ICBA: Policymakers Should Bar Credit Unions from Using Wall Street Funds to Acquire Community Banks

Washington, D.C. (Sept. 10, 2024)—The Independent Community Bankers of America (ICBA) today called on the National Credit Union Administration to bar tax-exempt credit unions from using funds raised from Wall Street investors to finance acquisitions of tax-paying community banks.

“The credit union tax exemption should not be for sale to the highest bidder on Wall Street,” ICBA President and CEO Rebeca Romero Rainey said today. “The trend of growth-focused credit unions exploiting their federal tax exemption to raise funds from for-profit investors further entrenches the industry’s tax and regulatory exemptions while increasing credit unions’ debt burden, to the detriment of their member-owners. With modern credit unions abandoning their founding purpose to serve people of modest means — leaving the limits established by Congress to justify their federal tax exemption in the dust — policymakers must step in to address these perversions of increasingly antiquated federal policy.”

In today’s letter to the NCUA, ICBA said the agency should curb the abuse of its subordinated debt rule, which allows credit unions to use their tax exemption to raise money from private equity firms to acquire community banks. This means credit unions are selling ownership interests in their credit unions to nonmember investors, not their traditional member-owners.

The rule has led to an explosion of subordinated debt issuance by credit unions, rising from $540 million in the second quarter of 2021 to $3.65 billion in the second quarter of 2023. This expansion of investment by for-profit firms has contributed to acquisitions of tax-paying Main Street community banks as a cottage industry of boutique investment banks and consultants has taken root.

To address the negative impact of its subordinated debt rule on Main Street community banks, ICBA called on the NCUA to prohibit:

• Any credit union that issues subordinated debt from participating in a merger or acquisition for the next five years.

• Any credit union from issuing subordinated debt for five years after completing the acquisition of a community bank.

ICBA’s letter to the NCUA is available on the ICBA website.

About ICBA
The Independent Community Bankers of America® has one mission: to create and promote an environment where community banks flourish. We power the potential of the nation’s community banks through effective advocacy, education, and innovation.

As local and trusted sources of credit, America’s community banks leverage their relationship-based business model and innovative offerings to channel deposits into the neighborhoods they serve, creating jobs, fostering economic prosperity, and fueling their customers’ financial goals and dreams. For more information, visit ICBA’s website at icba.org.