By Grant Sheehan
Treasury Secretary Scott Bessent recently called for a lighter and more proportionate regulatory approach for community banks, warning against a financial system in which smaller institutions become “too small to succeed.”
He is right.
But if we are serious about protecting Main Street financial institutions, the conversation cannot stop with community banks. America’s credit unions must be part of that vision.
Credit unions, particularly small- and mid-sized institutions, face many of the same regulatory and competitive pressures confronting community banks. In some cases, those pressures can be even more difficult to absorb.
Credit unions are not-for-profit, member-owned financial cooperatives. They do not exist to generate returns for outside shareholders. They exist to serve their members. Yet a smaller credit union may still confront regulatory and compliance expectations that require significant investments in technology, cybersecurity, personnel, consultants, reporting and third-party services.
Those costs do not necessarily decline simply because an institution is smaller. That is why proportional regulation matters.
Credit Unions Are Main Street Institutions
When policymakers talk about strengthening Main Street financial institutions, credit unions should immediately come to mind.
Many credit unions were created by groups of people who shared a common bond and recognized that they could better serve one another by pooling their financial resources.
Our members at the National Council of First Responder Credit Unions provide a particularly good example.
Credit unions serving firefighters, police officers, EMS professionals and other first responders have often grown directly from the communities they serve. Some were created by firefighters or police officers who wanted a trusted financial institution for their coworkers and families.
Generations later, many of those institutions are still serving those same communities.
They finance homes and automobiles. They help members establish savings and navigate financial emergencies. They provide loans and other financial services to people who may spend an entire career protecting their communities.
These are not institutions operating somewhere on the margins of Main Street. They are Main Street.
“Too Small to Succeed” Should Concern All of Us
Secretary Bessent’s concern about creating institutions that are “too small to succeed” deserves particular attention from the credit-union community.
The loss of a small financial institution cannot be measured solely by its asset size.
When a community loses a locally focused credit union, it may also lose decades of institutional knowledge and relationships. Members can lose access to decision-makers who understand their profession, employer and community.
For first responders, that relationship can be particularly valuable.
A credit union accustomed to serving firefighters, police officers or EMS professionals understands that their financial lives may not resemble those of a traditional nine-to-five workforce. It may understand overtime, shift schedules, pensions and the financial realities of a career in public safety.
That knowledge and relationship have value.
As consolidation continues throughout financial services, policymakers should be asking an important question: Are our regulatory policies unintentionally accelerating the disappearance of the very community financial institutions we say we want to preserve?
Regulation Should Reflect Risk, Not Just Apply Rules
None of this is an argument against responsible regulation.
Consumers must be protected. Deposits must remain safe. Financial institutions must manage risk responsibly. Credit unions must maintain strong governance, cybersecurity, compliance and financial controls.
But effective regulation does not require identical treatment of every institution. A regulatory framework should recognize differences in size, complexity, ownership structure, and risk.
A $100-million community credit union serving firefighters and their families should not automatically be subject to the same regulatory assumptions or compliance infrastructure expected of a multibillion-dollar financial institution operating across numerous markets and business lines.
That is not lowering standards. It is applying standards intelligently.
Proportional regulation can maintain safety and soundness while recognizing that smaller institutions have fewer employees and fewer resources over which to spread the growing cost of compliance.
Give Credit Unions a Seat at the Table
As Treasury and the Administration consider regulatory relief, capital formation, economic growth, and greater competition within financial services, credit unions should have a meaningful seat at the table.
That includes the thousands of smaller and community-based credit unions whose voices can sometimes be overshadowed by much larger financial institutions.
If policymakers want a diverse financial system, preserving smaller institutions must be part of the strategy.
Community banks matter. Credit unions matter. And there should be room for both.
The objective should not be to give one type of financial institution an advantage over another. It should aim to create an environment in which well-managed community financial institutions can compete, innovate, and continue serving their members and communities without unnecessary regulatory barriers that threaten their long-term viability.
Secretary Bessent has opened an important conversation about the future of Main Street financial institutions. The credit-union movement should welcome that conversation—and make sure we are part of it.
Stronger With Choices
America is stronger when consumers have choices. Our communities are stronger when locally focused financial institutions can survive and prosper. And our first responders deserve continued access to credit unions that understand the people and professions they were created to serve.
If the goal is to ensure that Main Street financial institutions are never “too small to succeed,” then America’s credit unions must stand alongside community banks as an essential part of that vision.
Grant Sheehan is CEO & founder of the National Council of First Responder Credit Unions (NCOFCU)
