Magazine article American Banker

Treasury: Credit Unions No Threat to Banks,Thrifts

Magazine article American Banker

Treasury: Credit Unions No Threat to Banks,Thrifts

Article excerpt

Credit unions are not a competitive threat to banks and thrifts, according to two long-awaited reports by the Treasury Department. The twin reports -- one on business lending to credit union members, another comparing credit unions and other financial institutions -- were mandated by the Credit Union Membership Access Act of 1998 and completed in the 11th hour of the Clinton administration.

They found that the credit unions' share of the business lending market is less than 1% -- and concluded it was too small to threaten the viability and profitability of other depository institutions.

Of the 10,477 credit unions in operation last June, 92 were responsible for nearly half of all business loans to members, one of the reports found.

"Business lending is a niche market for credit unions," the report on business lending said.

But credit unions can pose problems for banks in the future as they continue to grow, said Keith J. Leggett, chief economist with the American Bankers Association. "While the study is saying right now it is not a threat to community banks, it does point out that in the future they might become a bigger threat," Mr. Leggett said.

Indeed credit unions will increase business lending to members, the report on lending said, because credit unions are growing and because many are converting to community charters, which allow businesses to be members. That, the report concluded, could affect the smaller banks and thrifts that compete directly with credit unions.

"Credit unions that engage in member business lending may be an important source of competition for small banks and thrifts operating in the same geographic region," the report said. …

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