Why Banks Won’t Convert to Credit Unions – It’s All About Money and Control



In what has become as predictable as the swallows returning to Capistrano, the banks are in the legislatures complaining about how unfair it is that credit unions are tax exempt and this causes there to not be a level playing field (although it is a fact that the overwhelming number of real playing fields are not level). Please note that the banks that are “too big to fail” (but almost did) really don’t consider credit unions to be competition.

Here in Oregon they have introduced three bills in the House to try and “make it more equitable” for the banks. They continue to overlook an easy solution to their dilemma – convert to a credit union and they would have all of the same “advantages.” This will not happen for the following reasons.

Stock Options – Executive Management and the Directors (and in some cases lower level staff) would lose the access to all those stock options. Granted those options haven’t been as appealing the past few years, but most banks are making strong comebacks with their stock values increasing or at least stabilizing. Then there are the dividend payments that only go to the stockholders and not the customers.

Director/Committee Pay – Directors and Committee members would lose the payments they receive to be Chairpersons of Committees, Board Officers/Members and to attend meetings. Over the course of a year is this not an amount that most normal people would pass up.

Control – The institution is managed for the benefit of the shareholders and not necessarily the customers. A small group of shareholders can control director elections and the direction of the bank. A credit union must be managed for the benefit of all of its users (members) – each member has only one vote.

Regulatory Constraints – As much as banks complain, they would not like operating under the regulatory constraints of credit unions (business lending for starters). They most often harp that they have to operate under the constraints of CRA (which is in fact easily complied with under the current rules) which was forced on them due to redlining of certain sections of communities. Not all credit unions are community credit unions and those that are community have demonstrated that they are serving the needs of their members without needing CRA.

What other reasons can you think of?

About caseywheeler

My interests include: Model trains, Reading, Genealogy, New York Yankees and helping organizations be successful.
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2 Responses to Why Banks Won’t Convert to Credit Unions – It’s All About Money and Control

  1. edward lis says:

    Credit unions have been making member-business loans (MBLs) since their inception in the early 1900s. In the first 90 years of our existence, there was no MBL cap on the industry. The current cap is an arbitrary limit imposed by Congress in the Credit Union Membership Access Act of 1998 (CUMAA).

    In the next year, credit unions business lending could increase over $13 billion, helping small businesses create over 140,000 new jobs if Congress increases the statutory cap on credit union business lending. This can be done without costing the taxpayers any money and without increasing the size of government. The industry does not need taxpayer assistance to do more business lending; credit unions only need authority from Congress.


    S. 509/HR. 1418 represents a carefully crafted compromise among Treasury, Congress and NCUA that is tailored to address concerns that a cap lift might create safety and soundness issues. Any credit union seeking a higher MBL cap would have to be well-capitalized, have at least five years’ experience in MBLs, be at or above 80 percent of their current cap and could not grow their business lending by more than 30 percent a year.


    Raising the cap would not harm community banks as the credit union industry holds just 5.3% of all small business loans at depository institutions. It took the credit union industry 100 years to reach this market share. Even if the industry was able doubled its market share the banking industry would hold an overwhelming 89% share.


    The banking industries’ position that tax-subsidized credit unions should not be granted an expansion of powers – especially now –as tax subsidies contribute to the national debt during a time of extreme budgetary pressure is inaccurate. In reality, having the credit union industry pay federal income taxes will have no discernable effect on the federal budget deficit. The Joint Committee on Taxation’s current estimate of the value of the credit union tax exemption is $650 million for 2010 – equal to 0.055% of the $1.2 trillion 2010 federal budget deficit. However, credit union business lending does in fact produce greater capital expenditures, greater economic activity and ultimately more job creation. The multiplier effect means that these new jobs lead to new spending which then sets in motion support to a self-sustaining economic recovery.


    Congress should enact legislation (S. 509/H.R. 1418) to provide a taxpayer-free infusion of $13 billion in capital to small businesses to create 140,000 jobs nationally, by increasing the credit union lending cap to 27.5%. This approach has been endorsed by the Obama administration and endorsed by Treasury Secretary Geithner

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