Credit Union Officials Deny Bank Regulator’s Allegation of Problems
Credit union executives Wednesday denied a federal banking regulator’s contention that the nation’s credit unions have “a lot of the symptoms that the S&Ls; had” before the recent wave of S&L; failures.
L. William Seidman, a federal banking regulator, fired the latest salvo in the growing war between credit unions and bankers Tuesday when he told an American Bankers Assn. gathering that credit union executives aren’t being truthful by claiming that their insurance fund is stronger than the insurance fund that covers savings accounts held by bank and S&L; customers.
Seidman, chairman of the Federal Deposit Insurance Corp. and the Resolution Trust Corp., also suggested that the fast-growing credit union industry is investing in areas in which it lacks expertise.
Hal Stephens, president of San Diego-based Mission Federal Credit Union, which has 75,000 members, described Seidman’s remarks as proof that bankers, and banking regulators “want to destroy us. They see us growing . . . with a 6% share of total consumer savings, and they want that business.”
Bankers have watched with envy during the past decade as credit unions became one of the nation’s fastest-growing financial service sectors. Assets at the nation’s 15,086 credit unions stood at $203 billion on Dec. 31, 1989, up from $64.2 billion in 1979. Membership has soared to 60.4 million, up from 41.4 million in 1979.
Jerry Karbon, a spokesman for the Madison, Wis.-based Credit Union National Assn., on Wednesday agreed that credit unions have enjoyed dramatic growth. “That growth has been controlled growth and wise growth,” Karbon said. “There’s no reason to be worried about credit unions’ health and safety.”
“Far more banks and S&Ls; than credit unions have closed in recent years,” said Karbon, who predicted that the General Accounting Office and the U.S. Treasury will document the credit unions’ financial strength in current reviews.
Credit unions believe their growth is directly tied to the wave of expanded services that have been added to meet customer demand. Besides their traditional car loans, many credit unions now offer credit cards, checking and saving accounts, individual retirement accounts and home loans. Some offer loans to small business operations and others offer basic stock-brokerage services.
Credit unions also point to customer satisfaction surveys that show credit union members to be extremely satisfied with how they are served by credit unions.
But bankers view those expanded services as an encroachment on their traditional turf. They also maintain that credit unions enjoy an unfair competitive advantage through their long-standing exemption from paying federal income taxes.
Credit unions have escaped unscathed when past congresses were eliminating tax exemptions. But Stephens and other credit union spokesmen acknowledged Wednesday that bankers will be pressing hard during the coming year to eliminate the tax exemption for credit unions.
“Bankers have always been after our tax status, but we’re a financial cooperative, and our earnings go back to our members, Stephens said. “So what do they want to tax? To us, it seems that they’ve pretty well busted up the S&L; industry, and now they want to take us apart.”
Despite their remarkable growth during the past decade, credit unions still play a relatively small role in the financial services industry. “Citicorp is larger than all the credit unions combined,” Stephens said. “We’re really not that big, with just 6% of personal savings.”
But, wary of bankers’ intentions, credit unions are asking their 60.4 million members to let Congress know that “anything they do will be remembered during the next election,” Stephens said.
Karbon expects more pressure during the next year to “streamline and consolidate the existing regulatory system” by combining the credit union’s deposit insurance fund with the Federal Deposit Insurance Corp., which last year absorbed the financially troubled Federal Savings & Loan Insurance Corp.
Credit union industry executives will fight to retain their historical customer base, said Tena Lozano, a spokeswoman for the Pomona-based California Credit Union League.
Credit unions have faithfully served “customers that banks weren’t interested in” when federal legislators created the credit union industry during the 1930s. “Now, suddenly, they’re interested,” Lozano said.
But Stephens argues that increased market share isn’t the only reason that bankers are attacking credit unions.
“We’re the only financial organizations with the chance of giving them a run for (consumers’) money,” Stephens said. “But banks have had tremendous losses. They have terrible problems with LBOs (leveraged buyouts) and foreign loans. They’re trying to take the pressure off of themselves” by attacking credit unions.
CREDIT UNION GROWTH
1979 1984 1989 Number of unions 21,983 18,375 15,086 Members 41.4 million 49.3 million 60.4 million Assets $64.2 billion $113 billion $203 billion Loans $51.2 billion $75.4 billion $134.9 billion Savings deposits $55.9 billion $102.6 billion $184.8 billion
Source: The Credit Union National Assn .
