Regulators In The BLENDER
Credit unions and banks aren't the only entities in the financial world eyeing mergers-so are their regulators.
With a number of states seeking the same "economies of scale," "streamlining of operations," and "greater resources" often cited by financial institutions as the reasons behind their mergers, some credit unions are looking at new blended regulatory agencies.
And just as bank customers and credit union members often fear mergers will mean a disruption in service and getting lost in the shuffle, financial institutions face some of these same fears, particularly credit unions concerned about being lumped in with banks at the regulator's office.
But in a lot of cases, these fears are unfounded, according to the National Association of State Credit Union Supervisors.
"Take Michigan, for example, where the new commissioner came from a state bank," said NASCUS Executive Director Mary Martha Fortney. "Credit unions were fearful, asking would the commissioner be an advocate just for state banks or would she even listen to credit unions? But she has proved to be an effective regulator, and she wants to have the best credit union charter in her state."
Fortney also pointed to Illinois as another example (see story, above).
"[NASCUS] Chairman [Roger] Little and I just came back from Illinois where we met with the new regulator," she related. "Whenever there's a new commissioner or a new regulator, it's incumbent on us to establish a relationship. That trip to Illinois was time very well spent. Any kind of change can sometimes be hard to get through. When you have a reorganization like in Illinois, there's a period of transition, and it's a time full of questions. But you have to realize that everyone is interested in doing the right thing. Regulators just want to ensure that the financial institutions in their states are safe and sound. Credit unions just want to be allowed to go about the business of serving their members. Establishing a dialogue is key."
In most cases, it's not a matter of taking a stand-alone CU regulator and merging it in with a stand-alone bank regulator but rather, the merging of a couple of already-consolidated regulatory agencies into a "super agency," according to NASCUS' Brian Knight, who noted that of the 48 states that have state charters, 42 have CU regulators that are part of a bigger umbrella regulatory department, with just six states boasting a stand-alone credit union regulator.
"When Wisconsin went through a reorganization, it had a separate credit union regulator that was being merged into a larger agency, and there was a concern that credit unions would be disadvantaged, but those fears were ill founded," Fortney suggested.
But what are the reasons for creating these superagencies? "It varies from state to state, of course, but often it's the perceived cost savings; states looking to reduce redundancies," Knight explained. "But I say 'perceived cost savings' because a lot of times these moves don't always translate to savings. The cost of regulating state credit unions is such a small part of the budget, and that cost is usually covered by fees collected from the credit unions themselves."
While it is human nature to be somewhat uncomfortable with change, perhaps the good news is that credit unions should be used to it by now. "Some of the concerns when there is reorganization are the same concerns when there is a gubernatorial change with new political appointees," Knight offered. "You don't know who is going to sit at the top and what their priorities are going to be. You have an unknown quantity, and you have to go through that whole education process and relationship-building process again."
And if the concern is being regulated by someone who previously regulated banks, many credit unions ought to be used to that, too, due to the "pooling of resources" that often means examiners are shuffled around the various agencies, he added.
"Take Utah or Alaska where they have combined agencies and rotate staff around from banks to credit unions to trust companies," Knight commented. "That's actually a positive, though, because it's a cross-training experience and gives your regulator a greater pool of resources."