THE BLOG
09/30/2013 08:51 am ET | Updated Nov 30, 2013

Five Years After the Financial Crisis: A View From Main Street

Five years ago, the financial world as we knew it unraveled. Lehman Bros. announced it would declare bankruptcy. Several other financial institutions, including Washington Mutual, Wachovia and AIG, in the same month were restructured, merged or collapsed. Due to dubious lending practices, our robust housing market became history. The crisis was so huge that we are still feeling its impact.

Today, the debate rages on as to whether enough was done to address the behemoth banks and the questionable practices that led to the financial collapse. After all, "too big to fail" banks are even bigger, and our nation's economy is still far from a robust recovery.

Yet, many overlook the one bright spot amid the financial rubble: credit unions.

Across the board, lawmakers and regulators readily acknowledged that credit unions did not cause the financial crisis. In fact, they lauded credit unions' prudent business model.

Though credit unions were not immune to the impact of the financial crisis, they proved their mettle during the tumultuous times and continued to provide exceptional service and serve Main Street - even as banks turned people away. This is amply illustrated in a study commissioned by the Small Business Administration's Office of Advocacy in 2011 that found that during the 2007-2010 financial crisis, as banks' small-business lending decreased, credit unions' business lending grew.

Importantly, credit unions continue to put their members' interests first and help keep Main Street in business. Small-business loans have grown to $43.5 billion, by 8.3 percent, in the 12-month period ending this June. By contrast, banks' small-business loans have decreased 0.4 percent to $652.7 billion for the same period. Furthermore, a report released by the Special Inspector General for the Troubled Asset Relief Program (TARP) found that more than one-third of the 332 banks that participated in the Treasury's small-business lending fund program used more than half of the $4 billion received from it to help fund their exits from TARP, not to provide much-needed small business loans.

Given this, it is no wonder that credit unions have preserved their first-rate reputation as the fiscal follies of London "whales" and other egregious practices continue to doom the banks. It is likewise not surprising that the banks would try to undermine credit unions by calling for the removal of the federal tax exemption, claiming unfair competitive advantage. Curiously, only two banks have converted to credit unions, while more 30 credit unions have converted to banks, over the past 15 years.

This is just another example of the banks putting their self-interest ahead of consumers and our nation. If the credit union tax exemption were to be eliminated, the repercussions on our economy and consumers would be catastrophic. A 2012 independent study released by the National Association of Federal Credit Unions shows all Americans would lose if the credit union federal corporate income tax exemption were eliminated: There would be 150,000 jobs lost each year, higher loan rates and lower deposit rates for all consumers (not just credit union members), and a net loss of $15 billion over the next decade in federal income tax revenue.

The bankers, in their arguments, do not mention that although credit unions did not cause the crisis, they are bearing the burden of the tidal wave of regulations imposed in response to it. That increased regulatory burden is taking a toll on the industry. There are nearly 700 fewer credit unions today than before the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Despite this, credit unions persevere and are demonstrating a measure of stability that is unequaled in many other sectors of our economy. Credit unions have not cost taxpayers a penny in losses and earnings are returned to our members in the form of competitive rates and low fees.

The federal charter for credit unions was established during the Great Depression in 1934, through the Federal Credit Union Act, to help renew confidence in our nation's financial system and to "make more available to people of small means credit for provident purposes through a national system of cooperative credit, thereby helping to stabilize the credit structure of the United States."

Credit unions continue to meet this charge. Today, nearly 96 million Americans have found their niche with credit unions. Credit unions continue to work for our economy and for Main Street. The credit union federal tax exemption is an investment in our nation's prosperity, and eliminating it would wreak havoc in the one sector of our economy that has actually been a steady and sound force through difficult times.