Fed Governor: Include Credit Union Competition in Bank Merger Tests

Federal Reserve Governor Michelle Bowman said in a speech that competition from credit unions should be included in bank merger tests. Learn why.

David Baumann


Oct 3



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Speech specifically cites credit union purchases of community banks, calls on NCUA to collect more in-depth data on institutions.

Credit unions have become significant competitors with banks and their presence should be a part of any bank merger evaluation, Federal Reserve Governor Michelle Bowman said last week.

“Credit unions whose field of membership includes all, or almost all, of the market populations, whose branches are easily accessible to the public, who engage in a significant amount of commercial lending and who have staff available for small business services, or who have acquired a community bank should be part of any initial competitive screen,” Bowman said, in a speech at the Community Banking Research Conference, sponsored by the Federal Reserve, the Conference of State Bank Supervisors and the FDIC.

Federal banking regulators and the Justice Department have been reviewing bank merger guidelines as part of President Biden’s efforts to increase competition in several industries. Those guidelines have not been updated since 1995, Bowman noted.


Banking trade groups have been pushing federal officials to take a closer look at bank purchases by credit unions, but the NCUA is not part of the merger process review by the banking regulators.

The bankers have been particularly incensed about those purchases, charging that credit unions are leveraging their tax-exempt status to acquire banks.

Bowman acknowledged those purchases, however she did not call for increased scrutiny of them.

“Underscoring just how much credit unions are competing directly with banks, particularly community banks, is the recent increase in acquisitions of community banks by credit unions,” she stated. But she did not go further than that.

What Has Changed?

Bowman noted that historically, credit unions were not seen as competitors for banks because they offered fewer small business and commercial loans, and were restricted by their fields of membership. For that reason, credit unions were not counted in the competition screening called for in the 1995 bank merger guidelines.

That has changed, she said, as, “Credit unions today are much more likely to compete directly with traditional banks offering the full ‘cluster’ of banking products and services than they did in 1995, which supports the argument that our analysis needs to give more weight to competition from credit unions.”

Many credit unions have expanded their fields of membership and have increased their business lending, she added, saying that regulators should consider credit unions and non-bank financial institutions in assessing bank mergers.

“Not fully accounting for all competitors in a market limits the options available to banks that need to achieve scale to offer the products and services that customers want while managing the high overhead costs that come with being a regulated depository institution,” she said.

But to fully evaluate competition from credit unions, Bowman asserted, the NCUA must collect more granular deposit information from credit unions so that regulators are better equipped to understand their market power

Response From NAFCU

In a letter to Bowman following her speech, NAFCU President/CEO B. Dan Berger said that while the NCUA has enhanced field of membership rules, credit unions still face hurdles in expanding to other areas.

“This is true even of underserved areas,” he wrote. “While banks have largely vacated these areas, leaving behind banking deserts, they have waged a concerted campaign to prevent credit unions from gaining authorities that would enable them to move into those areas and provide affordable financial services to communities in need.”

And he made a pitch for legislation pending in both houses that would make it easier for all credit unions to expand into underserved areas.

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