I heard an economist speak earlier this week. I had to follow him. (Note to self: Never follow kids, dogs, economists or lunch that includes pork).

He had a slide called, you guessed it – Economies of Scale. It is the MATH that is rooted in the industrial era. As your company grows, it’s cheaper to make your widgets. This is not new math. It is what it is.

Reminds me of the math we were doing in the early eighties. An ATM transaction costs 25 cents – a live teller transaction – $4.35 (roughly). Okay. That’s math. It’s probably true to some extent. So what? Did ATMs replace tellers? Nope. Did we insist that they do because of the “math.” Nope.

Someone out there (let’s call them Satan) has drawn this weird line in the sand. All credit unions must grow to achieve economies of scale. If you’re not (insert asset size, because I’ve heard everything from $200 million to $500 million) in the next five years you will likely merge. Really? 

If you are reading this and you aren’t a member of the Filene Research Institute, you need to join. AND you need to get a copy of their white paper.

Here’s the argument against economies of scale being the silver bullet of survival:

Star credit unions in the $50M – $100M asset group generate higher yields than the national credit union average. Their net income ratio also is higher despite expenses above the national average. The are growing at a faster pace than their large-asset-size peers because:

They are highly effective lenders.
Their members use their credit union extensively.
They pay members higher rates for saving than similar-sized credit unions.
They emphasize high-payoff and service offerings.
They manage their expenses aggressively.
Their high deposit and loan balances per member cut their operating costs.
They do not rely solely on low loan rates to generate loans.
They usually generate more fee income than their peers.
They invest their capital in growth.

Rather than painting every credit union with the same brush (satan) and assuming that because the national stats show that if you are “this size” you’re merger meat (aka self-fulfilling prophecy), let’s look at the business model. We are, after all, in the service business.

It is true, as my good friend Gene Blishen says, “Growth can cover a multitude of sins.” Maybe that’s why people are merging. Managing a small credit unions in today’s environment IS hard work. It’s easier to merge – AND you may get a big check for doing so.

There, I said it.

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