They've done it before and they'll do it again. Picture it, early 1991. Congress is just returning from winter break and, boom, the Deposit Insurance and Regulatory Reform Act (H.R. 6) is introduced by Democratic Congressman Henry Gonzalez (Texas). The bill would, among other things, fold all the financial institution regulators into one.

Shortly thereafter, Treasury, at the end of the President George H.W. Bush's administration, made a proposal to instead add a Treasury official to the independent NCUA Board and require credit unions to write down their 1% NCUSIF deposit. CUNA said it backed the proposal, so long as banks did a write down also, to make friends at Treasury, but NAFCU opposed it entirely; when banks had no write down, CUNA opposed it as well.

These proposals made regular front-page news in Credit Union Times in 1991.

In anticipation of the legislative proposal, CUNA's Operation Grassroots put together a rally on Feb. 28, 1991 that drew more than 12,000 credit union faithfuls to the Mall in Washington in protest. House Banking Committee member Frank Annunzio (D-Ill.) spoke to the crowd, vowing to have the provisions of the bill that threatened credit unions stricken. Other members of Congress were drawn to the crowd and professed their support.

Legislation, the Financial Institutions Safety and Consumer Choice Act, was introduced in April 1991 in

both the House and Senate based on the Treasury recommendations.

Eventually, the bill passed but with hardly a mention of credit unions.

Then, as now, credit unions are not the problem the panicked government is seeking to mend though they are getting caught up on the wide net of oversight reform. This is the very reason for the federal system of checks and balances and the legislative process. As issues are debated and discussed and policymakers become better educated, sometimes more rational responses prevail.

In a business sense, I can see where Treasury is coming from. Credit unions merge all the time for efficiencies, economies of scale and better service to their constituents, so why not regulators? Well, for one thing, a credit union merging with another credit union is apples and apples. Merging the for-profit and not-for-profit financial institution regulators is like merging the apple with a chicken: Both provide good nutrition but in very different ways.

Using that same analogy, a variety of foods, as with financial institutions, are also very important in providing choice for a complete and healthy diet or a financial marketplace. Studies have shown time and again that credit unions not only generally offer better rates on savings and loans, they also serve as a governor on their competitors' rates. Imagine payday loan rates without credit unions, or bank rates for that matter.

This overreaction to the market correction is particularly surprising coming from a Republican administration, which tends to favor free-market philosophy, and especially as pro-business as this White House has been. Just look at the Countrywide and Bear Stearns deals, two of the key components to the current meltdown that is sure to cost American taxpayers far more than just money.

Even before the Treasury started asking lenders to work with homeowners in peril from risky subprime loans, credit unions were working to help save the family homes they could. Credit unions are working to be a part of the solution to a problem that was not their doing, and for that they should be commended, not doomed.

The lone remaining financial institution charter should be credit unions. Not likely. The uniqueness of the credit union charter would be crushed under the weight of regulatory efficiency with a gross lack of understanding of their differences from for-profits.

The Treasury's Blueprint would also threaten the relevancy of state regulation.

Additionally, I'd question the wisdom of totally restructuring financial institution regulation during a time of crisis. (But isn't that when policymakers tend to act?) The uncertainty of a new regulatory schema and the questions of how and whether it would work could create greater confusion and misunderstanding for consumers.

The credit union trades will fight this thing tooth and nail; they've already demonstrated that with their letters to the Hill and House Financial Services Committee Chairman Barney Frank's (D-Mass.) remarks during last week's Internet gambling hearing (See story page 1). The Hill newspaper even noted CUNA President/CEO Dan Mica's opposition to the proposal, which the paper called “too big to succeed.”

In addition to credit union friendly lawmakers, credit unions should have time on their side. A massive proposal like this will likely take decades to work through. Gramm-Leach-Bliley took about a decade of legislative maneuvering and that was not nearly as extensive as the Treasury proposal.

More than 12,000 people showed for a rally on a similar legislative proposal 17 years ago. Mica's hallmark description of credit union grassroots a few years back was “a mile wide and an inch deep.” How deep are credit union grassroots in 2008? I hope they won't be tested in this manner, but, if they are, the involvement of individual credit union leaders will make all the difference in the world.

–Comments? E-mail scooke@cutimes.com

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Credit Unions Will Escape Treasury Consolidation... Again

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