On Taking Duly Diligent Steps Toward the Future
The two presidential candidates have outlined their solutions for the ailing American economy. Republican candidate John McCain wants tax cuts and reduced government spending among other things. Barack Obama wants to increase the tax on the wealthy while lowering that of the middle class and provide foreclosure relief. I think many can see why either side of the coin is reasonable, even if you don't agree with it; neither is perfect but both are well-researched. McCain and Obama have done their due diligence.
The candidates outlined their positions to attract voters to their particular points of view to achieve something greater professionally than they already have: to move from Capitol Hill to the White House. They are laying the foundation for what they believe will create a better nation.
So, too, are credit union lobbyists in Washington. Take for example the CURIA/CURRA/CUBTRRA battle. The Credit Union Regulatory Improvements Act was a wish list credit unions came up with a half-dozen years ago. Like a kid at Christmas, everyone knows you don't get everything you want.
Thus, the Credit Union Regulatory Relief Act was born. It lacked two of the key provisions in CURIA for credit unions, which according to CUNA and NAFCU, included risk-based capital and increasing the member business lending cap from 12.25% of assets to 20%. Still the bankers vilified it on the Hill and halted the legislation on the eve of a House Financial Services Committee vote.
Which begat the Credit Union, Bank and Thrift Regulatory Relief Act. The bill would allow credit unions to not count business loans to nonprofit religious organizations (sorry, but this seems unconstitutional to me) toward the cap as did the previous iterations. But it also included a provision to exclude member business loans in underserved areas (as defined in the legislation by census tract). Though one person pointed out that this definition is narrower than that of the Treasury's Community Development Financial Institutions Fund, according to CUNA, it would reach 42% of the country. However, NCUA couldn't grant large areas, such as Los Angeles County, as was done in the past and raised the bankers' ire.
Additionally, CUBTRRA does not include the provision that would have exempted credit unions from the high-cost Hart-Scott-Rodino premerger filings, from which banks and thrifts are already exempt. Currently, not many credit unions are affected by this law because they are not large enough, but for those that are, I understand the price tag is quite hefty. As credit unions continue to merge and grow, more and more will feel the pinch. Still the provision was dropped for efficiency's sake, as it would have had to go before the Judiciary Committee, which has jurisdiction over antitrust matters.
Even among the lobbyists there is debate over the value of CUBTRRA. Obviously, it's no CURIA, but the legislators and lobbyists are laying the groundwork for greater things. They're doing their due diligence on the political efficacy of individual provisions. The goal is to get something through committee and voted on in the House than can also pass in the Senate. During that mysterious process, the bill will be pinched and pulled and tweaked, and opportunities will likely present themselves to beef up the credit union, and even bank, provisions.
There is one more touchy subject I want to bring up in discussing mapping out the future and due diligence. And that is credit union conversions. Philosophically, I'm 100% opposed to a nonprofit credit union converting to a mutual savings bank to the enrichment of insiders. Who wouldn't be? But, that issue aside, because it may not even be possible to determine who owns the capital, the legislative and regulatory scheme appears a whole lot better on the other side. Banks have far fewer restrictions on investments and loans, particularly business loans. Banks have greater access to capital, can offer more services, and they can serve anyone who walks in the door. (Need another reason to join the legislative fight for CURIA and the other acronyms?)
As times get tough and tougher and competitive pressures soar, not to mention the sour economy, credit unions need to look at how they can best continue to serve their members. A representative from Sandler O'Neill, which admittedly has assisted some credit union conversions, commented to me after seeing our report that NCUA was posting DATATRAC data on www.ncua.gov that that data did not represent the complete picture. DATATRAC compares rates at a given point in time, which the credit unions edging out the converted credit unions every time. Sandler O'Neill stated that the converted credit unions beat the average credit union deposit rates 51% of the time over the last few years prior to conversion, according to figures from 2006; after converting, by 2006 they beat the credit union average 79% of the time. That jumped to 82% in 2007.
Sandler O'Neill's data on the loan yield was not quite as impressive, with converted credit unions earning a lesser yield than the credit union average (better for the borrower) 61% of the time. As of 2006, the same set of credit unions after conversion were still earning less 60% of the time. For 2007, the figures were 65% and 61%, respectively.
So, who is serving their depositors and borrowers better?
I want to reiterate that I am not advocating conversion at all. I'm merely suggesting that credit unions examine a broad array of information in performing their due diligence and laying the groundwork for tomorrow.
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