The credit union competitive threat to a large bank like Bank of America or Citicorp seems almost irrelevant.
It is among the community banks, however, that the argument for the ending the tax exemption for credit unions gains currency. And in a financial landscape of deficits and state and federal government's revenue shortfalls, the prospect of additional tax revenues is appealing. These views were repeated at the House Ways and Means Committee hearings by several bankers, including Mark Macomber, CEO of the $180-million Litchfield Bancorp in Connecticut and vice-chair of American's Community Bankers.
Macomber said that the nation's mutual banks hold over $250 billion in assets and paid $800 million in taxes in 2004 and that credit unions have an "unfair competitive advantage compared to community banks like mine."
"We are facing a looming crisis unless tax policy favoring multibillion dollar credit unions is changed," said Macomber. "Today, the credit union industry is a $646-billion segment in the financial services industry and is growing rapidly. This growth, driven primarily by multibillion dollar credit unions, is increasingly displacing community banking."
"These credit unions offer every conceivable financial service, and serving more than most community banks," Macomber continued. "The range of services even includes airplane leasing, and, as the Chairman noted, pet insurance. Individual credit unions have been granted geographic markets as large as 11,000 square miles and so-called fields of membership of over 10-million people."
David Hayes, CEO of the $135-million Security Bank in Dyersburg, Tenn., and chairman of the Independent Community Bankers of America, offered this view.
"Research finds that the largest overlap in terms of competition in size is in the $10-million to $100-million asset size class, which includes about half of all banks and about 40% of all credit unions," said Hayes. "In this class, banks and credit unions primarily compete with each other and not with the largest banks or credit unions."
Hayes echoed Rep. Bill Thomas that most troublesome is the "failure of the credit union industry to provide any unique service to individuals of modest means despite their large tax subsidy."
A growing body of research shows how banks consistently exceed credit union performance in lending to women, minorities, and low and moderate-income borrowers in communities, according to Hayes. "Ironically, little of credit unions' tax subsidy is passed to their members. While more and more research shows credit unions are not providing any special services to the people of modest means, the credit union industry has embarked on expanding its business lending."
