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CUs Match Bank Performance

And the NCUA wants to make sure they do better.

By Bill Poquette

As credit unions persist in elbowing their way into more markets served by community banks — business lending for example — and expand fields of membership far beyond congressional intent, all the while encouraged and abetted by their chief regulator, the question arises: How do their growth and performance compare with banks?

As it happens, the trends are quite similar, which suggests credit unions do not need any more loosening of membership and business lending limits in order to compete effectively with commercial banks — if they are going to keep their tax exemption, which seems inevitable. Consider the following year-end metrics for the two groups assembled by the FDIC and the National Credit Union Administration:

Number of federally insured banks: 5,913 in 2016; 6,182 in 2015.

Number of federally insured credit unions: 5,785 in 2016; 6,021 in 2015.

Year-over-year net income growth: banks, 9.6 percent; credit unions, 10.6 percent.

Year-over-year loan growth: banks, 9.5 percent; credit unions, 10.4 percent.

Year over year deposit growth: banks, 9.6 percent; credit unions (deposits/shares), 7.5 percent.

Bank equity/assets: 11.11 percent in 2016, down from 11.24.

Credit union net worth: 10.89 for 2016, down from 10.92.

Looks like a pretty level playing field, right? Except the two sides play by different rules.  Credit unions have the advantages of their tax exemption, no Community Reinvestment Act restraints and an aggressive regulator determined to provide better tools to compete with banks.

The Independent Community Bankers of America’s lawsuit challenging NCUA regulations on member business lending was dismissed by a federal court earlier this year. And members of the American Bankers Association visiting their Washington representatives in recent weeks to lobby for regulatory reform and credit union taxation were advised by Sen. Mike Rounds, R-S.D., to ”leave the credit unions out of it,” according to American Banker.

The NCUA is under new management — sort of — since Debbie Matz left a year ago after serving as chairman since 2009. Only two members of the three-person board can be of the same political party and the second Democrat, Rick Metsger, became acting chairman after Matz’s departure. That lasted until Jan. 22, When President Donald Trump appointed the Republican board member, J. Mark McWatters, as acting chairman. A vacancy remains on the board for Trump to fill for a six-year term.

Matz achieved a significant NCUA goal when the board approved an expanded field-of-membership rule for credit unions. But her successors haven’t stopped there. Metsger, in his departing remarks  as acting chairman, called on Congress to repeal the business lending cap. And further beneficial modifications to the field-of-membership rule are in the works.

All of this suggests credit unions will continue to perform about as well or better than banks. And business as usual will be the path of the NCUA.

That said, a case can be made to save the tax exemption for some credit unions. As Alex Sanchez, president and CEO of the Florida Bankers Association put it in a recent issue of Florida Banking magazine, “The smaller, community credit unions truly embody the intent and purpose of credit unions and should be allowed to keep their tax exemptions.”

The same argument isn’t credible for credit unions financing multi-million-dollar office buildings and stretching field-of-membership rules to make a mockery of the common bond concept.


Bill Poquette is editor-in-chief of BankNews.

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