The End of Small Credit Unions

Increasingly, smaller credit unions are finding it harder to compete for their member's business because of new governmental regulations, increasing competition, and lack of an adaptive business model.

The federal government passed major banking regulatory overhaul recently which will put additional burdens on financial institutions. If you are a credit union with only four or five employees total, this will represent a significant increase in costs. Some people even believe that this is the federal government's plan all along. Drive the smaller financial institutions into insolvency so they are forced to sell out to bigger institutions. If you haven't noticed, when the FDIC shuts down a bank, it is "sold" to a bigger bank. Soon we will only be left with mega banks which will be easier to control by the federal government.

Most of your small credit unions are one branch financial institution that services one company's employees. Also, some credit unions that have defined employer based membership are finding it more and more difficult to compete with those credit unions with community based charters. This is only natural because for the smaller credit unions your potential membership base is much smaller that as community chartered credit union.

When speaking of business model, financial institutions have traditionally relied upon taking deposits and making loans to supply their interest income. As the deposit and lending rates become more competitive, the amount of income you make from this decreases. The only way you can make up for this is the either make more loans or diversify your income stream. The smaller credit unions are unable to expand lending due to limited membership size, but they have yet to embrace other avenues of generating income. Some people find it strange when I speak about profits when it comes to credit unions because of their not-for-profit status, but every organization to remain solvent needs to generate profits or else they will soon go under.

My advice to credit unions are too either adapt to the new business climate or merge with a compatible credit union to increase your membership base. Either way, they should keep in mind that they should always do what is best for their members since they are the ones who own the credit union.