Credit Union, Bank Battle Subject of Fed Reserve Bank of St. Louis Magazine Article

ST. LOUIS – Count The Regional Economist magazine published by the Federal Reserve Bank of St. Louis as being among the publications that has given editorial space to the credit union and bank battle. The October 2003 edition featured an article, “Credit Unions Make Friends – But Not With Bankers” that discussed the issues -legislative, banker suits and arguments – involved in the on-going situation. “Despite the rather low profile and mundane operations of the vast majority of credit unions, these institutions have long been a source of controversy in the United States, primarily in the banking community,” wrote the article’s authors, William Emmons and Frank Schmid. “For decades, bankers have objected to the tax breaks and sponsor subsidies enjoyed by credit unions and not available to banks. Because such challenges haven’t slowed down the growth of credit unions, banks continue to look for other reasons to allege unfair competition,” the article continues to read. The writers continued to provide background information on the U.S. Supreme Court decision in the case concerning AT&T Family FCU – “the court found in favor of banks and their trade association, ruling that the regulator of federal credit unions, the National Credit Union Administration (NCUA), must not allow them to expand by combining more than one field of membership, or common bond among members” – and then discussed H.R. 1151 which it described as “new legislation that essentially reversed the Supreme Court’s ruling.” It also referenced the American Bankers Association’s 1999 suit against NCUA in which the banking groups alleged NCUA violated the intent of Congress in implementing H.R. 1151. Most of the bankers’ attacks are waged on three fronts, the article states – credit unions’ tax exempt status; FOM expansion; credit union regulation and the services they offer. Noting that unlike banks, credit unions are exempt from the Community Reinvestment Act, it continues that “as for the services, credit unions have been allowed to increase the amount of business lending they do; this frustrates bankers, who believe that credit unions should focus on households.” From there, the article provides various statistics on credit unions such as the total number and members served – 10,041 at year end 2002 and 80 million members, compared to 7,887 FDIC-insured commercial banks and 1,534 insured thrifts. It also noted credit unions’ total assets – $575 billion- compared to $7,075 billion held by commercial banks and $1,359 billion held by thrifts. It further explains how credit unions are insured, are organized around fields-of-membership, discusses the different types of services offered by varying sizes of credit unions, and explains the demographic of the typical credit union member. “Overall, it appears that credit unions, banks and thrifts are more direct competitors today than when credit unions first appeared,” the authors write. As for the article’s explanation of why credit unions are tax-exempt, it states that it is “because Congress views them as `true’ member cooperatives and, therefore, quite different from banks and thrifts.” As for the future of the credit union-bank debate, “the long-running credit union debate shows no signs of ending. The actors and the arguments may change, but the survival of credit unions in one form or another does not appear in doubt,” the writers state. “Attacks on credit unions have stemmed from a wide range of viewpoints, including sometimes contradictory arguments,” they wrote. Concerning the argument that “credit unions are inherently inefficient,” the writes note that “proponents of this view have a difficult time explaining why the number of credit unions and credit union members continues to grow and why members express high levels of satisfaction with the services they receive.” On the second argument – that credit unions are unfair competitors because they’re tax exempt – “proponents cannot explain easily why credit union sponsors and governments are such strong supporters of credit unions.” – [email protected]