Mergers and the Risk of “Too Big to Fail”

Denise Wymore, Chair, CU DeNovo Collective

The growing number of mergers among credit unions and community banks (which are consolidating faster than credit unions), while seemingly efficient, runs the risk of creating a system dominated by institutions that become "too big to fail." The term "too big to fail" entered the mainstream after the 2008 financial crisis, when large banks, crippled by risky behaviors, were deemed so essential to the national economy that the government had no choice but to bail them out.

If we allow credit unions to follow a similar path—consolidating to the point where only massive institutions remain—we are recreating the same dangerous dynamic. A future where only a handful of super-sized financial institutions control the market puts us on a precarious path. Should these giant entities fail, the consequences would be catastrophic, leaving millions of consumers with few alternatives and potentially requiring taxpayer-funded bailouts once again. In contrast, a healthy ecosystem of small credit unions offers a buffer against this risk, ensuring financial diversity and resilience.

Financial Diversity is Essential for Stability

Just as biodiversity in nature leads to more resilient ecosystems, financial diversity leads to a more stable economy. A financial system dominated by a few massive players is inherently fragile. It’s more vulnerable to systemic shocks, and when those large institutions encounter trouble, the entire economy can be dragged down with them.

Small credit unions, with their unique focus on member service, local investment, and conservative risk management, provide essential diversity to the financial ecosystem. They are the counterbalance to the sprawling, profit-driven strategies of larger financial institutions. If we don’t protect small credit unions, we are at risk of building a monolithic financial system that could one day collapse under its own weight.

The Future Without Small Credit Unions

Imagine a future where all financial institutions—banks and credit unions alike—are enormous, national or multinational entities. Without local institutions, individuals in bank deserts are more likely to be excluded from the financial system entirely. They may lack access to critical services like affordable mortgages, personal loans, and even simple checking accounts. Over time, this exclusion can deepen poverty, hinder economic mobility, and perpetuate financial inequity in marginalized communities. Financial innovation, which often starts at the community level, would stagnate as large institutions prioritize profits over people.

In this future, the cooperative spirit that defines credit unions would be in danger of disappearing entirely. Without the competition and local accountability provided by small credit unions, the larger institutions may have little incentive to keep fees low, offer better rates, or provide the same level of personalized financial education and support.

Protecting Small Credit Unions for a Stronger Financial Future

The consolidation of credit unions is a growing concern, but it’s not inevitable. By recognizing the immense value that small credit unions bring to their communities and the broader financial system, we can take action to preserve and protect them. Policymakers, regulators, and even credit union members themselves must prioritize the survival of these institutions to ensure that the financial system remains diverse, resilient, and focused on the needs of everyday Americans.

Small credit unions are the backbone of community-based banking. They promote financial inclusion, economic stability, and long-term resilience. In a world where financial institutions are increasingly at risk of becoming too big to fail, protecting small credit unions is not just an option—it’s a necessity for the future of a safe and fair financial system.