Jun 11 2014

Only Up: Regulatory Burden and Its Effects on Credit Unions


Well-functioning regulation is necessary for the working of modern financial organizations and markets. However, legislative regulation can be particularly taxing and burdensome for smaller credit unions. The experiences of credit unions in Canada and the United States are slightly different. In Canada, credit unions in the largest quartile bear one-fifth of the comparable costs of those in the smallest quartile. In the United States, those in the largest quartile bear just one-tenth of the regulatory compliance costs borne by those in the smallest quartile. Regulation related costs have led many small credit unions to consider mergers. In fact, regulatory motivations are cited as factors in more than 50% of all past mergers and often in prospective mergers. 

Many US credit unions feel that regulators are trying to micromanage them, often in ways that seem inconsistent with the credit union mission. This report examines the increased regulatory burden for credit unions in the United States and Canada based on a 2013 survey. It includes quantitative estimates of regulatory compliance costs and the relationship between credit union size and compliance costs. 

Many of the surveyed credit unions in the report do not expect that the introduction of new regulations will level off in the future. Despite the competitive disadvantage smaller credit unions experience with increased regulatory activity, they are committed to the cooperative business model. Only a handful of respondents are even thinking of converting into a commercial bank. 

Filene thanks our generous supporters for making this important research possible. 

Report Number 331