Iowa’s banks support communities
Iowa policymakers are continuing a healthy policy debate over the need for a tax subsidy for billion dollar credit unions operating in Iowa.
These credit unions are a far cry from the small, traditional institutions Congress had in mind when it created the credit union charter to serve people of “modest means”. They are sophisticated financial institutions, driven by profit performance. They serve large geographic territories.
Undeterred by this added scrutiny, credit unions are pushing for legislation in Iowa and across the nation that would further erode any discernable difference between them and taxpaying financial institutions. They want to increase lending opportunities to commercial companies and implement schemes to raise investor capital.
Wrapping all credit unions under the protective cloak of the small “mom and pop” is now not enough. In a recent editorial, the credit union lobby compared their tax status to that of the Girl Scouts. Yet, it’s hard to find the similarities between selling cookies to support positive programs for Iowa youth and closing million dollar commercial real estate deals to increase profits and pay management compensation.
There is nothing wrong with the latter, but most U.S. businesses recognize that the right to operate in a free economy brings responsibilities to pay taxes and obey regulations that carry societal benefits, like good schools and better communities.
So, why should central Iowa businesses care about this issue?
A 2003 consumer focus group in Des Moines uncovered concern about the threat of large, tax-advantaged credit union competition to the viability of community banks. A recent study entitled “Small Bank Competitors Loom Large” by the Dallas Federal Reserve provides ample evidence to support these concerns.
The study accurately defines small banks as institutions built on personal contact, community ties and close relationships between lenders and borrowers. These institutions traditionally have met the banking needs of individuals, farms and small businesses. Small banks currently account for 37 percent of total bank lending to small businesses.
Any threat to their viability would be to the detriment of their primary customers and the future development of their communities. The Federal Reserve study identifies a regulatory structure that actually works against small banks, due not only to their own industry burden, but also to the disparity with credit union’s exemption from income taxation and Community Reinvestment Act requirements.
It would be easy to pass this off as sour grapes from banks that resent this growing competitor. But we are seeing mounting evidence that the tax subsidy for billion dollar financial credit unions threatens the very community institutions that form the backbone of the Iowa economy.
At a time when our state faces funding challenges for economic growth and our educational system, why would we not create an equitable environment for Iowa institutions that actually contribute to solutions for both?
Sorensen is chief executive of the Iowa Bankers Association.