FDIC Issues Policy Statement With Hardly a Whisper from Credit Unions

Sarah Snell Cooke, Founder/CEO, The Credit Union Connection

No, the FDIC isn’t the usual agency credit unions comment on its regulations, but the agency issued a Statement of Policy on Bank Merger Transactions that notes the credit union and fintech buys of banks.

According to Honigman Partner Michael Bell, Esq., it shouldn’t change much for the credit union-bank buy process. He told The Credit Union Connection Founder/CEO Sarah Snell Cooke (WATCH THE VIDEO ) that credit unions already go through a rigorous regulatory process to be successful in these transactions. Bell added that credit unions also prove they go well above and beyond the basics of the Community Reinvestment Act requirements banks are subject to every single time.

The FDIC’s final SOP stated, “Multiple [Request for Information] commenters suggested that the analysis of competition should include the influence of thrifts, credit unions, fintech firms, Farm Credit System institutions, and other online entities that offer products and services in the relevant market. The Proposed SOP affirms that the FDIC considers the influence of these entities when evaluating competitive effects.” In the last six years, credit union-bank buys have increased significantly to 19 in 2022 and 14 in 2023 but remain a tiny fraction of the average 110 bank merger transactions each year. 

Watch the video to see what Michael told Sarah about the credit union-bank by trend going forward and more!

NOTE: Transcript automatically generated

Sarah Cooke 00:13

Hello and welcome. This is Sarah Snell Cooke, I'm your host today, The Credit Union Connection, and I have with me Michael Bell of the firm, Honigman. He's a partner there. They do lots of crazy things, like credit union and bank mergers, so we're going to talk to him about the recent FDIC reg. And Michael, why don't you go ahead and do a little deeper intro on yourself and the firm?

Michael Bell 00:39

Thanks. Sarah, yeah, it's, it's, it's deeper, but it's also simple. Definitely, I'm a lawyer. I work for a law firm called Honigman, but really kind of focus on and do one thing, and that is help credit unions only. We just work for credit unions across the country, and we help them buy things, right? More folks, or most folks, know us for helping credit unions buy banks, which we are doing at record levels today. We also buy bank branches, and then a host of other businesses you could think of, like investment insurance, title companies, that kind of thing. So we do this literally, coast to coast, east to west, north to south, and have an awful lot of fun doing it, helping credit unions grow, get deeper, get into new capabilities. It's a real hoot.

Sarah Cooke 01:26

yeah? Anything to help keep credit unions relevant and moving forward. Love it. So the reason I reached out to you is because of this FDIC reg. Can you give us, kind of, like, the high points of it,

Michael Bell 01:38

yeah, and so. So to keep it, to keep it rather simple, you know, the FDIC, other regulators, by the way, too. This is not unique to them. You know, they come out and they have policies, policy statements. They talk about what they're doing and why, and just, if we think back in the last few years, if you follow the industry close, there's definitely been some political wins about banks and bank mergers. A lot of times it's about bigger banks, just to be clear. But we have some very well known senators and the Biden administration, which have been doing some things politically regarding what I would consider to be kind of larger bank or bank to bank mergers. And that now is kind of trickling down throughout all regulators, and most recently, the FDIC made an update to their merger review kind of process and policy, and really for the first time, they mentioned this concept of credit unions buying banks and perhaps scrutinizing those closer. I'll tell you, it's much ado about nothing, but that's essentially what has occurred as a policy statement, the banking lobbyists, certain banking lobbyists, you know, we're kind of spiking the football in celebration about extra regulation being heaped on to these. But again, I see it as as a non event.

Sarah Cooke 02:55

So, yeah, the the thing I saw in the policy statement was about, they're concerned about monopolies, and I'm thinking a credit union having a monopoly, that'd be nice. And it's not just credit unions. Obviously, they talk about fintechs and other banks purchases, but, yeah, I mean, do you say it's not event? I mean is, is that in part, why or what? What reasons are you saying? It's non event?

