Last November, Bill Isaac and I parried in American Banker over the need for credit unions in this country. Bill believes that credit unions can simply become mutual savings banks with no loss of access or service to those that want and need it.

I've made the point that, because of our not-for-profit structure, we are able to provide access to affordable financial services for millions of Americans that banks are unwilling to serve. In the case of AT&T Family Federal Credit Union, they are textile and furniture workers.

In the Asheboro, N.C., market where the American Bankers Association and some community banks sued the National Credit Union Administration for granting AT&T Family the right to serve furniture and shoe factory workers, there are 12 finance companies, a check-cashing store, and a pawn shop poised to capitalize on the community's misfortune if the Supreme Court rules in the banks' favor.

Seventy-two percent of AT&T Family's loans in Asheboro are to members who have used finance companies, and two of the five original banks that filed the suit have merged out of existence.

But assume for the moment that the ABA's argument sways the Supreme Court to deny credit unions the right to serve multiple employer groups. Assume also that many state laws are close enough to or defer to federal law so that conversion to state charters would be difficult. Consider also that in Louisiana, bankers have persuaded the Legislature to declare a two- year moratorium on conversion from federal to state charters.

Note also that the ABA is aggressively challenging conversions from federal, multi-occupational charters to community charters. It filed suit Oct. 6 against the conversion of Point Magu Federal Credit Union, based in Ventura County, Calif.

Realizing that the original group for many federal credit unions has either shrunk or disappeared entirely, many would pursue the only viable avenue left-becoming a mutual or federal savings bank.

(The author is cognizant that the proposed Financial Modernization legislation and the SAIF funding agreement might threaten the availability of the mutual charter, although there is support to preserve some form of true mutual charter.)

So Bill's wish comes true, and 6,000 federal credit unions convert to mutual thrifts and the bankers have achieved a great victory.

Right?

Maybe not. First, converting credit unions could overwhelm the 1,300 mutual savings institutions. The assumption that upon conversion, they would become model mutual thrift citizens and abandon their credit union philosophy is flawed.

They would have the numbers to influence and modify legislation and regulation. There are lots of ways they could work to transform their charters to look more like credit unions. For example, they could work to return to a one-vote-per-member system as opposed to one vote per $100 deposited, with no one having more than 1,000 votes. Perhaps they could persuade Congress or regulators to prohibit paying directors of mutuals. They also might work to limit existing or new powers that the present-day mutuals seek.

In short, they may have the ability to move the balance of power back to the true mutuals and away from the stock institutions that now control 90% of the industry's assets.

Second, the propaganda smoke will clear and it will become painfully clear that taxation is not the competitive difference between community banks and credit unions. The expectation of a 13% to 38% return that community banks have paid to stockholders in recent years will not apply to the "new mutuals."

They may choose to continue to return their profits to their members in the form of lower loan rates, higher savings rates, and low fees, as they have for over half a century. While taxation may eventually erode the social benefit of low-cost financial services to those most in need as former credit unions, in the short run, this new direct competition will hasten the demise of community banks.

For the small community bank, they will have replaced a mostly benign competitor with a more aggressive one with increased powers. For the thrift, they will have the added risk of losing control of directing the industry's future. And the real competition in the form of superregional banks, money-center banks, nonbanks, and mutual funds will continue to gain ground.

The bank trade associations' strategy of focusing on credit unions as a common enemy to bind the interests of their member institutions that are at odds with one another will quickly deflate.

Between the Supreme Court and Congress, it is likely that the interests of the consumer will be upheld and credit unions will be allowed to continue in their present form, with the ability to add multiple employer groups. But if not, community bankers and thrifts may find their "success" a bitter pill to swallow. u

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