When things were good, Simone Lagomarsino believed credit unions and community banks were a lot alike. But when things went bad, the differences were blinding.

On Monday, Lagomarsino returned to community banking, five years after being recruited in to lead Kinecta Federal Credit Union in Manhattan Beach, Calif. Kinecta is headquartered on Rosecrans Avenue, across the street from the former headquarters of Hawthorne Financial Corp., which Lagomarsino sold in 2004.

"I love community banking and I really think it is a place where you can make a difference," she said in an interview Friday. "And I think credit unions are similar, but when the financial crisis hit I learned that the lack of access to capital is a significant disadvantage."

As a mutual organization, credit unions are barred from raising capital; retained earnings are the sole source of equity. Several credit unions in once-booming regions were burned as badly as banks, as they have blown through equity to absorb losses on residential real estate.

While the banking industry was propped up by the Treasury Department's Troubled Asset Relief Program, credit unions were not allowed to participate. Furthering Lagomarsino's disillusion with credit unions was a chasm that developed in 2008 and early 2009 between organizations that wanted a Tarp-like program and those that objected over fears that it could jeopardize their tax-exempt status.

"There was a group of us that went to see our representatives in Congress to try and see if we could get something like Tarp. We were unsuccessful in doing that," she said. "At the same time, there were some CEOs that were not in the hardest hit areas that were adamant that we shouldn't have a program like that."

She said such stubbornness by some credit union executives could ultimately hurt that sector of the financial services world. "I think there are some that stand for a lot of really good things, but I see it becoming a shrinking industry," Lagomarsino said.

Data from the Credit Union National Association show that credit unions held 8.6% of all U.S. deposits at June 30, 2008. By the same period in 2010, that percentage had edged up to 9.2% but has since fallen to 9%.

William Cheney, CUNA's CEO, said the industry is "trying to modernize." CUNA is working to introduce legislation to expand capital options for credit unions and it is continuing its longtime fight to increase the amount of commercial loans credit unions can make. Such loans are currently capped at 12.25% of a credit union's total loans.

At the $3.5 billion-asset Kinecta, Lagomarsino said she kept the credit union afloat by laying off roughly 100 employees and reducing assets. She left the credit union at the end of 2009. It returned to profitability the following year. Kinecta announced earlier this year that it was merging with the $1.2 billion-asset NuVision Federal Credit Union.

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