Research Scan: Credit Union Clients Don't Reap Tax Breaks

Consumers do not benefit from credit unions' tax exemption, according to a study by Wake Forest University accounting professor Yvonne Hinson Stewart. Credit unions use the savings from their tax exemption to cover higher personnel and fixed-overhead costs, she finds. They do not offer significantly higher rates on savings accounts or lower rates on loans, she says.

To support her conclusion, Ms. Stewart examined the net interest margin, which is the difference between interest income and expense. She finds little difference between the margin at tax-exempt credit unions and tax- paying mutual thrifts. But she finds credit unions on average spend more on personnel and operating expenditures than mutual thrifts.

For a copy of "Who Receives the Benefit of Credit Unions' Tax Exemption?" call 910-758-5113 or E-mail stewarty wfu.edu.

The government should maintain a separate insurance fund for credit union deposits, a Georgetown University study concludes. David A. Walker, director of the Center for Business-Government Relations, finds that credit unions are better capitalized than banks. They also finance their insurance fund by keeping 1.3% of their deposits with the National Credit Union Share Insurance Fund, while banks pay quarterly premiums to the FDIC. He says the credit union fund performed much better than the other funds during the economic crises of the late 1980s and early 1990s.

"Its strong performance during a period of significant regulatory and insurance problems for its major competitor industries suggest that a major overhaul is both unnecessary and undesirable," he writes in the study, which was partially funded by several large credit unions.

Mr. Walker also examines corporate credit unions. He recommends increased oversight and new rules to prevent these institutions from investing in risky financial instruments.

For a copy of "Credit Union Insurance and Regulation," fax a request to 202-687-6829 or E-mail walkerd gunet.georgetown.edu.

Regulators are reducing the time spent in banks during exams by making better use of financial data they are already collecting, said Charles D. Cowan, director of management analytics at Price Waterhouse.

New statistical modeling techniques using reported financial data are allowing examiners to determine the value of a bank's assets without having to review as many bank records, he writes in the Federal Deposit Insurance Corp.'s Banking Review.

"The approach is to find out what is available and then use it to reduce the cost of gathering information on the ground," Mr. Cowan says. "Usually there is more than enough information available."

For a copy of "Statistical Sampling as a Management Tool," call 800-276- 6003 or visit www.fdic.gov.

Prices for annuities will remain high unless a greater percentage of the population buys the tax-deferred products, James Poterba writes in a paper for the National Bureau of Economic Research.

"People who buy annuities tend to live longer than average, so insurance premiums must be high enough to compensate for the long life," he says.

In a follow-up study, Mr. Poterba, Olivia Mitchell, and Mark Warshawsky find that the average single-premium immediate annuity cost $79,600 in 1995. The present value of the annuities varied from 80 cents to 85 cents on the dollar. This is up about 13 percentage points since the early 1980s.

For a copy of NBER Working Paper 6001 or 6002, call 617-868-3900 or visit www.nber.org/wwp.html.

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