NCUA Becoming Compass for Industry

Its handling of the proposed merger between two large West Coast credit unions, which died March 3, has established the National Credit Union Administration as the arbiter of the industry's direction.

There were never any safety-and-soundness concerns involved in the proposed marriage between Patelco Credit Union and First Technology Federal Credit Union, both of which are considered strong and healthy institutions.

Instead, the agency addressed how the merger would affect service to members and its competitive impact on other credit unions.

The question before the regulator was, did the merger "provide a demonstrable benefit for the membership or was it growth for growth's sake?" NCUA Chairman Norman E. D'Amours said in an interview last week.

"Growth for growth's sake is to be avoided because it opposes the underpinnings of the credit union movement," he added.

Opponents of the merger came out in an unprecedented open hearing on the transaction on Feb. 14. High on their list of complaints was that the merger would increase competition.

At the hearing Mr. D'Amours questioned whether the merger would have benefited Patelco members, because it would have increased operating expenses and diminished their representation on the board.

The NCUA chairman believes that the agency has a role of ensuring that the industry sticks to the cooperative precepts embodied in the Federal Credit Union Act of 1934. But some in the industry believe the agency should stick to safety-and-soundness issues.

"No one should think that cooperation can be imposed by regulatory action," the Credit Union National Association said in a comment letter it filed regarding the merger.

An angry Edgar F. Callahan, chief executive of Patelco, said his credit union was mistreated.

The board voted to withdraw the merger application on March 3 because it was "totally exhausted and frustrated with the process," he said. "It was apparent (the merger) was going nowhere, and the abuse heaped on us during the process made it crystal clear we were being used for a purpose we didn't understand."

Mr. D'Amours said the process was fair.

"The reason they're not getting their way is because they withdrew the application," Mr. D'Amours said, adding that the regulator had not made up its mind on the application.

Mr. Callahan said the reason for merging was to provide high-tech delivery systems to its members, something the credit union still plans to do.

There are still some loose ends from the seven-month drama.

For one, there is concern about the precedent of holding an open hearing on merger applications. Some fear banks could use them as platforms to bash credit unions. Kathleen O. Thompson, senior vice president of regulatory affairs for CUNA, said the trade group is preparing questions for the NCUA, asking about protocol that will govern future hearings.

Indirectly, the merger led to charges of management abuse at Patelco that will be investigated. The NCUA last month told Patelco, at the request of the credit union's supervisory committee, that the merger would be on hold until the supervisory committee could conduct an investigation. Patelco is now negotiating with the California state regulator to organize a review, Mr. Callahan said.

Finally, Bob Loftus, the NCUA's director of public and congressional affairs, said the agency is working on regulations governing mergers of large, healthy credit unions.

Mr. Callahan doubted whether two credit unions would follow Patelco and First Technology's footsteps in the near future.

"Anyone who watched what happened with Patelco will think twice about seeking" such an action until "the agency gets back to business as usual."

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