U.S. Central Credit Union's bid to merge with corporate credit unions is an indicator of the long-expected consolidation of the industry's liquidity centers.
That's good news for credit unions, which could see better returns on funds they invest in corporates, analysts. said.
"It would be a sensible .evolution," said R. Dan Brumbaugh, a San Francisco-based economist who has studied the industry. "Consolidation would reduce costs, and larger portfolios would provide them with investment opportunities they don't have right now."
Currently the range and quality of products offered by the 43 corporates which range in size from. $12.7 billion down to $41 million in assets - vary dramatically. And credit unions' choices are often limited because corporates exercise local monopolies.
That would change if there were fewer, larger corporates that had a wider membership base.
Corporates could offer a wider range products and services if the consolidated, said Charles W. Filson, president of the Washington-based consulting firm Callahan & Associates.
The benefits of consolidation also would depend on limits set by the National Credit Union
Administration, Mr. Filson said. Credit unions would be better off if they could join any corporat.e they wished.
"If there's more competition, there's more choice for credit unions," Mr. Filson said.
If regulators designated only one corporate to serve a certain region, the gains of consolidation would be somewhat weakened.
Bert Ely, an Alexandria, Va.-based analyst, warned that consolidation could have its dangers.
If corporates competed, they might invest in riskier products for higher returns, he said. Besides hurting credit unions that put their money in the corporate, an investment loss by a corporate could invite congressional scrutiny - as did U.S. Central's investment in a troubled Spanish bank, even though it didn't lose money.
Governance could be another problem, according to Mr. Ely. Most corporates are now state based, and they could lose their identities if they became regional operations.
"It would be important to look at who selects the directors." he said. "Is it self-perpetuating? Or will there be some process ensuring accountability to [normal] credit unions?"