Recently the bankers in Colorado were able to push back against a credit union purchase of a bank and possibly found a tactic that could impact additional transactions in other states. In Colorado the State Banking Board’s approval is required in order for the sale of bank assets to be completed. The Colorado Bankers Association (CBA) wrote a letter to the state regulator and cited a state statute regarding the sale of assets between state-chartered banks, which essentially establishes “that a bank may only sell the bulk of its assets to another bank.”
That letter further stated that the banking group regarded the proposed purchase as an “effort to expand the credit union’s activities beyond what was contemplated in law and by a process to avoid the clear limitations and intent of Colorado statutes. They added, “But we are clear: we object to any purchaser not authorized by statute, any buyer that is a nonbank.”
With dozens of purchases by credit unions of banks across the U.S., this is believed to be the first such acquisition that was blocked and also shows the importance of reviewing and understanding the state laws and rules on such transactions.
And the bankers continue to push this issue with our elected officials. On January 29th the ICBA (Independent Community Bankers Association) sent a letter to both House and Senate Banking Committees asking for a hearing on credit union purchases of community banks. They would like the hearing to explore appropriate legislative and regulatory responses to what they call the growing trend and how it may re-shape the American financial services landscape.
On another front to this same issue, NCUA issued for comment a new rule intended to clarify requirements for a federally insured credit union (FICU) when it proposes to acquire or merge with a bank or other institution.
In proposing the rule, the agency noted that credit union acquisitions of banks – which, historically, have been rare occurrences – has seen an uptick recently. For example, the proposal includes a chart showing 15 credit union acquisitions in 2019 (for all or part of another institution’s assets and liabilities) – and 17 already pending for 2020. Between 2013 and 2017, according to the NCUA numbers, only 20 such transactions were made.
NCUA Chairman Rodney Hood said he brought the proposal forward following requests for clarity about credit union bank acquisitions from both credit unions and banks. He said the proposal will provide the clarity for credit unions, for example, without imposing “undue burden” on them.
The proposal includes provisions that:
- Specify the basic requirements applicable to the acquisitions (called “combination transactions” by NCUA) between an FICU and bank.
- All transactions require NCUA approval, and federally insured, state-chartered CUs (FISCUs) must also obtain their state regulator’s approval. Included in that process, the proposal states, is a requirement that NCUA consider the proposed transaction’s effect on FICU members and potential FICU members. The agency must also consider whether the proposed transaction is in keeping with the FICU’s mission, according to the proposal. “Accordingly, the NCUA reserves the right to object to a transaction, or portions of a transaction, even absent safety and soundness concerns,” the proposal states.
- Ensure that the directors of an FICU proposing a combination transaction understand the nature and ramifications of the proposed transaction, including how the transaction will affect the credit union’s net worth, how the credit union determined the purchase price, and how the transaction would benefit current members.
- Amend the agency’s rule (under section 741.8) to make its provisions applicable to all asset purchases in the transaction and list the other NCUA regulations that apply to each particular type of transaction.
As stated, this is a proposed rule and credit unions and banks will have an opportunity to make their views known before anything is final. If this issue matters to your credit union, make sure you submit comments when the proposal gets published in the Federal Register.