Credit Union and Bank Mergers


Mergers between credit unions and community banks have increased over the last decade as the rate of financial institution consolidation has increased.  Overwhelming compliance burdens and costs since the financial crisis and enactment of the Dodd-Frank Act have made it harder to survive as a community bank or credit union, which has caused consolidation within the financial services industry and led to fewer and fewer merger options. 

Credit union and bank mergers are voluntary, market-based transactions that require a community banks’ board of directors to vote on selling to a credit union. Concerns around these mergers include losing customers or members, accounting changes, investments, and changes in funding structure.  However, during this process, the bank ultimately makes the decision to sell to, and merge with, the credit union to ensure a financial institution remains in the community. 

Another conflict revolves around the bankers’ claim that credit unions are using their “tax-exempt” status to buy banks. It’s important to remember that the credit union tax exemption comes with numerous restrictions that banks do not face: credit unions can’t take outside investments to raise capital, are restricted on business lending, confined to their field of membership, and limited on the products they can invest in.  

Additionally, credit unions pay many taxes, such as local property taxes and payroll taxes when the former bank remains open as a credit union. Therefore, when a credit union and bank merge, purchase and assumption transactions are subject to taxation at the bank level and NAFCU estimates that over 100 million dollars in taxes have been paid in the past several years. A number of bank mergers are stock transactions, leading some of these transactions to generate only nominal tax payments at the time of the transaction.  It is important that policymakers realize the real facts behind these mergers and not just what the bankers want them to know.