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<p>WASHINGTON – Keith Leggett, senior economist for the American Bankers Association and long-time credit union critic, predicted on the eve of CUNA’s Governmental Affairs Conference that the ongoing Enron scandal would significantly change the landscape for all financial institutions, including credit unions. “Enron’s impact is going to be echoing and ongoing for all financial institutions,” Leggett said, arguing the scandal is a Pandora’s Box for the entire financial services industry. Leggett argued the chief problems of Enron’s legacy would arise as part of an “overreaction’ to the ongoing scandal and would touch many different aspects of financial institutions lives, including insurance, financial statements and increased difficulty finding people to serve on boards of directors. “The implications of Enron are really quite wide ranging,” Leggett said, and are liable to be of the sort that change, in unforeseen ways, the landscape in which all financial service institutions must compete. In insurance, for example, Leggett reported that rates for insurance for boards of directors have begun to rise and the activities of boards of directors generally are liable to come under much greater scrutiny after Enron than they were before. Credit unions still widely have the concept of boards of directors being volunteer positions, positions that are increasingly hard to fill. “The post-Enron world is not likely to make that any easier,” he said. “Accounting issues are foremost on people’s minds right now,” Leggett said, “but we have yet to see how all that plays out.” Bank and credit unions have an edge over corporations and other institutions in that their funds are insured and their books examined by regulators, he noted, but financial statements from all financial institutions are liable to face calls for an even greater degree of transparency. “For example, there may be a real push to have rotating auditors,” Legget said. “A requirement that a financial institution have the same auditing firm for no more than seven years. That would address the fear that the auditor and the firm might be getting too close, but it would mean having to educate a completely new firm about your business,” he pointed out. “There may be a tendency on the parts of regulators to overreact,” Leggett noted. “Financial institutions will have to work hard to make sure they don’t throw the baby out with the bathwater,” he said. Leggett predicted the details of identity theft would be the cutting-edge privacy issues in 2002, both because the crime had been growing so rapidly and because there was a lack of consensus of how to approach enforcing the laws against it providing relief to its victims. There would also be concerns about privacy and identity theft swirling around increased security concerns post September 11, he added. The increasing use of technology will continue to be a two-edged sword for both community banks and credit unions, Leggett said, contributing to the “commodification” of many financial products on the one hand but offering small financial institutions a way to offer many different services, affordably on the other. “There is a way that the Internet acts as a great leveler,” Leggett said, noting that it could allow both credit unions and community banks to diversify their products economically in ways they could not without the Internet. “If the competition is on rates alone small financial institutions may not be able to compete,” he noted, “but on the Web everyone is the same size.” “The high tech tools will be an additional vehicle people will want to use to manage their money,” Leggett said, “but they still want to know where they are putting their funds.” Success will be found in balancing high tech and high touch, he said. With the exception of the issue of credit union tax status, which he was careful to note, Leggett agreed with the observation that community banks and credit unions share many issues in common in the changed financial services industry – but he predicted that the relationship would likely remain choppy due to what he called “local concerns.” Local competition has a way of working its way into bank and credit union relations and undercutting cooperation the two groups might share at other levels, Leggett said. “It’s a local competition thing,” Leggett noted, describing it as “a burr in the saddle” of community banks “The banker sees the credit union,” Leggett noted, “right down the street or across town in a way that he does not see mutual funds which may be drawing away more of his deposits than the credit union,” Leggett said. Leggett also noted that credit unions and small banks share the experience of having mixed feelings about their deposit insurance even though they have a different insurer. He said that community banks are split over different aspects of FDIC reform with some banks backing the proposed package’s higher deposit cap and others rejecting the higher premiums the higher cap might bring. “It really depends on where you do most of your business,” he said. “I have had banks argue vociferously on both sides of the issue.”</p>

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