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• W765860304 abstract "On September 12th, 2012, the members of a credit union in Northern California voted against the proposal to convert the credit union into a mutual savings bank. Only 25 percent of the members cast their vote, and among those who voted 77 percent rejected the proposed conversion. The management and board of directors believed that the change would enable the credit union to achieve the needed growth to remain competitive, to expand its product and service offerings such as business banking and commercial lending programs, and to add additional branch locations. The CEO said the low turnout and the result of the vote were possibly due to the inability of the credit union to communicate its position effectively. In fact the National Credit Union Administration (NCUA, 2013) highly regulated the flow of information and had to approve all communication material regarding the charter change. The proposed conversion spurred opposition from some members who objected that the change would negatively impact the members and only benefit management and insiders. Management's Argument in Favor of the Conversion Credit unions operated under restrictive regulations that may limit growth, negatively impact profitability and curtail the ability to satisfy the financial and business needs of many members. First, credit unions cannot recruit members beyond their fields of membership, which were based on their common bonds (geographical region or place of work). Second, credit unions were subject to what is called the Member Business Lending (MBL) cap, a federal cap limiting business lending to the lesser of either 1.75 times the net worth of a well-capitalized credit union or 12.25 percent of total assets. Management for the credit union said it would reach its cap within a year (Credit union personnel, personal communication, August 29, 2013). Management also argued that the MBL cap limited credit unions in their ability to diversify and grow their loan portfolio across multiple lending products, which would mitigate risk for the financial institution. In addition, commercial lending was often more profitable than auto and consumer lending, the typical services offered by credit unions. Hence, by converting to a mutual savings bank, the profitability and strength of the institution could be improved. Third, credit unions had higher required capital ratios than mutual savings banks. Hence, for a given level of retained earnings, a mutual savings bank could hold more assets and generate more lending. Fourth, credit unions could not raise external capital, and their directors served on a volunteer basis. In contrast, mutual savings banks were allowed to compensate directors and therefore could attract Board Members from a larger pool of qualified professional candidates. Management Restrictions on Communications Complying with NCUA regulations, the credit union notified its members three times prior to the vote and the NCUA vetted all communications. The NCUA removed information that management wanted to convey to the members, thereby preventing management from presenting the benefits of the conversion. Statements warned members that the conversion could contribute to lower saving rates, higher loan rates, or additional fees (Heinrich & Kashian, 2008). Possible Reasons Why the Conversion Vote Failed Gallup analysis reported that trust in banks fell to an all-time low in 2010 (Wood & Berg, 2011). Gallup saw an opportunity in serving small business, yet banks were not doing so (Sunshine, April 2013). The analysis concluded that rebuilding trust was paramount. The foreclosure crisis exacerbated the lack of confidence in banks. The explosive support of the Bank Transfer Day (Osland, Wang, Pagani & Clinch, 2012), where depositors were encouraged to transfer accounts from banks to credit unions, also gave some insight into how people felt about banks. The Harris Poll conducted in October 2011 reported that credit unions provided customers with a better overall experience than banks (Harris Interactive, 2011). …" @default.
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• W765860304 date "2013-01-01" @default.
• W765860304 modified "2023-09-24" @default.
• W765860304 title "Why Did the Proposed Conversion Fail" @default.
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