takeovers are going to benefit CUs in this way, but they are in a sense just another competitive threat.
Look at Continental. It has swung into action. It is communicating with members about the takeover, visiting with Continental employees about what they are looking for from the CU, and planning to unveil a host of products later in the year to make it more valuable to the membership. These are all good things for all credit unions to do whether they are the target of a takeover or not.
The message is clear. Credit unions that don't have good relationships with their members, that aren't penetrating their members with multiple products, are at risk from all sorts of things. They can lose marketshare to banks, other credit unions, or whoever. They can find themselves not growing and in need of a merger. They may not be able to ride out a tight margin environment like today's.
Sitting in this chair each week I get to see hundreds of press releases that show credit unions doing all sorts of things in their communities, with their members, and with their product lines. Trust me, it varies. There are some credit unions out there doing incredible things to stay connected with members, to be on their radar screens when they need a financial product. Other credit unions are doing very little! They are the ones in danger.
Let's not hang our hats on the purity of the cooperative structure to get us out of jams like hostile takeovers. Everyone who believes in credit unions believes in the cooperative structure. I know I do, but credit unions also have to be tough and protect themselves. It's a difficult world and the warm and fuzzy cooperative structure isn't going to protect credit unions against everything. Hostile takeovers probably sound like the worst possible scenario, but there might be something worse down the road. Continental will prevail because it is doing the right things to show its members that it is moving forward to win more of their business. Is your credit union doing enough? –Comments? E-mail [email protected]
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