After delaying consolidation for years CU's are about to have it foisted on them.

Central Bank sets up special unit to merge credit unions



The bank has has recently set up a Special Resolutions Unit within the Credit Institutions Supervision Directorate to manage the mergers.
 
ajapale said:
Bill Hobbs provides some interesting insights into the issues facing Credit Unions in his
What do AAMers think of his contention that CU's face a round of compulsory consolidation?
Click to expand...

The world and his wife know that compulsory consolidation is the preferred route of the regulator at this point and indeed the Charlie Weston in the Indo reported last week that a special team has been established in the Central Bank to progress the process of consolidation.
The big danger with consolidation is the possibility of losing the ethos of locallly run CU's. This must be balanced against the possible benefits of consolidation but bigger is not always ebst as we have found to our cost with the banks!
 
CU Manager said:
The big danger with consolidation is the possibility of losing the ethos of locallly run CU's. This must be balanced against the possible benefits of consolidation but bigger is not always ebst as we have found to our cost with the banks!
Click to expand...
Not to sure about that - US, Canadian ad Australian credit unions have been consolidating for quite some time.

U.S. 2003 = 9369 2010 = 7491 a 20% decline (no. in 1995 c*12,200)
Canada 2003 = 1298 2010 = 877 a 32% decline (no. in 1995 2,448)
Australia 2003 = 187 2010 = 105 a 44% decline (no. in 1995 291)

While they have been "consolidating" the numbers of outlets and customers have grown as has the range of products and services.

The equivalent data here is:

Ireland 2003=421 2010 = 409 a 2.8% decline (no. in 1995 c421)

* about 35 US credit unions have demutualised. One Aussie CU has converted to a mutual bank.
 
kaplan said:
Not to sure about that - US, Canadian ad Australian credit unions have been consolidating for quite some time.

U.S. 2003 = 9369 2010 = 7491 a 20% decline (no. in 1995 c*12,200)
Canada 2003 = 1298 2010 = 877 a 32% decline (no. in 1995 2,448)
Australia 2003 = 187 2010 = 105 a 44% decline (no. in 1995 291)

While they have been "consolidating" the numbers of outlets and customers have grown as has the range of products and services.

The equivalent data here is:

Ireland 2003=421 2010 = 409 a 2.8% decline (no. in 1995 c421)

* about 35 US credit unions have demutualised. One Aussie CU has converted to a mutual bank.
Click to expand...

The issue is more of a fundamental issue than statistical analysis!
The issue relates to the power of local communities to maintain their local financial co-operative to be run & managed by local community leaders with a Board of democratically elected directors from their community.
Improvements to the participation of members in the democratic process would be useful though
 
This is a very interesting issue.

At first site, it appears to me that consolidtion and professionalisation is a good idea. But I think that everyone makes an assumption that bigger is better and it's not really teased out properly.

It seems to me that it is assumed that consolidation is good. However, I would think that it works in some cases and doesn't work in others.

It does make sense for a well run, well capitalised credit union which is paying a dividend to take over a smaller, poorly run, undercapitalised credit union. They should be able to improve their management.

If a small credit union which only opens for a few hours a week is well run and well capitalised, I don't see any advantage in merging it.

Nor do I think that it makes that much sense to merge two medium sized credit unions, both of which are badly run.

Should two medium sized, well run credit unions merge? If their locations overlap, they can close a few offices and get savings. But will it make their credit decisions any better? I doubt it.

Is there any systematic study of the benefits of consolidation?
 
Brendan Burgess said:
It does make sense for a well run, well capitalised credit union which is paying a dividend to take over a smaller, poorly run, undercapitalised credit union. They should be able to improve their management.
Click to expand...

How does it make sense for the members of the well run credit union to subsidize the members of the poorly run credit union thereby affecting their own dividend and ability to give loans in their locality ? It surely wouldn't be in their best interests.
 
@ Brendan:

What do you do when you have dozens of non-viable credit unions (small, medium and large)

(a) you can liquidate them and use the DGS to make depositors whole or
(b) merge them with stronger credit unions (NCUA/NCUSIF does this in the US quite often).
(c) Tell a bank to take them over (our bank resolution powers allow for this option)

It seems there are two possible views based on what are mutual but differing objectives:

The objective of "consolidation" from a regulatory perspective is to stabilise the system. A supporting resolution framework could provide for post-merge balance sheet support and or warehousing troubled assets.

