Can Credit Unions Grow Without Merging Small Ones Out of Existence?
As the financial landscape evolves, credit unions face a pivotal question: Can the industry expand without sacrificing the unique identities of smaller institutions? Henry Meier, Esq., in his recent article for Credit Union Times, delves into this issue, exploring how growth and preservation can coexist within the credit union sector.
The Challenge of Growth vs. Identity
In the face of increasing consolidation, smaller credit unions often find themselves at a crossroads. Mergers can offer economies of scale and broader services, but they also risk eroding the local focus and member-centric ethos that define many small credit unions. Meier emphasizes that regardless of size, all credit unions play a vital role in serving their communities and exemplifying the nonprofit model.
The Network Credit Union Model: A Middle Ground
To address this tension, the National Credit Union Administration (NCUA) introduced the concept of “network” credit unions in 2016. This model allows smaller credit unions to merge with larger ones while retaining their individual identities as divisions within the larger entity.
Continued operation under the original name.
An advisory committee comprising members from the merged credit union.
Reserved seats on nomination committees for members of the merged institution.
Initially met with skepticism, this approach is now seen as a viable path to balance growth with the preservation of local character.
Lessons from the Banking Sector
The banking industry offers a precedent with the Bank Holding Company Act of 1956, which permitted banks to operate multiple institutions under a single holding company. This structure enabled growth while maintaining the autonomy of individual banks, suggesting a potential framework for credit unions to emulate.
The Importance of Tax-Exempt Status
A looming threat to credit unions, particularly larger ones, is the potential loss of tax-exempt status. Meier warns that imposing taxes based on asset size could force credit unions to choose between limiting growth or facing financial penalties. Such measures could inadvertently accelerate the decline of small credit unions, undermining the diversity and resilience of the sector.
Conclusion
The path forward for credit unions involves embracing innovative structures that allow for growth without compromising the foundational principles of community focus and member service. By adopting models like network credit unions and advocating for supportive legislation, the industry can ensure that small credit unions continue to thrive alongside their larger counterparts.
