A member of the National Credit Union Administration board defended the agency’s approach to overseeing credit unions' purchases of community banks, but one industry leader questioned whether the regulator even needs a position on the matter.
“These transactions reflect market forces and are negotiated in an arm’s-length manner,” NCUA board member Mark McWatters said during an address at the Credit Union National Association’s annual Governmental Affairs Conference.
"The NCUA should respect the independent, market-driven business decisions of the interested parties, unless safety and soundness, consumer protection and related matters indicate to the contrary," McWatters added.
The NCUA last month issued long-awaited guidelines for credit unions planning to buy banks, but rather than producing anything new, the proposal merely consolidates existing guidance. The proposal is out for a 60-day comment period.
Jim Nussle, CUNA's president and chief executive, pushed back on the NCUA's approach.
Credit unions "don’t need guidance from a regulator on how to work in a marketplace,” he said in an interview. “Those transactions seem to be going really well. The reason that people are asking for guidance is to try and prevent this from happening.”
Sixteen banks agreed to be sold to credit unions last year, the highest annual total ever. But there have been fewer than 50 of these transactions since 2015, a minuscule percentage of total M&A activity in the bank or credit union space.
Data from the Federal Deposit Insurance Corp. shows 2,000 bank mergers took place between 2012 and mid-2019. Similarly, the number of active credit unions shrank — generally through mergers — by about 2,000 institutions during the past decade.
Any credit union-bank deal must be approved by credit union and bank regulators. When asked if the NCUA should work alongside the FDIC to craft guidance, Nussle questioned whether a need for guidance even exists.
“Tell me what the problem is that we’re trying to solve here. Let’s start with that guidance,” Nussle said.
Much of the credit union movement continues to be bullish on bank purchases, arguing that credit union are not only helping the sellers — which some say have turned to credit unions because other banks weren’t interested — but also because these deals can help prevent the creation or advancement of banking deserts.
“These transactions are not, based upon my analysis as a regulator, hostile or unfair to credit unions, community banks or consumers,” McWatters said, adding that the agency should respect market-driven decisions unless safety and soundness issues come into play.
Bank trade groups continue to rail against the trend, arguing that an uneven playing field is creating benefits for credit unions that banks don’t enjoy.
“The banking trade associations are irate that a small number of their member banks are selling assets to credit unions,” Ryan Donovan, CUNA 's chief advocacy officer, said in his remarks at the conference. He added that the issue has been “poorly framed” since banks often are the ones to initiate the transaction and are seeking to sell their assets.
“This is a distinction with a difference,” Donovan said.
For his part, McWatters took issue with both sides.
“The endless Hatfield-McCoy carping between credit unions and community banks has grown tiresome and of little purpose except, perhaps, as a marketing and membership tool for some,” he said.
Credit unions and banks, McWatters said, would be better off if they “acknowledge that their future viability is not so much threatened by each other but will rest on how they respond to the economic and operational challenges” from the likes of fintech challengers, emerging cybersecurity threats, and maintaining adequate liquidity and capital while avoiding concentration risk.
“As a safety and soundness, consumer protection, and prudential regulator, this is what keeps me up at night,” he said. “I am far less concerned that a credit union and a community bank may determine that it is in their mutual economic interest to merge together, regardless of whether the credit union or the community bank continues as the surviving financial institution."
