Over the years, I have listened to countless complaints from bankers about the unfair competition from credit unions.

Bankers argue that credit union supervision and regulation is less stringent than the system imposed on banks. Credit unions have a better deal than banks do on deposit insurance.

The "common bond" requirement, which was designed to restrict the eligible customer base at credit unions, has been rendered virtually meaningless. Many, if not most, credit unions receive significant subsidies, such as free or nominal rent, from the companies at which they operate.

To add insult to injury, say the bankers, credit unions get a free ride from the taxpayers. They do not pay income taxes, which creates a huge subsidy for their members, most of whom belong to the middle and upper classes.

Off the Radar Screen

While the bankers' arguments appear to have a great deal of validity, few policymakers have paid them much heed for a couple of reasons. First, at least until recently credit unions have not been a significant factor in the marketplace, with the exception of a couple of states.

Second, credit unions have been considered so powerful politically, due to their ability to rally their members, it has hardly seemed worthwhile to expend the political capital required to take them on.

The latest numbers on the credit unions suggest it might be time to reconsider. Credit unions can no longer be considered inconsequential in the marketplace.

During 1992 and 1993, for example, banks grew at a compound annual rate of less than 4%, while credit unions grew at nearly a 9% pace. Credit union assets now stand at roughly $300 billion.

Significant Help

Even more striking, during those same two years credit unions earned 1.4% on average assets (both before and after tax), while banks earned 1.5% before tax and only 1.06% after tax. Credit unions are able to use their income tax exemption to grow capital more rapidly than banks and/or to subsidize their customers.

We're not talking about small potatoes here. During 1993, alone, credit unions earned $3.8 billion, and taxpayers subsidized them and their customers to the tune of more than a billion dollars.

The tax-exempt status of credit unions stems from Their roots as mutual providers of financial services, not unlike savings and loans and mutual savings banks earlier in this century. But these other institutions lost their tax exemptions in 1951 when Congress decided their services were indistinguishable from those of their tax-paying competitors.

Negligible Differences

Today there are no meaningful distinctions between the services of credit unions and those of banks and thrifts. Credit union members can't identify a functional difference between "shares" in a credit union and "deposits" in a bank or between loans made by either institution. And the common-bond rule has become a not-so-funny joke.

Particularly in this period of severe budgetary problems, it's time to put an end to the free ride being given to credit unions and their customers.

Simple fairness requires it.

Mr. Isaac, a former chairman of the Federal Deposit Insurance Corp., is chairman and chief executive officer of Secura Group, a financial services consulting firm based in Washington.

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