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FDIC Chairman Recommends Taxation For Bank-Like Credit Unions

San Diego, Calif. (March 16, 2004) - FDIC Chairman Donald E. Powell repeated his recommendation that bank-like "credit unions ought to pay taxes," noting the growth of many large credit unions in recent years that compete directly and aggressively against banks.

"We've gone from 20 credit unions with assets of more than $1 billion 10 years ago to 83 such institutions today," said Powell, estimating that the current credit union subsidy amounts to 33 to 36 basis points advantage in pricing loans and financial products. "More and more we're seeing credit union advertising touting the benefits of membership over doing business with a bank. In my view, if they are going to compete with banks then we should do our best to ensure that the competition is fair."

While noting the fiscal strength of the banking industry in recent years has largely relied on brisk home loan demand and low interest rates, Powell pointed to rising household mortgage debt and record bankruptcies as concerns. He said mortgage indebtedness has risen 27 percent as homeowners have liquidated about $390 billion last year. He noted record bankruptcies last year of 1.6 million, and the Federal Reserve's measure of individual financial obligations stands at a near record level.

"The real question in all this — and the thing you should think about on the plane ride home — is what happens when interest rates rise significantly from these historic lows?" Powell said. "What will be the impact on borrowers' ability to service debts or continue their historic consumption levels?"