Michael Bell 03:22

Yeah, yeah. So I think primarily it's a non event because we've already been doing what they're talking about. And I'll explain. You know, when we, when a credit union buys a bank, we the credit union applies to just the NCUA or the NCUA and the state, you know, depending on how they're Chartered, the bank would apply to the FDIC Absolutely, and then depending the OCC or the state. And for years now, as a part of the FDIC process, we have been asked, and we have been answering questions like, dear credit union, if CRA applied to you, even though we know it doesn't, but let's pretend it did. How do you mean it? We've been answering that question for like, three years. You know, to ask things about, give us the product comparisons between what you have and what the bank has, and will products and services be lost? Where are your branches? Do you serve underserved communities? How will this affect lending levels? All those things that I would say to you, Sarah, are exceptionally important, right? We've been answering that for years and years and years. I can't imagine an additional thing they could ask based on this new policy like I just can't these transactions are reviewed so heavily and so thoroughly by all regulators. I have no concerns about them becoming, you know, more onerous or some sort of curveball, we've been having these conversations, and I'll be clear, I don't think they're inappropriate. I'm glad the FDIC asks, and I love every time when the credit union answers with pages and pages of tangible examples as to how. They meet and exceed any CRA requirement if it ever existed for them, because they don't and we don't need them. And it kind of makes me smile every time we answer it, because I'm like, see, yeah, it's a good story to tell. Yeah, that's

Sarah Cooke 05:13

excellent proof that, you know, credit is still serving the mission, regardless of how size they are, regardless. And this is one of the bankers points of them buying banks. They should, they look more like us. We should, you know, they should be taxed by, like us. So, yeah, I love that, that that came out of those kind of applications. And I hope that the credit unions are using those points too to market themselves within the market as well.

Michael Bell 05:38

Yeah, they are. And I'll tell you, know, just, let's just talk about the practical nature of this. You don't, you don't do something like this just because, or by accident, you would engage in this transaction for very specific, very strategic region, reasons. Many or most of those involve 100% getting what the bank has and then increasing it, right? You don't, you don't buy something to buy it and leave it alone. You buy something to take it and grow it and optimize it and find synergies and all kinds of fun business words, right? That I'm not going to say because I don't like business words, Amen, and that's what's happening here. So there is 15 years of history, and I know I'm preaching to a choir, but 15 years of history of branches, remaining open, not being closed, lending, increasing product availability, increasing employees staying. The bank lobby is doing their job. They will mention things like, Oh, these this is bad, because lending will stop, or or, or these banks are disappearing. Main Street won't be served. They love to say that. Every time they say it, follow me on LinkedIn, you'll see, I say, find one example of that happening in the past 15 years, and no one has been able to. It's not like I'm arguing for the sake of argument or No, I believe in talking about the facts in the entire picture, and it just is not occurring. And I would even go so far to say, Sarah, find one banker that's, that sold, that has a complaint post closing. I don't think you could find one. No, absolutely

Sarah Cooke 07:13

the community is

Michael Bell 07:15
being served. Their people are all hired, right? Their customers are all served. This is not a bad story. This is the wrong fight to be fighting, in my opinion. And

Sarah Cooke 07:25

I mean, just free market. Hello, we can sell to who we want. But also, you know, the credit unions that, the one benefit credit unions might have is they can pay cash out because they can't take the stock options and things like that. So,

Michael Bell 07:42

yeah, that's right, that's right. And so someone would ask or try to say, oh, you know, there must be more of these. By the way. These are the sharp minority of all transactions every year. To be clear, there are certainly more happening. And they'll say, well, there must be more because the credit union has a unfair advantage, or they're overpaying, or they're making the bank do this. And I will tell you unequivocally. One, these transactions are 100% voluntary, right? There's no hostile takeovers in these deals that can't happen. But two, I, I've never seen an overpayment, but what I have seen is what you just mentioned, a credit union buyer only can pay cash. When a bank buys a bank, they can pay cash and they can also give stock. I have seen a trend in the smaller bank land of a preference to receive cash versus stock. That's not always the case, but cyclically, we happen to be in that moment, and so that might be the reason why we're seeing a few more of these than normal, but it's got nothing to do with some wild overpayments or some unfair advantages. It just doesn't,

Sarah Cooke 08:50
yeah, well, they give credit unions the ability to take stock and then see what happens.

