When Small Credit Unions Go, So Do the Big Ones

By Robert McGarvey

A chart in consultant Marvin Umholtz’s year-end CU Strategic Hot Topics newsletter jumped out at me and triggered a tsunami of worries about the future of credit unions.

Crunching NCUA data, Umhoeltz said there were 5480 credit unions as of mid 2018.  But get this: 3904 have assets under $100 million.

1454 have assets under $10 million.

Just 542 have assets above $500 million.

So what?

Here’s what: many experts I talk with tell me that the minimum size needed for credit union survival is $1 billion. Some scoff at that and say a well run institution with $500 million will do fine.

Nobody is optimistic about the future of micro credit unions.

But, increasingly, I believe that it is the micro credit unions that are the face of the movement and they are cause of some benefits that go to even big institutions.

Such as tax exemption.  No politician wants to give tax exemption to big credit unions that can go toe to toe with community banks – if only because community bankers continue to raise a loud, pained whine about tax exemption. But it is hard to turn down the plea of a micro credit union.

Small credit unions bring other benefits.  When credit unions “walk the Hill” – knocking on legislators’ doors in Washington DC – the ones who are likeliest to gain entry are the small institutions.  How do I know? Because CEOs of some of the biggest credit unions told me exactly that, that they ride in the wake of the small institutions.

But the terrible news is that as credit unions shrink in number it is the small ones that are folding.  Sometimes it’s because a longtime CEO retires and who wants to take over a small institution where the hours are long, the pay is low, and the responsibilities are high?

When a board can’t find a CEO increasingly it throws in the towel and merges with another institution.

Other credit unions give up because they can no longer keep up with government demands for BSA, AML, Patriot Act scrutiny of accounts and deposits.  

Sometimes, too, credit unions fold because they can’t figure out how to offer the technology that’s needed to stay current.

Occasionally, too, credit unions fold because they made hideously bad investments – think of the failures due to over exposure to taxi medallions.

But, really, bad investments are the lesser cause of closures these days. Now it’s mainly regulatory fatigue and inability to keep up in the personnel wars.

But this doesn’t mean small credit unions necessarily must close. They don’t.

Two years ago, I wrote a piece “How to Save Thousands of Small Credit Unions.”  

That article by the way noted that in 2010 there were 7486 credit unions.  That means 2006 closed in eight years. That’s roughly five a week, one every working day.

Wow.

In 2016 by the way there were 5916 credit unions.  Two years later there were 436 fewer.

Cue the bagpipe dirge.

For the big credit unions too because – again – they need the small ones.

In that 2017 article, I quote Jim Blaine, then CEO of State Employees Credit Union of North Carolina, the nation’s second biggest, thusly: “I hope we do a lot to help smaller credit unions. If the small credit union goes away, the larger ones will be in a mess.”

Blaine is spot on.

What can big credit unions do?  They can offer free ATM access for instance, that’s a big plus for members of tiny credit unions with maybe two ATMs. They can offer free management consulting. They can direct restless, ambitious, talented staff to cut the cord and take a job with a micro credit union, they can help spearhead innovative solutions, sometimes through credit union leagues, where small credit unions learn how they can join together to collectively hire a BSA expert or even a CEO (and, yes, there are cases where one person acts as CEO of multiple institutions).

Accept that the survival of small credit unions is critical to the survival of all and, suddenly, extreme actions start to make sense.

Word of advice: don’t shrug off the next death notice you read about a small credit union.

Because next the bells may toll for thee.

Tune into the CU2.0 Podcast for continuing thinking on credit unions, their challenges, and what tomorrow may bring.