Many banks have said credit unions have an unfair advantage because of their exemption from federal income tax, but a recent report by the St. Louis Federal Reserve found no evidence to support the claim.
“Although the exemption reduces credit unions’ cost of capital by approximately 40 percent relative to a fully taxed environment, several thousand small and medium-size banks are organized for tax purposes as Subchapter S corporations and are similarly exempt…” the report said. “Despite the often-heated rhetoric of competing advocates, both [banks and credit unions] have experienced similar trend growth since 1998.”
Since 1998, the number of banks has fallen by 30 percent while total assets have increased by 140 percent. The number of credit unions fell 36 percent while total assets increased 160 percent.
Though the data does not show substantial growth differences between credit unions and banks, David Carrier, the chief economist at the National Association of Federal Credit Unions, said the details suggest otherwise.
“The report shows clearly that the tax exemption and relaxed field of membership rules have not led to a significant increase in market share for credit unions,” Carrier said. “Assets at banks increased from $6 trillion to $13 trillion, and at credit unions from $400 billion to $1 trillion since 1998. Bank assets took a much bigger hit during the financial crisis than credit unions, so if banks wanted to claim they lost market share to credit unions, they would have to blame it on the financial crisis, not credit unions.”