The network credit Union is an interesting and unique idea. It has recently returned to the spotlight as a result of comments made by individuals who believe it is a way to stop the loss of small credit unions. It is not a new concept but one that has been studied for years and has been available for credit unions to take advantage of for some time.
The main objective of a network credit union is to provide the opportunity for two or more credit unions to combine their resources and yet maintain their identity. The surviving credit union must carry the "network" designation and the other credit unions would be designated as "divisional" credit unions. Each divisional CU maintains a CEO as well as an advisory board that would select an individual to serve on the committee that would nominate candidates for the network CU board.
Since the development of the network CU idea there has not been a rush by credit unions to try to make a go of it. It leads to the question why the concept has not been widely embraced by the credit union industry?
The concept is workable but requires an enormous amount of cooperation, give and take and a mutual understanding of the goals to be accomplished. Those objectives are at times difficult to accomplish among the board members of just one credit union.
As interesting and progressive as the idea may be, however way it is presented, the end result of the collaboration is still a merger. Only one charter survives and the divisional credit unions, although maintaining their previous names, become branches of the survivor. Committees can advise but the surviving board must make the hard decisions as they pertain to the operation and success of the institution. The financial statements of the divisionals combine to become the financial statement of the network credit union. It is that statement that will determine the performance of the network and be the one scrutinized by the regulator and insurer.
Mergers between just two entities are at times very difficult to accomplish. Since there can be only one survivor, there may never be agreement on which charter it will be. There can only be one CEO and one board held accountable for performance. To get individuals to give up their positions to achieve a merger is far from easy. To try to accomplish a merger between three, four or more credit unions would be a herculean task and the odds of accomplishing that are exceedingly high.
I once had the opportunity to facilitate a merger between two state credit union associations. While everyone conceded that having just one association would strengthen the industry within the state, personalities, differences of opinion, board seats and other considerations made it almost impossible to achieve. Fortunately, after three years, countless meetings and concessions on both sides, common sense prevailed and a successful merger resulted.
The concept of a number of credit unions coming under one umbrella is unique and visionary. Unfortunately, it is a cumbersome, time-consuming and difficult objective to realize. Fortunately, there exists in the credit union system, other ways credit unions can survive and maintain their own identity, CEO and board of directors.
Credit Union Service Organizations as well as trade associations have developed resources that credit unions can use to get the expertise they need at a cost considerably less than if they tried to do it themselves. Sharing back room resources and in some cases the same CEO has allowed some credit unions to not only survive and be successful but also to maintain their status and by themselves be the network credit union for their members.
Michael Fryzel is a former NCUA Board chairman and is currently an attorney in Chicago.
