Regulators rarely give credit unions full-weighting in bank M&A reviews

In a bank merger competitive analysis, regulators are more likely to include credit unions that have broad membership bases and bank-like products, but they rarely — if ever — give their deposits full weighting.

While credit unions are not included in the Herfindahl-Hirschman Index (HHI) analysis conducted by the Department of Justice, federal bank regulators have discretion to include them in their own competitive analysis and make the final call on competition concerns, though the DOJ can contest. When determining if credit unions are significant enough to be included in a bank merger competition analysis, federal bank regulators consider a credit union's field of membership, product offerings and branch footprint.

While regulators include credit unions when they are considered "significant competitors," banks want it done more consistently and for those deposits to receive more equal weighting. In some cases, the inclusion of credit unions can diminish or completely eradicate potential divestitures for a bank buyer.

In one recent example, Fifth Third Bancorp was able to avoid divestitures related to its acquisition of Comerica Inc. after the Federal Reserve included nine credit unions in the competitive analysis for one market in Michigan at a 50% weight.

"Credit unions can be a mitigating factor in these close markets where the HHI numbers are close, but it shows that they're not being treated as full bank equivalents," Douglas Weissinger, a member of the business services group advising financial institutions at law firm Butler Snow LLP, said in an interview. He added that he has had to go to bat for banks he represented, arguing in merger applications to have more competitors included in the HHI analysis.

Weighting woes

Since Jan. 1, 2017, the Federal Reserve Board has included credit unions in the competitive analysis of 19 bank mergers out of over 100 publicly available approval orders, according to an analysis by S&P Global Market Intelligence.

At least one deal in each year during that period included credit unions, except 2023 and 2024, when no public approval orders listed credit unions included in the competitive analyses. Both 2017 and 2022 saw the most bank deal analyses where credit unions were included at four each.

Since the start of 2025, three bank merger approvals from the Fed Board have included credit unions. In addition to the Fifth Third-Comerica tie-up, Renasant Corp.'s acquisition of The First Bancshares Inc. included them, and so did WesBanco Inc.'s acquisition of Premier Financial Corp.

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In nearly every instance where the Fed included credit unions in a competitive analysis since 2017, credit unions' deposits were weighted at 50%, compared to 100% for bank competitors and between 50% and 100% for thrifts. The agency cited credit unions' smaller level of commercial lending activity compared to banks, but advisers differed on if that level is sufficient or not.

"It should be 100%," Peter Weinstock, partner at Hunton Andrews Kurth LLP focused on regulatory representation for financial institutions, said in an interview. "I think we'll get there over time."

Another adviser thought the 50% weight was too high because most credit unions are very small. "Credit unions should have a single digit weight, maybe 5%. They are not that significant. A 50% weight seems excessive," Christopher Whalen, chairman of Whalen Global Advisors LLC, wrote in an email.

The Fed has been flexible when weighting thrift deposits in bank merger competitive analyses depending on the thrift's level of commercial lending. Currently, the Fed's "standard treatment" for thrifts is a 50% weight for all bank deals, but the agency will alter that if a thrift has comparable commercial lending exposure to banks. In Fifth Third's deal, one thrift was considered in the same Michigan county that credit unions were included, but at a 100% weight.

Another adviser thinks the Fed should take a similar, flexible approach for credit unions because institutions of various sizes might warrant different weightings.

"I don't like specific numbers like that," James Stevens, partner and co-leader of Troutman Pepper Locke LLP's Financial Services Industry Group, said in an interview. "I don't think it makes sense because different markets and different credit unions and different banks — they all have different characteristics."

Becoming more bank-like

In every instance since 2017, the Fed listed similar criteria for what constituted credit unions' inclusion in a bank merger competition analysis: broad fields of membership, branch footprints and type of products offered.

As not-for-profit entities, credit unions must have a field of membership, putting perimeters around who they can serve. Typically, these are centered around people in a specific geography or occupation. When those fields of membership are narrow, it makes less sense for regulators to include them, sources told Market Intelligence.

"If you had a credit union that had a very limited field of membership, like 'You only can be a member of this credit union if you work at this company,' it would make sense that maybe you don't bring that into the competitive analysis because it's not really likely that a lot of the consumers and the businesses in the community could go to that credit union," Stevens said.

In the competitive analyses where credit unions were included, the Fed Board wrote that those institutions were able to service at least 75% or "almost all" of the market.

But in some cases, the field of membership has precluded credit unions from being considered. In the Fed's Dec. 18, 2017, approval order for Commercial Bancgroup Inc.'s acquisition of Citizens Bancorp Inc., it considered two credit unions' competitive influence in one market, but ultimately did not include them in the analysis because their footprints were separated by state lines and thus only able to serve a portion of the relevant market.

A limited branch footprint could also preclude a credit union from being considered in a bank merger review.

"If you had one that didn't offer branches, they didn't have branches or they didn't offer all the products and services, it may be kind of unfair to bring them into the competitive analysis," Stevens said.

The banking industry has long argued that credit unions should be more consistently included in the competitive analyses for bank mergers. That argument has intensified in recent years as credit unions have become more bank-like, namely through increasingly buying banks and getting more into commercial lending.

"A majority of those credit unions acquiring banks ... have happened in the last decade," Matthew Veneri, head of financial institutions and insurance investment banking at Brean Capital LLC, said in an interview. "As that becomes more prevalent, I think the banks are going to continue to push back in the other direction from a competitive dynamic with instances like this where they start including them more in these calculations for competitive purposes and divestiture requirements because you just can't ignore the influx of credit unions as buyers of banks."

Credit unions often use bank buys as a way to bolster their commercial lending portfolios and expertise. Historically, credit unions have been consumer-lending focused, but they have bolstered their commercial lending in recent years, reaching 11.0% of total loans at June 30, 2025, up from 7.7% at the start of 2020, according to a Market Intelligence analysis in 2025.

In instances where credit unions were included in the Fed Board's competitive analyses for a bank merger, the agency cites the credit unions as offering "a broad range of banking products."

"Credit unions' offerings, the products to customers, are much more closely aligned with those of depository institutions today than they were, say, 25, 30 years ago," Weissinger said.