Apr 01 2006

Credit Union Conversions to Banks: Facts, Incentives, Issues and Reforms

Report  
Number  
115

This report analyzes credit unions and their conversions into other depository institutions.

James A. Wilcox
Haas School of Business, University of California-Berkeley
Report Number 115

Executive Summary

From the first credit union-to-mutual thrift conversion in 1995 until 2005, a total of 27 credit unions have either converted to mutual thrifts or merged with mutual thrifts. The total amount of assets involved in these credit union conversions is $3.1 billion or a mere 0.5 percent of credit union assets. However, assets in credit unions converting in 2006 exceeded $2.5 billion with the noteworthy conversions of OmniAmerica Credit Union and Community Credit Union. The ingredients for a credit union tipping point seem to be in place. Who’s next? The answer could be a significant number of credit unions in the very near term.

What is the research about?

To understand the dynamics at play in the conversion controversy this research study examines past, present and future issues in financial institution chartering with a specific focus on facts, incentives and potential reforms in credit union to bank conversions. The researcher, Jim Wilcox of the University of California at Berkeley, presents a number of key findings and important information to inform policy makers, credit unions and other stakeholders about the credit union to bank conversion story.

What are the credit union implications?

This report uses a straightforward approach to help assess whether members would be likely to benefit from their credit union’s conversion to being a stock institution. Members are unlikely to benefit from conversion if their credit union provides moderately better loan and savings rates than their stock competitors do, or if their credit union is not overcapitalized. Overcapitalized credit unions may avoid becoming conversion targets by distributing excess capital to members, either directly as cash or indirectly by offering even better loan and savings rates.