ARLINGTON, Texas–Credit union acquisitions of banks have been subject of another review in a national publication that offers what some will find to be questionable analysis and conclusions, including suggesting CUs have fewer regulations than banks and have numerous other advantages, including a healthier deposit insurance fund.
The review of credit union acquisitions of banks appeared on Axios and was authored by its chief financial correspondent, Felix Salmon, who wrote the issue “matters” because “until recently, a nonprofit couldn't own a for-profit — it seems to defeat the whole point — but in recent years the walls between these two worlds have been breaking down.”
The “big picture” analysis, according to Salmon: “Credit unions have many advantages over banks. They pay less in taxes and don't need to deliver profits to shareholders.”
‘Less Regulatory Burden’
The piece also said credit unions have “less of a regulatory burden,” aren’t subject to CRA and, suggesting it’s an advantage, noted the National Credit Union Share Insurance Fund is in “healthier shape” than the FDIC's Deposit Insurance Fund.
After citing S&P Global data showing that through early June credit unions had acquired $7.2 billion of bank assets, the piece quoted Aaron Klein of the Brookings Institution, who has been critical of credit unions, as saying the uptick was driven by "Regulatory arbitrage (that) feels likely here given the historical leniency of credit union regulators.”
“In other words: It's just easier to be a credit union than a bank, so that's the natural choice for bank CEOs to make,” the Salmon writes, before adding, “It's worth noting that credit unions, unlike most other nonprofits, don't have to report their senior executives' compensation.”
The ‘Key Question’
The “key question,” according to Salmon, is “whether growing via acquisition means that a credit union has lost sight of its nonprofit mission — or whether such acquisitions are a sign it's pursuing that mission, of providing high-quality banking services to as many members as possible, as aggressively as it can.”
Saying credit unions “aren't allowed to buy banks outright,” and as a result “they have to pay a premium for the bank's assets,” Salmon suggested that means “sellers effectively pay tax twice when they're bought by a credit union — first when the bank books a gain on the sale of the assets, and then when the shareholders get cashed out.
The unfavorable tax treatment of these takeovers means that credit unions are at a disadvantage in any bidding war — yet they're still winning more than ever.”
The Bottom Line
The piece also is critical of “ridiculously large” FOM interpretations and of Michigan-based CUs buying banks in Florida.
“The bottom line: Community banks and credit unions are now similar enough that one can become the other relatively frequently,” the piece concludes.