Dr. Keith Leggett, a former executive of the American Bankers Association and a frequent commenter on credit union activities and the NCUA, recently posted a column on his blog site that I believe requires clarification and correction.
While I admire Dr. Leggett’s vigilance and enjoy reading his commentaries, I find that his writing of Nov. 10 shows bias against credit unions and their regulators and for the banking industry.
Dr. Leggett is of the opinion that there are fewer credit unions converting to banks than banks to credit unions because of difficulties of such conversions imposed by NCUA regulations. While he may feel that the conversion regulations are too stringent, he must first recognize and understand the culture, philosophy and commitment that exist in the credit union industry. In addition, he must acknowledge the difference in the structure and ownership between credit unions and banks.
Credit unions were founded to meet the needs of individuals of modest means; a group ignored by then existing financial institutions. They were created to provide financial services to all sectors of the economy who could not obtain those services elsewhere. They were founded on the principal of people helping people. And most importantly they were established so that the members of the credit union, each and every one of them, would be an owner and have a voice in its operation.
NCUA regulations mandate publication and disclosure of any proposed credit union/bank merger as well as a proper appraisal of the credit union’s value. This is done for the purpose of transparency, accuracy and to give the members of the credit union an honest value of the institution they own.
The members are also given an opportunity to submit to the credit union’s board of directors their thoughts and comments on any proposed merger. As owners they have a right to be heard.
If events move forward, NCUA regulations requires the directors of the credit union to vote in the affirmative that the proposed merger is in the best interest of the members and the selected merger partner is the best choice. This action by the board is properly exercising their fiduciary responsibility.
Dr. Leggett also believes that the requirement that credit union members are sent the terms and conditions of the merger should be stricken. He feels the language required in the disclosure is meant to dissuade members from voting for the merger.
Dr. Leggett states the disclosure claims members will lose all their ownership in the business. They will. Banks are owned by stockholders not depositors which credit union members would then become. The disclosure claims members will lose their right to vote. They will. Credit union members vote at annual meetings and have a say in credit union operations. Depositors do not vote nor do they have a voice. They will not share in any liquidation process or extra ordinary dividends. They won’t.
Credit union members will lose not only their ownership interest but also their right to attend annual meetings, to speak and offer comment and their right to vote for or against matters impacting the operation of the institution.
The one point that Dr. Leggett makes that I agree with is that “mergers are business decisions.” Based on that premise, if a credit union wishes to merge with a bank they need to do what is required by law as every business must do. As excessive as government regulations may be, some actually have a purpose and objective.
In the case of the regulations governing credit unions into bank mergers, the required disclosures are one that I believe are not excessive.
Ownership by a credit union member in their financial institution is cherished. It was given to them the day they joined and made their first deposit. It is a privilege that should not easily be taken away.
Michael E. Fryzel is a Chicago-based attorney and former chairman of the NCUA Board. He can be reached at [email protected].
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