Study Urges Further Deregulation, Beginning With Capital Requirements

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A new study suggests credit unions have benefited far less from deregulation than banks and thrifts, and calls for an expansion of credit union powers.

Produced by the Filene Research Institute and authored by Professor William E. Jackson III of the University of North Carolina, the study claims credit union members would benefit by a rollback of regulations in several areas.

In an interview with The Credit Union Journal and later in remarks before CUNA's GAC here, Jackson advocated giving credit unions parity with banks in investment powers, capital requirements and capital aggregation, and the provision of incidental financial products and services

"The question is whether credit unions will be allowed to evolve as banks have evolved, with more deregulation," said Jackson, adding he sought to produce a study that "addressed this question in a rational, logical fashion, as seen by an outsider."

Jackson, who is an economist, said his conclusions are "based not so much on what is right or should be right or on emotion, but by looking at the conclusions."

The study, entitled, "The Future of Credit Unions: Public Policy Issues," uses a six-step approach to examine public policy issues related to credit union deregulation. Jackson described himself as an advocate of deregulation providing that safety and soundness is not threatened. "The same factors supporting deregulation of other depository institutions also support deregulation of credit unions," Jackson said.

"I began with an analysis of why Congress decided to deregulate all financial institutions," said Jackson, and concluded that it has been good for the economy. It has allowed all financial services providers to provide more products and services to consumers. I also examined whether credit unions had been as deregulated as banks and thrifts, and concluded they have not."

Although a qualitative conclusion, Jackson said in comparing banks and thrifts with credit unions he noted that basic operations and demographics are similar, but that there was a difference in one area: "People are passionate about their credit union."

Where To Begin

Jackson told The Credit Union Journal that of all his conclusions, the one area where change might be effected most quickly is capital. "Something could be done there soon," he said of efforts to allow credit unions to raise capital. "The other issues are more complex. With member business lending, for instance, there is so much potential, especially in microlending, the $10,000 and $20,000 loans. That's what most small businesses need."

Rolling back credit union regulations, however, invites debate on the credit union tax exemption. Jackson said he intentionally avoided the tax exemption in his study to avoid "creating a stir."

He said he has a personal interest in the topic, however, and will over the next year be looking into the credit union tax exemption vs. the tax status of sub-chapter S corporations, including banks that have changed their corporate form.

"You could get the impression I'm advocating the end of NCUA," Jackson noted, "But far from it. This could mean more power for NCUA, because someone would still have to decide which credit unions are to be granted these powers. Not all credit unions should go down this road."

That road is one down which he acknowledged NCUA Chairman Dennis Dollar is already leading credit unions.

"Public policy should not be a legislative mandate for creating artificial differences in operational choices available to various types of financial institutions," Jackson says in the study. "Rather, public policy should establish a broad framework within which operational differences are determined by the strategic choices of the institutions themselves, given their different structures and forms of organization, with a competitive marketplace governed by prudent regulatory oversight."

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