WASHINGTON — The heads of the two major national credit union trade associations took turns last week pointing to banks' and thrifts' record profits in the second quarter to fish out the bankers' red herring.
The FDIC reported commercial banks and savings institutions achieving a net income of $38.1 billion for the second quarter of 2006, surpassing the previous quarterly earnings record of $36.9 billion set in the first quarter. This is the fifth time in the last six quarters banks have reached a new record. Strong commercial and consumer lending were credited with countering rising interests rates and narrower spreads between short- and long-term rates. Second quarter profits were 3.2% over the first quarter and 10.9% over the same period in 2005, according to the FDIC. Troubled commercial loans were up slightly, but asset quality remained strong at banks and thrifts. The second quarter marked more than two years without an FDIC-insured failure.
Given the strong performance of banks, American Bankers Association Executive Director for Financial Institutions Policy Wayne Abernathy said there is little reason for high insurance premiums in 2007 as the FDIC has warned could occur. "The FDIC fund has been more than adequately capitalized for a decade without the need for premium assessments," he commented.
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"As all institutions will begin to pay in 2007, there is little need to charge more than one or two basis points to keep the fund at healthy levels. The short- and long-term goals of the FDIC should be low and stable premiums. To do otherwise would impose unnecessary hardships on the banking industry, especially new banks striving to be profitable."
CUNA President and CEO Dan Mica pointed out that credit unions are obviously not putting a dent in the banks' business. "What remains paradoxical to us in the credit union movement," he said, "is that an industry which posts record, quarterly net income of $38.1 billion for the second quarter of 2006 (surpassing the previous quarterly earnings record of $36.9 billion set in the first quarter) could be taken seriously by anyone when bankers carp about 'rapid growth' of credit unions, or 'aggressive business lending' by credit unions. That is, unless the banking industry is really saying that these profits are not 'record enough,' and credit unions stand in the way of them earning even greater amounts. That would be a serious statement." NAFCU President and CEO Fred Becker echoed this sentiment. "If they succeeded in impeding credit unions, then the only thing they'd accomplish is more record profits," he stated. Credit unions serve as a governor to banks' pricing for consumers. "The rhetoric in Washington is just that–rhetoric," Becker said. Lawmakers have to be asking the banks: "What problem do you want us to solve." –[email protected]
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