Credit Unions Will Ultimately Decide How Many Corporates Will be Left

From time to time we hear, “How many corporate credit unions should there be?” In the 20-plus years that I have been involved with the credit union movement, we have seen more and more talk of consolidation within the corporate credit union network. Why is this? I would submit that this is just a function of the number of corporate credit unions and the role of the network. With never having even 50 corporate credit unions, and many having grown out from the “central” credit unions that were needed to serve credit union officials, who at one time could not borrow from their own credit union, why is it such a big deal that the number of corporate credit unions in the network is down to 31? The corporate credit union network is evolving, just like natural-person credit unions are. When I started my career we had nearly twice as many credit unions as we do today. A large majority of those credit unions that no longer exist merged for various reasons, even though many could have survived on their own, even today. No matter the reasons for merging, the fact remains that the surviving credit unions are stronger, provide better services, and are as true to their purpose as they ever were. As for corporate credit unions, there has always been one common reason for exploratory merger discussions, which is, how can credit unions within a primary service area be best served? It seems pretty safe to say, that for most corporates and their members, their traditional corporate credit union is doing a good job, regardless of size. Announced merger attempts that do not come to fruition, such as the recent one between Midwest Corporate FCU and Missouri Corporate CU, usually are halted because corporate credit unions do a very good job in the area of due diligence. No corporate credit union is willing to be taken over by, or is willing to take over, another corporate unless it will truly have a benefit for each corporate’s members. So these “failed” mergers are not negative things, they are signs of a healthy corporate credit union network and of review processes that work as they are supposed to. Corporate credit unions have shown time and again that the merger and getting bigger is not the goal, the goal is always to find ways to serve members better. There has also always seemed to be talk of a predetermined number of corporate credit unions, which has lead to speculation that the days of the smaller corporate credit unions are numbered. Well if they are, it is a really high number. Remaining in existence does not have so much to do with size as it does with organizational structure, service, good management, and strategic alliances. Less than 10 years ago, corporate credit unions and leagues were forced to break their interlocked boards. This set the stage for corporate credit unions to expand their fields of membership and, yes, compete for credit union business. However, it has also resulted in natural-person credit unions now having more choices within the credit union movement for investment, credit, correspondent, and other services. This fundamental change has refocused corporate credit unions to be even more competitive on rates and fees, even if a corporate does not feel pressure from its members, the fact that members have options keeps us all on our toes. The result has been not so much credit unions leaving their traditional corporate credit union, but some credit unions having additional corporate credit union relationships. It also has resulted in two distinct philosophies on how corporate credit unions can serve their members better. One is driven from the economies of scale argument. While there is no doubt that this is a valid argument, considering the primary role of a corporate credit union as a clearinghouse of sorts, there is another view, mostly taken by the smaller corporate credit unions. This view relies more on efficiencies gained by a smaller infrastructure and a well-defined service area. This approach allows small corporates to respond quickly, to be more flexible, and to get a greater percentage of its members involved with their financial cooperative. However, one draw back to a smaller balance sheet and infrastructure is that new product/service development is nearly impossible on your own. To overcome this shortfall of product/service development, smaller corporates need to work with third parties in order to continue to offer a diverse menu of services. This is where I see the corporate network evolving to – strategic alliances. We will always have a healthy tension among corporate credit unions; much like there should be between the regulator and the regulated. The tension will keep us moving forward in a good way, it will force us to seek trusted business partners both within and outside the network. There will be a new round of cooperation within the network as one corporate develops new services and looks to expand its market share, and cooperation as we realize that some problems can only be economically solved by everyone working together. All this means one thing, better services for member credit unions that are brought to market quicker than ever before. In the end, there is no magic number of corporate credit unions. No regulator has a secret plan for the network; natural-person credit unions and business philosophy will drive the direction and evolution for the corporate credit union network. Which corporate credit unions will be around in ten years and who will they serve? I do not know, but I do know that it will be our members that ultimately determine it. Not the regulators, not some handful of credit union executives, not the trade associations or the trade press, it will be the members. After all, we are cooperatives, and when we fail to fulfill our purpose for our members, they will determine just how many corporate credit unions there should be.