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WASHINGTON-The NCUA chairman has refuted anti-credit union rhetoric put forth by FDIC Vice Chair John Reich in testimony for hearings last month on regulatory relief. As follow-up to the hearing in the House June 9, House Financial Services Committee Member Brad Sherman (D-Calif.) wrote Johnson later that month to respond to Reich’s written testimony, which stated that credit unions were growing rapidly, a result of the unfair advantage they have by not having to pay taxes or comply with the Community Reinvestment Act. He also commented on expanding fields of membership. Johnson’s letter in response to Sherman noted that while some credit unions have surpassed the billion-dollar mark, “The industry is still predominantly made up of institutions under $10 million in assets and, as this hearing revealed, all small financial institutions face growing challenges.” NCUA also provided market share data that demonstrated no significant gains by federally insured credit unions in recent years. In an attachment to the letter, NCUA argued, “Federally insured credit unions, while similar in number to FDIC insured institutions, equal only a fraction of the assets of the FDIC insured institutions. Over the past ten years the percent of federally insured credit union assets to FDIC assets has ranged between 5.78 percent and 6.72 percent, with the current level equaling 6.44 percent.” Another attachment stated that NCUA has only chartered 208 new credit unions in the last 20 years, far less than the 2,400 new bank charters, due to the difficulties of starting a financial cooperative. Of those, just 114 remain, Johnson noted. “Both the decline in the overall number of credit unions and the growth in assets, many through mergers, make the point of the hearing for credit unions, banks, and thrifts-that regulator burdens are one factor making it increasingly difficult for small institutions to exist. Larger institutions, through efficiency of scale, can absorb the costs (financial, time, and personnel) of compliance more easily,” it read. “Reducing regulatory burdens for smaller institutions might mitigate this trend.” Johnson also defended NCUA’s upholding of field of membership restrictions. “Competition benefits consumers,” another attachment said. “Every credit union member is free to become a customer of any, and every bank, thrift or other financial provider in the country, but the reverse is not true because of the field of membership rules. With that policy in place it is hard to see how it can be asserted that this is one of the “conditions under which this competition exists enabling credit unions to operate with a number of advantages over banks and thrifts” enunciated by Vice Chairman Reich.” As for the federal income tax exemption, NCUA cited a 2001 Treasury study, which found that though they provide some of the same offerings as banks and thrifts, “credit unions have certain distinguishing characteristics.” Treasury concluded, “At this time, we do not believe these differences raise any particular safety or soundness or competitive equity concerns. Therefore, we offer no administrative or legislative recommendations.” The agency also listed out a number of limitations and restrictions on credit unions that banks and thrifts do not have, such as a federal usury limit, higher capital requirements, and stricter caps on investments. Regarding Reich’s CRA assertion, Johnson noted that 635 credit unions have been approved to serve 1,348 underserved areas, while 882 federal credit unions are designated `low-income’ and eligible for loans and grants from NCUA to help fulfill their mission. “I hope these additional facts may serve to provide Congress with a broader perspective to assess the competitive advantages or disadvantages of federal credit union and bank charters, as well as the marketplace and consumer implications,” Johnson’s letter concluded. [email protected]

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