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CHICAGO – It doesn’t take much these days to get credit unions stirred up when the subject of conversions of credit unions to non-credit union charters comes up, and attendees at NASCUS Annual Conference & Symposium got to hear – and share some of their own opinions – from some of the people most prominent in the credit union news lately because of the sensitive issue. Joining Iowa Superintendent of Credit Unions Jim Forney in a colloquium he facilitated on credit union-to-bank charter conversions were: Dick Ensweiler, president/CEO, Texas Credit Union League and CUNA chairman; Bob Hoel, executive director, Filene Research Institute; Mitch Lucas, former general counsel of the former Washington’s CU, now called First Security Bank of Washington; and Richard Garabedian, an attorney with the firm of Luse Gorman P.C. whose firm has completed 14 CU-to-non-CU charter conversions and who himself has completed 10. Garabedian was also instrumental in drafting the charter conversion provisions of H.R. 1151, and he has served as counsel to six former credit unions that have raised over $100 million in new capital. Taking the microphone to introduce the panel and set the tone for the discussion, Forney got right down to offering comments that let the audience know the panel was not going to approach the issue with kid gloves. “Conversion is not a new word, it’s been around for many years,” said Forney from the outset. Having said that, he addressed the question of whether the state or federal regulator has the authority over conversions – for federal credit unions it’s NCUA, and for state-chartered credit unions it’s the state regulator and the CU’s insurer, depending if they’re federally or privately insured. “Under current law, NCUA does have that authority,” said Forney, “as does a private insurer like ASI.” He added though that, “as far as I know ASI has not been involved with a conversion.” According to the 2003 NASCUS profile, 48% of states allow conversions from a credit union to non-CU charter, and 51% allow conversions from a non-CU to a CU charter. But Forney reminded the audience that most states have wildcard provisions that give state-chartered credit unions federal parity, and these wildcard provisions could be used by a state-chartered credit union that wanted to convert to a non-CU charter and was headquartered in a state that prohibited that or didn’t address it in its state credit union regulation. Forney added though, that he was unaware of any state that used the wildcard to get around that where the law is silent. Just as important though, he added, “We need to ask ourselves whether there are issues, factual or perceived, that are causing credit unions to look at converting to a non-credit union charter. Are leaders of credit unions that are increasingly coming from other institutions, directing the future of credit unions?” he put to the audience. Lucas spoke from his experiences and observations since Washington’s CU converted to a mutual savings bank. Since converting, the former CU has lost: its president/CEO of 22 years; its COO of 20 years; COO, 20 years; general counsel, 11 years; VP of lending, 11 years; VP of marketing, 15 years; VP of mortgage lending, six years; 25% of its staff; 20% each of assets and deposits; and 50% of net income. “What it’s lost that’s even more important is the relative freedom from regulatory oversight,” said Lucas. Hoel agreed with Forney that CUs need to find out why some find it necessary to convert out of the system, and Filene research findings show that it usually comes down to two reasons – credit union charter and regulatory disadvantages, and capitol. “Everyone talks about capital belonging to the members, but the behavior isn’t always consistent,” said Hoel. For example, Congress refers to `public capital,’ CEOs call it `institutional capital,’ regulators, `regulator capital,’ and consultants/investors call it “fee and investment opportunity,” he explained. Hoel predicted that, “The majority of credit unions converting to thrifts will convert to stock owned institutions in five years, and in 10 years they all will.” The Filene executive director urged regulators to “get capital down at credit unions that contributes to credit unions’ problems, and streamline the credit union charter.” Garabedian used his few minutes at the microphone to defend credit unions’ prerogative to convert if they choose to and to share his opinion on why this is happening. “There are no black and white answers why this is happening. There are various issues and the result of global market forces. The world’s changing, and a credit union decides as a strategic decision that’s where it needs to go,” said Garabedian, adding that of all the forces impacting CUs’ decisions to convert to non-CU charters, capital “is taking a front row. Credit unions want some capital relief.” In fact, said Ensweiler, it was the need for capital, more member business lending opportunities and field-of-membership restrictions that prompted Community CU and OmniAmerican CU to apply to convert to a thrift charter. “There should be prohibitions to serving members needs. If our members need member business lending, then that’s where we should go. Limits don’t make sense. If credit unions were put on an equal playing field, they wouldn’t feel like they have to jump charters,” he said. -

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