Winters in the Midwest can be brutal, and in more ways than one. The frigid temperatures make it difficult to wake up in the mornings. Your driveway is buried in a blanket of snow. You're forced to act like Indiana Jones on your rush hour commute. You find yourself constantly spiking the heat to stay warm.
It's all about preparation. The wise ones learn to adapt.
Like Midwestern winters, regulation can be a blustery force for credit unions. "Only Up: Regulatory Burden and Its Effects on Credit Unions," a recent report by the Filene Research Institute, highlights how credit unions are dealing with costly regulatory pressures that threaten the effectiveness of their member and relationship-based business model.
While uniform regulations for different financial organizations are designed to promote competition, this is not always the case. The Filene report reveals that credit unions that have around 20 employees or less face a much heavier regulatory burden than large credit unions.
Small credit unions typically also have a stronger common bond with their members than larger credit unions and thus, there is less potential for members to abuse the credit union, for example, in the form of money laundering, than in organizations where customers are less well known. We also found that compliance costs have significantly increased for all types of credit unions.
Using data from a survey of North American credit unions, U.S. credit unions were especially critical of heavy micromanagement by the regulators. This applies to both sides of the balance sheet, but particularly to lending. Some of the credit unions complained that regulators are making it difficult to lend to their traditional core constituencies, especially if they are in some way unconventional.
The heaviest burdens for U.S. credit unions revolve around lending rules, anti-money-laundering and anti-terrorism regulations, and NCUA exams.
The increasing burden of regulatory compliance threatens to bury many credit unions. However, just like a brave Midwesterner on a cold winter day in January, it's time to break out the shovel before you get buried in a deeper hole. Here are a few suggestions:
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Collaborate and merge: For smaller credit unions with higher compliance costs, this may be a logical solution.
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Retain cooperative character: Despite the problematic circumstances of regulation, stay committed to the cooperative business model.
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Operate efficiently: Maintain business continuity to preserve your member base.
Read more in Filene's report, "Only Up: Regulatory Burden and Its Effects on Credit Unions." The report is the latest in a series of exclusive content from Filene available to CU Times readers.
Manpreet Nat is a research associate at the Filene Research Institute. He can be reached at 608-661-3752 or [email protected].
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