Sadly, What's Old is New Again
Unfortunately for credit unions they can't seem to get away from the same old arguments.
Take House Financial Services Chairman Barney Frank who said recently that credit unions will likely again be looked at for inclusion in the Community Reinvestment Act. I didn't find that nearly as disturbing as Frank making size part of the argument. He essentially said that credit unions with well-focused fields of membership are probably already doing enough to comply with CRA, but it's the larger credit unions with bigger FOMs that have to prove it. Frank bringing size into it plays right along with the bankers' strategy of letting small credit unions remain tax-exempt, but taxing large, expansive credit unions. Apparently credit unions aren't allowed to grow and flourish and be large, but other institutions can. What is large anyway? A billion-dollar credit union is large, but not in the banking industry. It's also disappointing that Frank continually brings up the fact that state chartered credit unions in Massachusetts have CRA and are having no trouble complying. Credit unions are a low-cost alternative to the banking sector that have more regulatory restrictions than banks. There is no need to burden them further with CRA.
Bankers are old news that don't go away. They remain vigilant in their attempts to halt credit union growth whether through taxation or limiting their powers. Bankers in Oklahoma are using the recent business lending problems at Huron River Area Credit Union, Norlarco Credit Union, and Peoples First Choice Federal Credit Union in their arguments against expanding the member business lending cap beyond 12.25% of assets. Here is an excerpt from the Oklahoma Bankers Association Web site:
Recent Credit Union Collapses May be
O.K. -- that's probably not the right attitude, we admit. What we mean is this may be "good news" in the sense that the recent failures of three credit unions because of huge losses on speculative real estate (business) lending will likely shed a great deal of light on what bankers have been saying about "wide open" credit unions for some time.
Particularly when it comes to expanding business lending limits, the current level of 12.25 percent of the credit union's capital has not stopped at least two credit unions from going well beyond that threshold -- and failing as a result. That probably makes it a little difficult to argue for more, expanded authority by credit union zealots and do so with a straight face.
The bankers have glommed on to the unfortunate problems at these credit unions to make their case, and sadly it is good ammunition for them. However, these cases are not enough to set policy for an entire industry. There are equally as bad cases that can be pointed to in the banking industry, so hopefully lawmakers don't take the bait.
More old news that is still new is credit unions converting to banks and the same old arguments converting credit unions make no matter what the numbers say. Take First Basin Credit Union out of Odessa, Texas, one of the more recent CUs to attempt conversion. Despite stellar growth in recent years and impressive Return on Assets, it's singing the old song of capital requirements. The CU said in documents filed with the OTS that the thrift charter was necessary to keep it on a growth path, especially with growing its mortgage business:
"Would we be able to meet this need as a credit union? To some degree, yes, but on a smaller scale and at a significantly slower pace than would be permitted as a mutual savings association. In this regard, we believe the federal mutual savings association charter, which was created to promote home ownership and has more favorable capital requirements, particularly as they relate to real estate lending, is more appropriate for First Basin as we move forward."
With what's going on in the real estate market, members of First Basin should be very wary of approving a charter conversion to bring the credit union deeper into that market. The credit union also cited the need to do more commercial real estate, construction and development loans that won't help most members. Whether you agree with First Basin's move or not, the old arguments of lesser capital requirements and more favorable mortgage lending regs will continue to come up in these conversions. Some of these credit unions may be showing some skill in commercial real estate, but that's not what credit unions were created for. Either way, credit unions are going to have to continue to push for risk-based capital to take this old argument away and give credit unions more flexibility.
What I hope doesn't become same old, same old is the continued addition of co-sponsors to the Credit Union Regulatory Improvements Act, but no results. The latest co-sponsor count is 127. It would take 218 co-sponsors to pass the House and even lawmakers who support credit unions say it's unlikely credit unions will get all they want from CURIA. Still, if credit unions can get some key provisions pushed through like risk-based capital, it will be a success. But if year after year CURIA becomes a nice thing for lawmakers to endorse, knowing it isn't going anywhere, it's going to get more difficult to rally credit unions to continue lobbying for this much needed legislation.
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