WASHINGTON (9/18/13)--Jason Gold, senior fellow for financial markets policy for the Progressive Policy Institute--a Washington, D.C.-based "think tank" established in 1989--took to the pages of U.S. News and World Report this week to urge loud and clear, "Don't makes credit unions die for banks' sins."
In an article with that title, Gold draws attention to bank attacks on the federal credit union tax status and calls bank arguments "hollow."
Under federal law, credit unions are exempt from income tax because of their cooperative structure, but still pay property and sales taxes, and regulatory fees.
Gold notes in his article that now, five years after a "collapsing housing bubble plunged America into its worst financial crisis since the Depression," credit unions are "drawing fire from the banking industry for their not-for-profit tax status."
He notes the banks claim the credit union exemption should be revoked because it gives credit unions an unfair competitive advantage over for-profit banks.
"Eliminating the tax exemption is a terrible idea that would deal a fatal blow to 6,815 credit unions that provide low-cost financial services to 93.8 million members nationwide. It would also eliminate one of the safest and soundest segments of the financial services industry that stewards more than $1 trillion," Gold writes.
Also to the banks' charges of unfair competition Gold says, "Last time I checked, there aren't any credit unions that maintain a profitable global derivatives business and an essential investment-banking unit that underwrites multi-billion dollar corporate mergers and acquisitions like some of his members."
Gold calls it "popular lore" that the misuse of exotic instruments like collateralized debt obligations and mortgage-backed securities were to blame for the financial crisis. The fuse, he says, was the "concentration and perversion of a single underlying asset: the single-family mortgage."
"So how did the mortgages that the credit unions originated perform?" he asks. "In 2009, credit unions saw their delinquency for mortgage loans peak at 1.61% compared to 8.86% at the banks. Since 2009, credit unions' share of first mortgages has actually increased as a percentage of total loans by 3.3%. Those are some pretty eye-popping statistics considering the severity of the crisis."
Gold concludes by saying the country's economy needs financial institutions of all types and sizes to provide an array of different services: "Big banks play a crucial and indispensible role in an increasingly complex global economy."
"Nonetheless, credit unions have an established model that tens of millions of Americans find reliable and infinitely more accessible than the supranational banking behemoths. And credit unions don't have a mandate to lend and invest far out on the risk curve. That's for the banks, and a certain amount of risk-taking is not only appropriate, but also necessary."