Magazine article American Banker

Industry Vet Calls CUs A Shrinking Industry

Magazine article American Banker

Industry Vet Calls CUs A Shrinking Industry

Article excerpt

Byline: Robert Barba

When things were good, Simone Lagomarsino believed credit unions and community banks were a lot alike. But when things went bad, the differences were blinding.

On Monday, Lagomarsino returned to community banking, five years after being recruited to lead Kinecta Federal Credit Union in Manhattan Beach, Calif. Kinecta is headquartered on Rosecrans Avenue, across the street from the former headquarters of Hawthorne Financial Corp., which Lagomarsino sold in 2004.

"I love community banking and I really think it is a place where you can make a difference," she said in an interview Friday. "And I think credit unions are similar, but when the financial crisis hit I learned that the lack of access to capital is a significant disadvantage."

As a mutual organization, credit unions are barred from raising capital; retained earnings are the sole source of equity. Several credit unions in once-booming regions were burned as badly as banks, as they have blown through equity to absorb losses on residential real estate.

While the banking industry was propped up by the Treasury Department's Troubled Asset Relief Program, credit unions were not allowed to participate. Furthering Lagomarsino's disillusion with credit unions was a chasm that developed in 2008 and early 2009 between organizations that wanted a Tarp-like program and those that objected over fears that it could jeopardize their tax-exempt status.

"There was a group of us that went to see our representatives in Congress to try and see if we could get something like Tarp. …

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