A perfect storm of regulation and marketplace dynamics is preventing more meaningful credit union mergers from happening, leaving the industry – especially small credit unions – increasingly unable to compete, M&A and advisory experts warn.

Many credit unions know survival requires operational efficiency and that the way to maximize operational efficiency is to grow. There are typically two ways to do that: Grow organically by reinvesting cash flow or grow by merging with another institution. But only one of those methods is generally available to credit unions, and it may be stifling mergers and acquisitions – and by extension, viability – in the industry.

Credit unions merge all the time. The NCUA approved 132 mergers through July of this year, according to the agency's monthly Insurance Reports of Activity. That's on track to fall about 14% short of 2014, which saw 262 approved mergers. But one thing is noticeable about 2015′s mergers so far: They're bigger. Their average asset size is $32.4 million – a full 52% higher than the average $21.3 million in assets for deals in 2014.