Hatch recently sent NCUA Chairman J. Mark McWatters a letter asking for detailed information about the industry and he questioned whether the tax exemption is outdated.

Hatch is chairman of the Senate's tax-writing committee, he is retiring, and Congress enacted a tax overhaul bill last year. However, Congress may take up a technical corrections bill to make changes to that tax legislation.

Credit union trade groups have been steadfast in their defense of the tax exemption.

In their letter, the bankers said that the credit union industry "works to paint a picture of small financial institutions struggling to get by."

They said that the overwhelming majority of credit unions fit that descriptions, but that "there is a separate class of credit unions that have moved from church basements to conglomerates."

The bankers say that the number of credit unions with more than $1 billion in assets has more than doubled during the past decade, adding that these almost 300 credit unions represent 5% of the credit unions, but receive 75% of the tax subsidy.

And the bankers took a shot at the NCUA, writing, "Aided by an amenable regulator, common bond limitations for top credit unions are effectively nonexistent."

The associations also said that any tax revenue raised as a result of the elimination of the tax exemption should be used for a tax cut.

Credit unions maintain their tax status because Washington prefers the status quo over change, they contend.

"Taxpayers should no longer subsidize these large, aggressive entities that are called not-for-profit, but don't act that way," the bankers said.

In a separate letter, Camden Fine, president of the Independent Community Bankers of America, asked Hatch to convene a Finance Committee hearing to explore the tax exemption.

"The credit union tax subsidy is the elephant in the room," Fine wrote. "It is widely understood but rarely acknowledged that the tax exemption has outlived its purpose."

NAFCU and CUNA blasted the banks in a joint response to the bankers.

"The banking lobbyists would like the tax status to be limited based on the products or services credit unions offer, the size of credit unions individually and as a sector of the financial services industry, their efforts to support their community and raise overall awareness, and other factors," CUNA President/CEO Jim Nussle and NAFCU President B. Dan Berger said, in their letter.

Those factors have nothing to do with why credit unions received their tax exemption, they wrote.

"The fact is credit unions' structure has not changed and they continue to fulfill their mission," they wrote.

Credit unions have been able to pass on savings to member-owners, Nussle and Berger wrote.

"Perhaps banks should spend more time and effort working to improve their own industry rather than writing letters attacking credit unions who are upstanding contributors to their communities and membership," they said.