LYNCHBURG, Va. - Bankers in Virginia have another piece ofammunition in their arsenal to use in their attempt to convincestate and federal legislators that credit unions should be taxed: astudy conducted by a former Crestar Bank chief economist and seniorvice president that examines the competitive environment betweenbanks and credit unions and which finds, among its results, thatthe largest credit unions - those with more than $100 million inassets - appear to be so similar to banks in terms of the servicesthey offer that they should be taxed like banks. An Assessment ofthe Competitive Environment Between Credit Unions and Banksprepared by Dr. Christine Chmura of Chmura Economics and Analyticsfor The Thomas Jefferson Institute for Public Policy also suggeststhat credit unions be subject to CRA-like regulation to determinethe level to which they meet the financial needs of those of"modest means." In the study's forward, Institute Chairman andPresident Michael Thompson wrote: "One of the fascinating andon-going debates within the financial community is the potentialchallenge that credit unions pose to commercial banks and thepreferential tax treatment credit unions receive under the currentlaw." Thompson - who also worked at one time at the Federal HomeLoan Bank Board as administrative assistant to one of the threeregulators of the savings and loan industry - specifies three areashe opined "need to be carefully monitored to ensure that creditunions continue to serve the communities as was intended": * "Thereis preliminary evidence that credit unions are not serving thecommunities of `modest means' to the extent intended.Becauseserving those of `modest means' is a key reason for credit unionsto exist under current tax law, this aspect should be carefullymonitored in the future." * "Presidents in the past 25 years fromtwo separate political parties -Democrat Jimmy Carter andRepublican Ronald Reagan - suggested that credit unions be taxed ina similar manner as banks. Although Congress disagreed, the factthat both of these presidents agreed on this matter indicate thatthis issue needs further review." * "Congress has expanded the`membership base' for credit unions far beyond the original intentallowing the asset size of some credit unions to match that oflarge community banks and to offer many of the same services. Assuch, this study suggests that these mega-credit unions be reviewedfrom time to time to see if they should be taxed at a similar rateas their commercial bank peers." Thompson's "objective look" at thesituation includes an overview of the historical policies andchanges in the environment between credit unions and banks, andgoes on to provide a description of the similarities anddifferences between the two. For example, it discusses the FederalCredit Union Act of 1934, including a federal credit union timelineleading up to and ending with the 1998 passage by Congress of H.R.1151. It continues to discuss the evolution of the National CreditUnion Share Insurance Fund, NCUA's adoption - and subsequentrepeal- of the Community Action Plan (CAP), the cooperative,non-profit justification for CUs' tax exemption. To emphasize hispoint that "credit unions (particularly those with more than $100million in assets) are becoming more similar to banks," the studyincludes a detailed chart of services provided by credit unions by12 asset size groups ranging from $0-$2 million to more than $500million, as well as all CUs. The study also addresses the question"did CUMAA lead to faster credit union growth?" by analyzing trendsin size (assets) and interestingly concludes that "since bankdeposits grew at a faster rate than those at credit unions, it isdifficult to conclude that the CUMAA gave credit unions acompetitive advantage over banks." The study further recognizesthat as consumers who had money invested in the stock marketdiverted funds into insured instruments at financial institutionswhen Wall Street went soft, "trends suggest that banks probablybenefited more than credit unions" from this. "When viewed inaggregate, credit unions and banks have clearly become more similarboth in terms of services provided and regulations imposed," thestudy states. "In light of the National Community ReinvestmentCoalition (NCRC) study and a lack of National Credit UnionAdministration (NCUA) regulations pertaining to the enforcement oflow income community needs on the part of credit unions, it appearsthat the focus of credit union activity has strayed from itsinitial purpose of helping people of modest means meet their creditneeds.From this perspective, a Community Reinvestment Act(CRA)-like regulation that ensures credit unions are fulfilling thepublic purposes of serving individuals of modest means is anappropriate policy to measure credit union compliance," theconclusion reads. The conclusion also recognizes that banks andcredit unions "are fundamentally different organizations," andtherefore taxing all credit unions "is not warranted. However, asegment of credit unions, most notably some of the largest creditunions, and particularly those that have aggressively used multipleand community common bonds to grow, appear to have becomeindistinguishable from banks." It further adds that, "If a changein policy causes some credit unions to become subject to taxation,however, they should also enjoy all benefits of banks." -

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