As Congress dismantles banks' hard-fought legal victory over credit unions, industry trade groups are not voicing their displeasure with rhetorical slingshots.

Instead, they have deployed the financial services industry's equivalent of a thermonuclear bomb: drawing comparisons between today's credit unions and the savings and loans of the 1980s, a woeful group that cost taxpayers an estimated $150 billion.

Bankers were clearly unhappy when the Senate Banking Committee passed its version of credit union legislation April 30.

"This is the beginning of another S&L-type disaster," American Bankers Association president William T. McConnell said in a statement released that day. "Banks don't want to be asked to come to the rescue again."

Radio ads paid for by the Independent Bankers Association of America make similar statements. They depict working-class taxpayers complaining about the credit unions' tax exemption and the potential costs of an S&L- type collapse.

Senate Banking's version is tougher than the bill overwhelmingly approved by the House on April 1. The Senate version would impose capital limits, new curbs on commercial lending, and prompt corrective action on credit unions. But like the House, it would overturn the Feb. 25 Supreme Court decision requiring credit union members to share a single, common bond. Bankers started that court case in 1990.

Credit union advocates could have dismissed the banks' bellicose public relations campaign as posturing by a thoroughly whipped foe. Instead, they took it as a call to arms.

"I was surprised and disappointed to read those remarks," said Yolanda Wheat, a National Credit Union Administration board member, who called Mr. McConnell "uninformed."

Daniel A. Mica, president of the Credit Union National Association, demanded that the banking industry stop making "inflammatory" comparisons between credit unions and failed thrifts.

"I hope you will have the decency and good sense to act of your own accord and end this advertising campaign and these reckless remarks before there is serious damage done," he wrote in a three-page letter May 14 to the ABA and the IBAA.

But the war of words has not abated.

An ABA release titled "Deja Vu: Credit Union Legislation Opens Pandora's Box" claimed that there are several parallels between today's credit unions and S&Ls of the 1980s. Like thrifts, credit unions have a "cheerleader regulator" that favors expansion over safety and soundness, the ABA claimed. The NCUA charters and insures credits unions just as the Federal Home Loan Bank Board did for thrifts, the ABA said. Also like S&Ls, credit unions pay a flat-rate deposit insurance premium that "encourages increased risk-taking by weak institutions," the ABA charged.

Moreover, if Senate Banking's bill becomes law, the ABA predicted, credit unions will embark on an unprecedented commercial lending spree for which they are ill-equipped. "Failure to limit commercial activities of credit unions is a failure to adequately protect taxpayers from new, and potentially huge, obligations," the group said.

Lawrence Connell is one of the few observers of this battle who can reasonably call himself unprejudiced. A respected lawyer who has successfully turned around several banks, Mr. Connell was NCUA chairman and Connecticut's state banking commissioner. Like his resume, Mr. Connell's opinions on credit unions are diverse. While opposing limits on membership, for example, he supports repeal of credit unions' tax exemption.

Asked to evaluate the ABA's comparisons between S&Ls and credit unions, Mr. Connell called them "baloney."

The Comptroller of the Currency is as much a "cheerleader" as the NCUA is, Mr. Connell said. In addition, he said the legislation pending in the Senate would not encourage credit unions to significantly expand their business lending. "If I ever heard a twisted logic," he said, "it's that."

Under the bill pending in the Senate, credit unions could not lend more than 12.25% of assets. However, significant exemptions to the cap exist, including most loans of less than $50,000. Still, at yearend 1997, 99% of all credit union loans were to consumers.

Richard S. Carnell, the Treasury's assistant secretary for financial institutions and lead author of a congressionally mandated 1997 study on credit unions, said the S&L/credit union comparison had "some superficial plausibility, but there really are some significant differences."

Many thrifts were insolvent, he noted, while credit unions hold an average of 11% capital. He said credit unions are not engaging in moral hazard-type risk-taking like S&Ls did in the 1980s.

James Chessen, the ABA's chief economist, said lending statistics prove that credit unions and the NCUA lack "sufficient experience" to handle commercial loans. According to an ABA analysis of Federal Deposit Insurance Corp. data and credit union call reports, the delinquency rate of credit unions' business loans is more than twice that of their overall loan portfolio.

"If the economy turns down and if credit unions start to struggle, they are going to reach for high-risk ventures" like business lending, Mr. Chessen said. "It can come back to slap you in the face."

But a statistical analysis by Treasury staff shows another side to the story.

When credit unions are compared with small banks-those with assets below $100 million-their delinquency rates on commercial loans are identical, the data show. Chargeoffs on such loans are also about the same. "The data do not suggest that credit unions' business lending is inconsistent with safety and soundness," said Mr. Carnell.

Only time can tell whether credit unions will in fact go the way of S&Ls. The short-term effect of this rhetorical battle, however, will be measured in its impact on congressional debate over credit union legislation.

Most Senate sources smell interest-group politics in the S&L comparison. The capital requirements and prompt corrective action structure created by Senate Banking's bill are seen as an important step toward insuring credit union safety and soundness. Bank trade groups' enthusiasm for greater limits on commercial lending by credit unions is perceived as competitive in nature.

The Senate is expected to vote on the bill sometime this month, and it is possible the measure will be toughened.

A key player to watch in the coming weeks will be Sen. Chuck Hagel, R- Neb., who is expected to offer an amendment that would impose further business lending restrictions on credit unions.

"Credit unions are for consumers. That is the mission that Congress gave to credit unions in the 1930s, and that's what they're still about today," said Deb Fiddelke, a spokesman for the Nebraska Republican. "Sen. Hagel's amendment would protect depositors by keeping credit unions focused on that mission and away from riskier activities."

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