The Masks Big Banks Hide Behind: Debating Credit Union Versus Big Banks

In two years one of my favorite TV specials will come back to TV screens across the nation as people tune into televised political debates. The mindless rhetoric, the endless spin, the back and forth as statistics are used like right crosses and left hooks throwing the unprepared participant back onto the ropes. During this time the participants paint themselves one way then turn around and put on another mask and paint themselves another way. 

It would be interesting if we could finally talk through the issues that both credit unions and Big Banks face and take off the masks that Big Banks where as they testify in front of Congress or take to the airwaves downplaying another corporate scandal. 

Picture in the left hand side of the stage the Big Banker who represents the Giants of finance, the largest bank (Citigroup) has more assets, 2.2 trillion, than all US credit unions combined, with a blue suit, coordinated tie, flag lapel pin, and perfect hair standing at his podium. His is the perfect face is but a mask to represent the perfectly masked industry. In the other side of the stage looking much smaller is the credit union member looking like… well most of us.

Big Banker : “The nation’s credit unions get to have their tax-exempt status even as Federal regulators gave billions to the credit union industry due to risky bets on subprime mortgages. “ Then turning to his mask so that the profile side is to the TV camera he continues, “Regulators will supervise $50 billion in troubled assets and issue approximately $35 billion in taxpayer-issued bonds!”

Then pausing for dramatic silence he then adds, “To put it bluntly the credit union industry that has never paid a one red cent in federal taxes is swimming in a butter keg of a taxpayer-funded rescue because of their shoddy lending practices. Now is the time to raise taxes by taxing every one of them.”

Credit Union Member: “By bailout you must be referring to the five corporate credit unions. I want to make sure we are not talking about the 196 banks and all five Wall Street investment houses that have failed during the same time. I know it is hard to remember with all the banks that lined up for government money with open hands. 

We also should set the perspective on market share with total credit union market share in 2007 being around 6%, while total bank market share was around 81%.

On the issue of criticism it is fair that the credit union industry take a hard look at itself. We certainly need to do a better job of understand risk with member business lending with participation loans in sand states. In hindsight we could have been more conservative in some of our investment choices. Like the rest of the nation we believed Wall Street when they were peddling poison to their investors. Yet, during this recession we have continued to lend to small businesses and our local members while you have sat idle and starved the communities in which you operate of the credit they need."

Big Banker: “So you admit it? You did mess up. You are to blame… at last a credit union advocate who sees clearly!

Credit Union Member: "Well, actually I do appreciate your comment because I do think I have a pretty clear picture of the landscape. You mentioned that a taxpayer bailout that should cause everyone to reconsider the tax status of my credit union. This is where we might have to agree to disagree as the last time I looked at the paper it was filled with headlines about the various 190 banks that have failed…of course this doesn’t count the TARP money …170 billion give or take.

My understanding is that credit unions are taking care of their own as each natural person credit union is funding the corporate through share assessments. Credit unions are paying for credit unions. The billion dollar credit union, with hundreds of employees, and small credit unions, with only 3 employees, are all pitching in. As economic cooperatives each is helping to fund and replenish the corporate credit unions.

I am sure you would do the same thing right? I mean you are probably willing to write a check to the Megabanks to help them out. Right?"

Big Banker: “Don’t be idiotic of course we are not wasting stockholder capital giving it to another company. That would be ludicrous!”

Credit Union Member: “No, it would be cooperative. You probably are not aware of the model.”

Big Banker: “We give by paying taxes which is more than you can say.”

Credit Union Member: “Glad you brought that back up. I appreciate that about you. You are very good at bringing this issue up…almost like clockwork. So let’s talk about taxes. The purpose of taxes is to provide value to the citizens of the communities in which we live, work, and worship.

As we all know tax dollars help fund public services and to generate a safety net over which the financial marketplace performs its magical mystery act in which one dollar comes in and hundreds of dollars come out, all the while balancing consumer needs and of course stockholder returns. So let’s talk about value to the citizens of the communities in which we live, work, and worship.

As community based cooperatives credit unions provide value to the communities they serve through the provision of low cost loans, higher dividends on savings, and a cooperative economic profit sharing model that works without the government as middleman. This is a model that both political parties should love- people helping to bootstrap other people.”

As you are probably aware all members of credit unions benefit when a credit union prospers. Now on the issue of taxes some things to consider:

• Our members are taxed on the employment income they deposit into their credit union. 
• Our members are taxed on the dividends they earn on those deposits 
• Our members pay sales taxes on the items they buy with money from their credit union share draft account. 
• Our members pay property taxes on the vehicles and homes that they purchase with proceeds from loans granted by their credit unions. 
• The funds that are pooled by the member-owners of credit unions are taxed. 

The communities in which credit unions operate are beneficiaries of the increased spending power and financial well-being of credit union members."

Big Banker: “Those are your customers not you."

Credit Union Member: “That is not correct…see we don’t have customers we only have members. The members are the credit union. However, I do have some good news for both you and your fellow bankers.”

Big Banker: “This nation does not need good news it needs for credit unions to stop using an unfair advantage by going after our customers and driving down our loan rates. It needs for you to stop paying higher rates on deposits. It needs you to give back by paying your share!”

Credit Union Member: As I was saying the good news is that you are always welcome to join a credit union and feel what we are talking about.

Now on the issue of our tax-exempt status if you feel that is such a game changer for community banks you are welcome to convert to a credit union. That would require a few changes which I am sure you would not mind. First you would need to limit your commercial lending and do more lending in under served communities. Be aware this could impact the number of “business lunches” on the golf course. Then there is the stock. You would not have private stock option deals in which you under price your stock so that it is lower for you than what your stockholders can get it. Oh, those cushy board jobs with all the perks and nice salary would probably disappear as well. Lastly, you would need to retain more capital. Four to five percent for bank may fly but as a credit union you need to think about doubling that. Safety and soundness you know. Like you mentioned earlier we don’t want any taxpayer bailouts.

Big Banker: “Silence..." Fade to black as the Big Bank mask continues to smile at the camera.