Over the years, many of you have heard me talk about credit unions and their growing presence both in Oklahoma and across the nation.
And every time I see a commercial for Navy Federal Credit Union, I want to barf. What are we, 1,500 miles away from an ocean? Isn’t that where one would expect to find our “navy” and a group of sailors?
Credit unions have
grown exponentially, here and elsewhere. They buy naming
rights to NFL stadiums and college bowl games. They offer what should be an “exclusive” membership to anyone who can breathe.
And now they’re buying our banks, offering them cash because they don’t have any stock.
But wait – there’s more. Now their industry’s main cheerleader and primary regulator has proposed to create a rule that allows credit unions over $500 million in assets to accept outside capital from for-profit investors!
Are you kidding me? The larger credit unions get bigger through the utilization of outside investors!
Does anyone in Congress see the madness of implementing such a rule?
More alarmingly, the NCUA also has proposed a rule to allow any tax-exempt credit union to buy tax-paying banks, without even considering imposing any restrictions on this growing practice? And it is indeed growing – more than twice as many bank acquisitions occurred in 2019 as occurred the year before.
Conversely, the NCUA will generally not allow conversions to a bank charter nor are they very receptive to bank efforts to buy credit unions. As a result, the current regulatory initiatives coupled with the NCUA’s actions on the regulatory front will likely lead to the continued expansion of larger, more growth-oriented credit unions to compete with traditional community banks and still have the advantage of a significant federal tax subsidy, not to mention substandard regulatory oversight, and diminished community lending responsibilities like CRA.
This situation is outrageous, and somehow we need to up our collective game with Congress. The fear they have of credit union retaliation in the voting booth is a shibboleth; it has no basis in fact, yet the threat remains vivid in the minds of representatives and senators.
So, Beverage, what are we facing and what are you prepared to do about it? Well, here’s what we’re facing:
Obvious, even to a gutless congress, credit union overreach.
The bank-like nature of the largest credit unions, like Navy Federal with assets larger than total Oklahoma bank assets.
NCUA regulatory weakness – or non-existent.
Outdated policy choices that are no longer appropriate.
I don’t want to over-promise and under-deliver, but here’s what we’re working on through and with the Alliance and the ABA. Developing a legislative package that does several things:
1. Create rules and regulations that allow credit unions over $500 million in total assets (less than 12 percent of all credit unions) and the NCUA to expand their reach when they apply for authority to issue subordinated debt instruments, or buy a traditional community bank, conditioned on the requirement that the credit union must convert to a state or federal mutual savings bank within a limited period of time – say six months or one year.
2. Require Credit Union Members and the FDIC to approve either of such expansionist proposals. Without a charter change, subordinated debt and bank acquisitions by credit unions would be prohibited.
Moreover, to ensure expedited consideration of such actions and resulting conversions, the FDIC would be required to act on any application for deposit insurance within 30 days of receipt of a completed application.
3. Enable credit union “members” to retain their equity under a mutual bank structure. Newly converted institutions would be subject to stringent FDIC rules on insider self-dealing.
4. Require comparable regulatory treatment: As a newly-formed mutual bank, the institution would pay income taxes, be subject to CRA and be subject to regulation more appropriately tailored to a new and more complex business model.
5. Clarify that credit unions certified by Treasury as Community Development Financial Institutions would be exempt from these requirements. CDFIs could continue to issue subordinated debt or acquire banks without changing charters.
Am I blowing smoke or wishing for the impossible? I don’t think so. Even the staunchest credit union advocate must realize the absurdity of the current environment. The so-called “common bond” is a fiction. Their targeted customers are, for the most part, more affluent than your bank’s customers.
And finally, the actions of credit unions buying banks are offensive to most fair-minded people and drive home the point of government subsidized competition.
Stay tuned. I think our efforts have a chance to level the playing field once and for all.