Credit union industry representatives are hoping to use a recent Government Accountability Office
The May 30 report concluded that competition from tax-exempt credit unions has not prevented banks from increasing profits consistently, and that banks themselves have benefited from a host of tax perks.
One banking industry official dismissed the report as a "nonissue," arguing that aggregate comparisons of the industries are misleading, and that banks are receiving the same tax treatment as companies in other industries.
But Dan Mica, the president and chief executive officer of the Credit Union National Association, disagreed with that assessment. "This is quite an important study, and we are going to make sure that every congressman on Capitol Hill is aware of it," he said in an interview last week.
By making lawmakers aware of the study, Mr. Mica hopes to undercut the banking industry's objections to the Credit Union Regulatory Improvement Act, introduced March 15 by Reps. Paul Kanjorski, D-Pa., and Ed Royce, R-Calif. Among other provisions, the bill would raise the cap on business lending to members by nearly two-thirds, to 20% of assets, and establish a risk-weighted capital system more similar to that used for banks and thrifts.
The GAO report was not groundbreaking. It said, for example, that a large number of banks have achieved significant tax savings by becoming S corporations, and that banks have had higher profit growth than credit unions, largely as a result of fee income.
Credit union advocates have long maintained that bankers have no right to criticize credit unions' tax exemption when hundreds of banks have become S corporations to avoid taxation at the corporate level. The advocates also argue that banks' consistent profitability proves that credit unions are no threat to them.
But because the report was compiled by a nonpartisan federal agency at the request of Sen. Bernard Sanders, I-Vt., credit union industry representatives consider its findings a particularly credible endorsement of their position.
The average inflation-adjusted annual net income growth rate for banks over the past decade has been 7%, as opposed to 3% for credit unions. Last year the banking industry's return on assets was 1.27%, versus 0.81% for credit unions.
Such continued profitability in the face of competition from tax-exempt credit unions is "counter to everything … [banks] are trying to tell the Congress about their situation and how credit unions are creating a problem for them," Mr. Mica said.
The GAO also said that banks and thrifts took roughly $108 billion of tax deductions and $199 million of tax credits in 2004, the most recent year for which Internal Revenue Service data was available, and that as of December, 2,356 banks and thrifts — or 31% of the industry total — had converted to S corporations.
"It shows that those in glass houses shouldn't be out there throwing stones," said Fred Becker, the president of the National Association of Federal Credit Unions.
Keith Leggett, a senior economist at the American Bankers Association, called the report's findings a "nonissue" and said it is unfair to compare the banking industry to the credit union industry as a whole.
"When you use aggregates, you end up masking a lot of the issues," Mr. Leggett said. "One of the things that we've observed … in the recent years is that a lot more of the pressure is on community banks."
He cited the Federal Deposit Insurance Corp.'s latest Quarterly Banking Profile, released May 31, which found that 15% of banks with less than $100 million of assets were unprofitable in the first quarter.
Credit unions are saying, "'Look at us compared to Bank of America, Citigroup, and Wachovia,' " Mr. Leggett said. "The real issue, day in, day out, is the local community bank competing with the large, aggressive credit union in its market."
As for the tax breaks, "banks don't get any different, preferential treatment from any other corporation," he said.
