WASHINGTON–A new rule that allows private institutional investors to exploit credit union tax subsidies is yet another reason for Congress to investigate credit union policies, according to the Independent Bankers Association.
At issue, said ICBA CEO Rebeca Romero Rainey in a new op-ed posted on the organization’s website, is the decision by NCUA to relax subordinated debt requirements, which she described as another “example of the agency expanding credit union powers well beyond the limits justifying the industry’s tax exemption.”
Romero Rainey again called on Congress to hold hearings on credit union policies.
“A new National Credit Union Administration rule that allows the largest credit unions to partner with private institutional investors and use subordinated debt to exploit taxpayer subsidies to credit unions is off to a fast start,” wrote Romero Rainey.
Truliant CU is Cited
Specifically, Romero Rainey cited the completion of a $50 million private placement of secondary capital by Truliant Credit Union in North Carolina, which she said “represents the tax-exempt industry’s largest issuance and its first to receive an investment-grade rating, and it likely will contribute to acquisitions of taxpaying community banks. With this new policy allowing private institutional investors to reap greater gains off the credit union tax exemption, this risky rule change is yet another reason for Congress to investigate the NCUA’s expansionist policies and the industry’s increasingly misplaced tax subsidy.
“While this is advantageous news for the largest, most expansion-oriented credit unions, the NCUA’s rule is yet another example of the agency expanding credit union powers well beyond the limits justifying the industry’s tax exemption,” Romero Rainey continued. “The rule undermines credit unions’ mutual ownership structure, allows outside investors to exploit the credit union tax subsidy, and fuels runaway growth of an industry that has increasingly abandoned its founding mission to serve people of modest means.
‘Recipe for Disaster’
“Increased leverage and commercial lending inexperience amid a low-rate environment is a recipe for disaster for an industry that continues to relax its acceptable business models, all in the name of fueling growth,” she stated. “In fact, the NCUA’s earlier proposed rule describes credit unions previously using subordinated debt irresponsibly, including poor due diligence, inadequate cost-benefit analyses, premature and excessive concentrations, and lack of responsiveness to mounting losses.”
Demands for Congress
Romero Rainey called for Congress to:
- Hold hearings to review NCUA rulemakings, the credit union tax exemption, and how these policies fuel acquisitions of community banks.
- Request a Government Accountability Office study on the evolution of the credit union industry and NCUA supervision.
- Consider an “exit fee” on credit union-community bank acquisitions to capture the value of the tax revenue that is lost once the business activity of the acquired bank becomes tax-exempt.
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