A new report published by the Federal Reserve Bank of St. Louis concludes that there is not enough evidence to support the assertion by bankers that the credit union tax exemption and expanded field of membership rules provide credit unions with a competitive advantage.

“The evidence does not permit any sharp conclusions,” wrote economist Richard Anderson and senior research associate Yang Liu, who both work at the St. Louis central bank.

The two reviewed the history of credit union field of membership expansion and compared growth between credit unions and small banks since 1998, when Congress passed H.R. 1151, the Credit Union Membership Access Act.

What the Fed researchers discovered were similar growth patterns in numbers of credit unions and banks, which has shrunk, and total assets, which have increased.

The report wasn't particularly complimentary of credit unions, but didn't vilify them either.

For example, the report noted that academic studies have confirmed that “credit union lending to small businesses partly displaces bank lending,” but also said “credit union lending has been steadier through business cycles, including the recent financial crisis, than bank lending.”

The authors agree with the bank lobby's charge that the credit union tax exemption reduces the cost of capital by approximately 40% relative to a fully taxed environment; however, the report also notes that several thousand small and medium-sized banks that have Subchapter S charters are similarly exempt from federal income taxes.

“Despite the often-heated rhetoric of competing advocates, both industries have experienced similar trend growth since 1998,” the report said.

“Further, the relative proportions of assets held by federally chartered single, multiple and community bond credit unions have changed little. The only safe prediction is that, in the future, credit unions and community banks will continue to grow more similar.”

Instant Insights /

Fed Report Finds Credit Union Tax Advantage Inconclusive

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