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What is crystal clear to anyone involved with credit unions is that they are unique entities. It is also clear that only credit unions themselves can make the case for their uniqueness, especially to public officials and members of the press. I firmly believe credit unions must take on this challenge directly, now more than ever, because no one else is going to do it for us and others are “muddying the waters.” Two recent examples of what I would term looking at credit unions through a bank-like prism are the GAO report on secondary capital and the writings of two senior economists at the Federal Reserve Bank of Dallas. I do not use “bank-like” in a pejorative sense. As I have said before, banks are an important, if not the biggest, player in the financial services marketplace. We should, therefore, not be surprised when government and private sector analysts view credit unions through a bank-like prism. In its most recent report on credit unions, the GAO found no compelling reason at this time to support secondary capital as a means to alleviate PCA constraints. At the same time, the GAO did note a prominent credit union concern with PCA-growth may be constrained due to the fact that credit unions cannot add capital quickly enough through retained earnings during periods of sustained growth. The GAO reacted to this concern by saying that credit unions have been growing just fine under PCA and that PCA is intended to “curb aggressive growth.” How does one, however, define aggressive growth-5, 10, 15, 20% or more? And for how many years: one, two, three, four or more? Finally, how does one distinguish between aggressive growth versus robust growth-especially since recent credit union growth (2000-2003) has been at a rate of 13%? Why, in an economy that is currently not expanding evenly or at a rate we might all desire, would you want to constrain the growth of those that might otherwise contribute to our economy in a safe and sound manner, as credit unions do? The GAO, in concluding its discussion of secondary capital and a risk-based capital system for credit unions, noted that credit union concerns surrounding PCA “reflect the inherent tension between credit union managers’ desire to maintain the optimal amount of capital to efficiently fuel growth and returns to credit union members and Congress’s desire to protect the federal share insurance funds from losses that could have been prevented by early and forceful supervisory action.” What losses? Unlike the banks and thrifts, credit unions have never cost the American taxpayer one dime. The National Credit Union Administration has never been shy about aggressively protecting our insurance fund, and credit unions would have it no other way. The real tension has nothing to do with safety and soundness but with the fact that PCA, as currently applied to credit unions, is a solution to a bank problem that fits their structure, not ours. GAO said it could not come to any definitive conclusions, and thus could make no regulatory or legislative recommendations, because credit unions’ experience with PCA is limited to just three years. However, NAFCU and its members have had enough experience to know that PCA must be changed to fit the credit union model, and that is the difference between a credit union perspective and looking at the problem through a bank-like prism. In the January/February 2004 issue of Southwest Economy, a publication of the Federal Reserve Bank of Dallas, two of its economists suggested that credit unions are an important reason why small banks-those under $1 billion in assets-are losing market share and prominence in our economy. Just last month these same two economists spoke more bluntly in an American Banker opinion piece about the so-called credit union threat. The authors suggested last month that because credit unions as a whole have grown faster than small banks, these financial cooperatives must be eating into the small banks’ market share. Yes, that might be true if the financial services arena were made up only of credit unions and small banks. But what about large banks? What has been their impact on this equation? In their Southwest Economy article, the authors said that “small bank growth [into an above $1 billion asset category] can account for the shrinkage in small bank market share [compared to all banks].” Indeed, I would argue that small banks’ biggest threat in today’s marketplace is not credit unions, but the nation’s mega-banks, which are gobbling up market share at an unprecedented rate. The authors acknowledged that the banking industry as a whole is “generating record profits,” but they said the profitability of small banks is only “substantial.” Yet, community banks are among the fastest-growing small companies in America, and every time a small bank is gobbled up by a bank merger, with substantial payoff to the stockholders, another arises like a phoenix out of the ashes. I guess “substantial” profits are just not good enough in these days of record profits for banks and their shareholders. So in an effort to create a bogeyman, credit unions, which are doing quite well by successfully serving their members’ needs, are made the culprit. In their Southwest Economy piece, the authors gave a number of non-credit union reasons for why small banks are less prominent today. First, there are technology and innovations that exposed them (and all financial institutions) to competition. Then there are changes in the law, which removed restrictions on branching. There is also the securitization of lending products, which helped other institutions such as mortgage companies compete with banks. Bankers, however, never mention any of these factors, or that the same challenges face the credit union community. It is as if they were the only ones living in today’s financial arena with laws and regulations. It is decidedly a bank-like outlook to blame credit unions for small bank performance, particularly when that performance remains strong. Such analysis is not only shortsighted-credit unions are not going away-but self-defeating. Credit unions are not the problem. So it is essential that we tell our story to public officials and the media. No one else is going to do it for us. What we need to talk about is who we are, our foundation of service, cooperation, self-governance and common purpose, and the unique services that we provide. That will give decision makers a better understanding of the differences between credit unions and banks, and it will make legislators less likely to believe the overheated rhetoric now being circulated by our detractors.

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