Credit Unions Guard Their Separate Status

THE credit union industry is having nightmares: The fright-night scenario is that Congress, concerned about the collapse of the savings and loan industry and the long-range safety of the commercial banking industry, will eventually tuck all United States financial institutions - including credit unions - into a common federal deposit-insurance and regulatory system.

The worry is that credit unions could disappear as an independent, singular industry. "What we're saying to Washington," says William Hampel Jr., chief economist for the Credit Union National Association Inc., is "please leave us alone." CUNA, based in Madison, Wis., is the trade association for more than 90 percent of the nation's credit unions.

Many commercial bankers, charging that unfair tax advantages help credit unions successfully woo more household deposits, have long sought to nudge credit unions into the banking regulatory and insurance orbit. Proposals somewhat along that line have been broached by a number of influential lawmakers, including Henry Gonzalez (D) of Texas, chairman of the House Banking Committee. The US Treasury, for its part, has no current plan to end the independence of the credit unions.

Still, CUNA is worried - enough so to carry its case for continued independence out to newspaper offices. Nor should its concerns be taken lightly. The recent collapse of a private company that insured Rhode Island credit unions - prompting the governor there to close several credit unions in January - made national headlines, and triggered some inquiries into the well-being of the credit union industry. And there is a precedent for the "disappearance" of a financial industry - the savings and loans. Gi v

en changes in the nature of services offered by financial institutions in recent years, following deregulation and the congressional restructuring of insurance programs for S&Ls, the "savings and loan industry is no longer really a separate industry," says George Salem, a banking analyst with Prudential Securities Inc. Still, Mr. Salem sees no evidence that credit unions are about to disappear as a distinct financial industry.

There are more than 14,000 credit unions in the US, with 63 million members and total assets of about $225 billion. Credit unions are cooperatives, owned by their shareholders (depositors); that contrasts with the stock-ownership of commercial banks and many savings and loan associations.

A few credit unions insure their deposits through cooperative private insurers and are subject to state regulation; that was the case in Rhode Island. But over 90 percent of all credit unions belong to the National Credit Union Share Insurance Fund, administered by the National Credit Union Administration, a federal agency. The NCUSIF has long been considered one of the strongest federal insurance funds.

Deposits at federally chartered credit unions are insured up to $100,000. Mr. Hampel says the capital level for the credit union insurance fund is now $1.25 per $100 of insured savings, compared with 60 to 70 cents per $100 for federally chartered banks.

Credit unions, Hampel says, should be allowed to maintain their independence because they fulfill a "unique mission." Board members are "all nonpaid volunteers, with each member having just one vote." Even the chief executive officer of a credit union (who is allowed to be salaried) gets no more of a vote than other board members. The result, says Hampel, is that credit union boards tend to avoid the nasty problems of personal influence that injured so many S&Ls in recent years.

What most distinguishes credit unions, argues Hampel, involves services. Because credit unions don't have to be overly performance-driven - to satisfy stockholder demands - they can charge relatively lower rates on services, such as credit cards and loans, while paying out slightly more in interest. But that differential in favor of credit unions could be eroded if credit unions were forced into a regulatory climate that made them behave more like commercial banks, says Hampel.