PHOENIX — Using the conversion ploy, the American Bankers Association appears ready to launch a new legislative attack next January on its favorite target, the so-called “large bank-like credit unions,” with a possible bill forcing them to convert to a mutual savings bank charter based on business lending across state lines.

In a farewell speech to the annual ABA convention last week, Harris Simmons, the outgoing chairman, hinted at the legislative approach in comments about continued unbridled expansion of large CUs with a “real answer” requiring them to “obtain a charter more appropriate to their business–a mutual savings bank.”

The Utah banker, described in ABA publications as “Enemy No. 1″ of CUNA and the industry, said some large CUs now look favorably on a charter change with a number already voluntarily converting plus others which “seem ready” to make a switch.

Simmons, the chairman of Zions Bancorp of Salt Lake City, also renewed the ABA attack on NCUA disclosure policies on conversions and field of membership rulings charging the agency “routinely ignored the letter and intent of the law” in allowing large CUs to illegally grab small business loans from banks.

“These aggressive credit unions have now turned their attention to small businesses–a customer segment which defies the very concept of a common bond characterized by a meaningful affinity among its members” as required by federal law, charged Simmons.

He went on to tell the ABA audience that advances by these large CUs have led to “serious erosion of many banks' consumer franchises.”

“The consumer deposit franchise of the credit union industry is roughly twice the size of Bank of America's and consists of 85 million customers,” he said.

The CU gains, he said, “have come at the expense of all banks, large and small” claiming five years ago 17.7% of all incremental consumer financed by deposit institutions was handled by CUs, a number which has since climbed to 39%.

The Zions CEO went on to fault the governance practices of large CUs, calling their public ownership “opaque.” It is “virtually impossible,” he told the ABA gathering, “to ascertain the strength of their internal controls, the compensation of their officers or the perks provided to their boards.” This comes at a time when banks find themselves subject to Sarbanes Oxley and new SEC disclosures on executive and director compensation. “If credit unions really wanted to improve their industry's regulation, a good place to start would be in creating greater transparency for their members in their institutions' governance,” he said. Reviewing his accomplishments during his ABA term, the Utah banker cited the industry's success in blocking the Credit Union Regulatory Improvement Act adding, “we've worked hard to contain the expansion of large bank-like CUs in the Congress and in the courts.”

Regarding the pursuit of mutual savings bank legislation next January and the hints in Simmons' speech, an ABA spokesman would only say such legislation “remains an option.”

Simmons' successor at ABA, Earl McVicker, a Hutchinson, Kan. bank chairman, made no mention in his formal acceptance speech of punitive anti-CU bills and there have been suggestions that the chairman/CEO of Central Bank & Trust may lack some of the vitriolic zeal of the Zions CEO in attacking CUs.

On that score, a featured profile of McVicker in the in-house October issue of “ABA Banking Journal” handed out to delegates did say the Kansas banker remains “an equally determined adversary” on CUs as Simmons.

However, the article quoted McVicker as finding a diversity of member views on topical issues and while “the majority of the banks have much more credit union competition than they do from the Farm Credit System,” in some “pockets” it's a different picture.

As a result, “it keeps me calibrating what's important” to the membership citing other concerns like the Wal-Mart industrial loan application, FDIC commercial real estate guidelines and mortgage lending strides of realtors encroaching on bankers' turf.

The article concluded that McVicker “is aware that he's representing a diverse industry with different ideas of what's important.”

The ABA has repeatedly referred to expansion of the Farm Credit System as a problem paralleling the CU fight.

Simmons in his speech went further, attacking the FCS with this comment, “Many of the same concerns we have about credit unions apply to the Farm Credit System which is wandering way off the ranch with a project to finance Main Street businesses and large corporate customers in addition to expanded authority to serve anyone in towns of 50,000 population.

“Only the Farm Credit System could produce a proposal that smells so much like manure,” he said. The encroachment of FCS and CUs represent a threat to bank safety and soundness as these competitors “are allowed to expand at our expense,” he concluded. –jrubenscut@aol.com

Instant Insights /

Departing ABA Chairman Simmons Hints at Forced Bank Conversion Attack on Large CUs in 2007

Related Stories

Recommended For You