Call it the Battle of the Trade Group Ph.Ds.

In separate briefs filed this month in U.S. District Court here, chief economists for the American Bankers Association and the Credit Union National Association debated the fairness of the competition that exists between federal credit unions and banks.

James Chessen, chief economist at the ABA, argued that credit unions' federal income tax exemption gives them a formidable-and unfair-advantage over taxpaying banks and thrifts. Credit unions have parlayed this advantage into such a huge growth spurt that in some localities they are dominant players, he said.

CUNA chief economist Bill Hampel agreed that credit unions enjoy a competitive advantage over banks.

But he denied that their edge stems entirely from the tax exemption. Credit unions' very nature, he argued, makes them more cost-efficient. The nonprofits don't pay dividends, award high salaries, or compensate directors.

Both trade groups are trying to sway Judge Colleen Kollar-Kotelly, who must decide whether to grant the ABA's request for an injunction that would stop the National Credit Union Administration from enforcing its new membership rule.

The rule, which took effect Jan. 1, would let most businesses with fewer than 3,000 employees join a credit union rather than start their own.

The ABA has sued the NCUA, saying the rule violates congressional intent. CUNA later joined NCUA as a co-defendant.

Unlike most court documents, the ones submitted by Mr. Chessen and Mr. Hampel were dominated by numbers, not legalese.

Take income taxes. Though there was no dispute over credit unions' exemption, the two disagreed about the result.

The ABA's Mr. Chessen argued that credit unions' tax exemption lets them offer "state-of-the-art" services at a lower cost than banks can.

"This ability to build up capital and infrastructure" threatens banks and thrifts, Mr. Chessen wrote.

Mr. Hampel argued that the exemption only partly explains credit unions' competitive advantage.

In the 1990s, for example, banks on average have paid more in dividends to stockholders than they have in taxes, he said.

If credit unions paid their directors just $5,000 each, he added, that would amount to about half their total tax subsidy.

The two economists also locked horns over size.

Mr. Chessen cited the "striking example" of Alaska USA, Anchorage, which has 3,000 member firms and $1.7 billion of assets, making it the second- largest financial institution statewide.

Mr. Hampel called that example atypical. The average multiple-group credit union has 57 member firms, with 69 members per firm.

Besides, he said, "the whole purpose is to serve groups that are way too small to serve their own credit union. ... Having a few hundred really small groups is totally consistent" with the new credit union law enacted last August.

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