Michael Bell 08:58

I mean, that's one

Sarah Cooke 08:58

option. So one of the things you know, as you said, this isn't probably going to be a huge deal, because you're already reporting all this stuff to the regulators as you're going through the transaction. But one of the things you know, as somebody who majored in Political Science and has been in credit unions for 25 years, one of the things that struck me is, so I when I looked at the reg, it had a little over 700 page views, because that it actually tells you how many pages, just 700 page views, and it there are only 33 comment letters. Now this is something that could significantly affect credit unions, or at least, you know, maybe there will be more questions that you know you just haven't thought of. It boggles my mind that they didn't write and say anything.

Michael Bell 09:43

Yeah, it's interesting, because I think the challenge is, again, this is the FDIC. They don't regulate us, right? They just made a mention of this. But their primary thrust in focus, as it should be, by the way is on their biggest customers, right? If you think about it, right? And so the FDIC, you know this idea of mergers causing negative effects, right? Where did that come from? That came from talking about big banks and big bank mergers, and talking about what you just said, monopolies, right? Community banks, credit unions, community institutions. There's, it's not a monopoly question. This is about the biggest of the bigs, and there's this trickle down effect. I'll tell you where the bank lobbyists get it right is when they talk about regulations that are appropriate for the big banks and then appropriate for community banks. And there should be a difference. I completely agree, and I feel that way. For credit unions too, right? There are regulations that are required for larger entities that are should not be required for smaller ones. So I really believe in that segmented regulation. I think that's the fight we should fight, or the argument we should make,

Sarah Cooke 10:57
and you can fight it together.

Michael Bell 10:59

That's what I'm saying. That, that's exactly my point. Love, hate, like, whatever. There's this animus that's, I think, a little bit blinding. We take our eye off the prize, and I think together, there'd be a huge difference if all community based financial institutions, based credit unions, fought for the appropriate relief for community based financial institutions, less regulation?

Sarah Cooke 11:24

Yeah, absolutely. And so I always give my guests final thoughts on this. For your, you know, the discussion we had today, anything we missed? What is your final thought to share with our audience today?

Michael Bell 11:39

Yeah, so, I mean, I would leave you with, understand that this year, we'll break a record for the most ever credit union, you know, purchases of banks. Contrast that with, though we will remain a sharp minority of the overall total transactions. Like, do not get confused here. There will be more than there ever have been, but it still will be the small, small amount compared to the bigger field. So it's very relevant right now. This is a relevant topic. Second, second, I will continue, and others are on both sides of the fence to try to steer the conversation when it comes to bankers and credit unions, to what we have in common and what we could do together, versus this animus, this idea where out of one side of your mouth, you're talking about less regulation, and then on the other side, you're talking about regulate these guys more, though, and then spiking the football and they get more regulation. Like it just that is just not authentic, and I think ruins the message, right? Sarah, it's like, and I don't know if you golf, I golf. It's like, when you're golfing and the person you're playing against, you're hoping they miss their putt, right? That doesn't, that doesn't feel right. I mean, if you want to beat them, you beat them of your own, right? You don't beat them by then, them losing, it doesn't feel good. And so I think there are some voices out there now, though, again, if you look you follow me on LinkedIn, you'll see my voice a lot, talking about what I just said, but then there are other people, and I'll tell you, it's interesting. There are plenty of people that agree but won't comment, but then call me and say, Hey, I love, I agree. Thank you. I love what you're doing. This is so important. Let's actually talk about our real problems over regulation. And then don't get me started about places that are out there that aren't banks, but act like banks, like the Starbucks gift card and Apple, and those are the real competitors for credit unions, the real competitors for community banks. So I'm, I don't know. I'm an optimist. I want to keep kind of emphasizing that as these things become more common and we keep having more conversations,

Sarah Cooke 13:48
absolutely. Thank you so much for your time. Michael, I appreciate it

Michael Bell 13:51

My pleasure.