The objective of "mergers" from a credit union perspective should be to realise co-operative scale economies (achieving cost efficiencies) an scope economies (shifting from single product to multi-product production systems)

There are numerous studies of the benefits and drawbacks of credit union mergers available online. Some focus on credit union size - the "is bigger better" question and find that scale economies are achieved and performance improved. Some focus on the merge or internally grow question finding that internal growth is better. One Canadian study found that large multi-product credit unions were more cost efficient than small single product ones - which has of course policy implications as regulations that inhibit growth are inimical to market efficiency.

The Hobbs article is saying that consolidation should be seen as an opportunity, the credit union "merger" view - rather than a threat, the reaction to a regulatory imposed consolidation programme. This is fleshed out in the [broken link removed], which while one persons' view puts more meat on the bones of what consolidation might achieve.
 
bullworth said:
How does it make sense for the members of the well run credit union to subsidize the members of the poorly run credit union thereby affecting their own dividend and ability to give loans in their locality ? It surely wouldn't be in their best interests.
Click to expand...

Hi bullworth, while I was writing that post, I had intended to make that point. Thanks for reminding me.

The reality is that it's not in the interests of the members of the larger credit union on a strictly "selfish" basis, but it's in the public interest that badly run credit unions are taken over instead of letting them go bust.

I did say "smaller" and meant to clarify that it would not be in the interests of a well run credit union to take over a similar size credit union and put itself at risk.

Brendan
 
Hi kaplan

Thanks for that.

It's difficult enough to handle a small number of small credit unions in trouble. The Regulator has his hands full with so many in such difficulty.

I don't think that consolidation should be an objective in itself.

The Regulator needs to identify the good CUs and the worst ones and force them to merge on a case by case basis.

But the egos in the credit union movement are so large that this will be difficult.

brendan
 
Brendan

All [broken link removed] - earlier this year only 46 were said to be low risk by the CB. Three hundred paid less than 1% in dividends last year of which over 80 paid nothing at all.

Loan loss experience is over 17.5% and still rising. Assets are not being accounted for at market value by many. Viability is an issue for 75% of the sector.

I agree consolidation shouldn't be an objective of itself in normal times - but it's become the government/regulatory/troika objective given the worsening fragility profile since 2008. I don't expect credit unionists to do anything other than they've always done and that is to fight to protect their status. (in the land of the blind the one eyed giant is king)

Their egos may try prevent change but the CB will have the powers to impose change.
 
@Kaplan -

Where are you getting your statistics from?
Please put context on the 17.5% loan loss experience - is this all in 2010 or a cumulative figure over a longer time period?
How does this statistic compare with AIB, BOI, EBS, PTSB etc?

Assets not being accounted for at market value by many - how many? what assets? Are these CU's breaching accounting principles?

Are their statutory auditors allowing them to sign off on accounts that dont give a true and fair view? If so, how many have had qualified audit opinions?


[MOD EDIT:Material in breach of Posting Guidelines Removed by moderator.]
 
In the free (unregulated) market mergers/acquisitions will take place where there is a clear commercial advantage in doing so. In many cases the merged entity has to very quickly squeeze out costs and create synergies.

In the public sector where there is a current fad for merger there is no clear commercial rationale. I have argued against badly thought out kneejerk mergers in the public service. I just cant believe that one huge disfunctional behemoth such as the HSE is better than a small number of focused mission driven agencies. (but thats another debate!)

In the regulated sector the case can be made for merger for instance are we better with one big bus company or several smaller ones.

In the trade union sector few would argue that the proliferation of tiny unions in the 60's and 70's was a good thing and most involved supported the gradual amalgamatin of several unions into a handfull or large trade unions.

Is a small number of mega schools in a city better than a larger number of focused mission driven smaller schools?

So my comment is as follows: if there is to be radical amalgamation of CU's then it has to be well thought out and implemente with a clearly understood and articulated rational for the merger. This calculation is an easy one in the private sector (what maximised shareholder wealth) but is altogether more complicated when the public interest / service community service is the goal.

aj
 
The careful rationale was articulated in the [broken link removed] document published in Nov 2006. It was also articulated within the ILCU Rationalisation Report 2006 (unpublished). Whereas ILCU at the time allowed for all types of co-operation from marketing groups to amalgamations, CUDA was focussed on the need to rationalise through mergers. The rationale with both looked to build the competencies needed to realise credit union scope and scale economies. See Canadian current experience [broken link removed]
Consolidation is a typical feature of credit union systems which has been delayed here for various reasons. There are a number of studies that have shown that larger credit unions are more efficient and offer better quality products and services. None have established if their social purpose has been undermined.
 
You must log in or register to reply here.
Back
Top