Is bigger better?

The recent spate of megamergers-Citicorp and Travelers, NationsBank and BankAmerica, and Bank One and First Chicagohas once again given rise to the age-old question: Is bigger better? The number of financial institutions nationwide has been shrinking for years, though the assets they manage and the number of retail outlets continue to rise. There have been 7,000 bank mergers since 1980. In that time, the number of banks has dropped from 14,400 to 9,064. Indeed, in terms of retail outlets, the number of bank offices alone has increased 40% to 71,000.

Similarly, the number of credit unions dropped from 21,467 to 11,670. And between 1990 and 1996, there were 2,841 credit union mergers.

All this merger activity raises the inevitable question: Does size matter? Credit unions have been telling Congress for months that it doesn't. What does matter is what's best for members and consumers.

Forecasters say bank megamergers will hurt consumers. They say bigger banks will equate to more checking, automated teller machine, and even teller fees. Big bank mergers will mean higher fees and less local control. Consumerists cite supporting data like a recent study by the Board of Governors of the Federal Reserve, which says bank fees went up in nearly every category in 1996. In fact, nationwide, only 9% of banks offer fee-free checking, down from 14% in 1995.

Can the same be said of credit unions? No. Bigger credit unions do not translate into higher fees. In preparation for the credit union battles on Capitol Hill, CUNA's market research and economics and statistics departments did some comparisons between big credit unions (more than $200 million in assets) and banks.

Among their findings: Big credit unions charge significantly less than banks for almost every product-from checking to credit cards to money orders ... democratic control continues in big credit unions, as it does in smaller credit unions ... board members at big credit unions are no more likely than board members at smaller credit unions to be compensated ... and credit unions tend to pay higher rates on savings and charge lower rates on loans than do banks. In fact, credit union members reap $5 billion in savings using credit unions rather than banks.

Clearly, credit unions are not for profit, not for charity, but for service. Yes, bigger can be better. But only at a credit union.

Copyright Credit Union National Association, Inc. Jun 1998
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