Are More CUs Considering A Bank Charter?

By Ray Birch

WASHINGTON—BECU’s interest in establishing a cooperative bank charter in this state is another sign more credit unions may be considering changing to a bank charter, according to one attorney.

Feature Garabedian

As was first to report, the $18.6-billion BECU has asked the state regulator to allow for the creation of a new cooperative bank charter in Washington that would allow it to keep the BECU name should it convert to such a charter.

Richard Garabedian, an attorney with Hunton Andrews Kurth LLP here, who has represented a number of credit unions in their conversion to mutual savings bank charters, spoke with about forces that he believes could be driving winds of change within the credit community.

What CU Leaders Are Saying

According to Garabedian, he has spoken with a number of credit union leaders who have softened their stance against converting to a bank due to the hefty tax cuts banks received as part of the reduction in corporate tax rates in 2018.

“I have talked with several CEOs and there seems to be less objection to converting now—with the bank tax rate at 21% and not 37%,” he said. “I would say in the past, when I have worked on charter conversions for credit unions to a mutual savings bank, the tax issue has never been an insurmountable hurdle.”

The reason credit unions have converted charters in the past, or sought to do so, suggested Garabedian, was a desire to grow. He pointed to the ongoing field of membership lawsuit between NCUA and the American Bankers Association.

“If that decision finally goes the wrong way for credit unions, and credit unions won’t have the ability to expand beyond their current geographic borders—combined with the current lower bank tax rate—the minds of many more credit union leaders may change toward converting to a thrift charter,” said Garabedian, who noted conversions from federal to state charters would also speed up in states that offer more favorable expansion opportunities. “And I do think credit unions that have not viewed converting to a bank charter as objectionable, are intrigued by the new lower bank tax rate.”

What the ‘Thinking’ is About

Garabedian, who reviewed the letters between BECU and the Washington State Department of Financial institutions, which received via a Freedom of Information Act request and shared with the attorney, contends the letters indicate BECU is “at least thinking about” converting to a cooperative savings bank charter, which would be a new charter in the state of Washington.

BECU has stated to that it has no intentions of converting to a bank.


Richard Garabedian

“I think in the last few years BECU has had interest in supplemental capital, and then NCUA put that on the back burner,” said Garabedian. “In looking at these letters I think BECU is carefully thinking about it and may be setting things up in a way in which they would be comfortable with converting someday. I also think they may be posturing, knowing their interests would slip out and become public in the state of Washington. Maybe they are testing the waters to see if members would be OK with it.”

As has reported, BECU stresses in its correspondence with the state regulator that it wants to see the one member, one vote structure maintained in a cooperative bank charter. In earlier cases in which credit unions have converted to mutual bank charters, the ownership structure changes to one dollar, one vote. But BECU called the one member, one vote structure a “bedrock principle.”

A Challenge to Conversion

But Garabedian contends that request might someday make it very difficult for BECU to convert to a bank.

“To form a mutual holding company, you need a majority of the eligible votes to be cast,” explained Garabedian. “BECU has more than one million members—you have to get half of them to vote in favor. That’s a gargantuan task.”

Garabedian noted current federal conversion standards for forming a mutual holding company would make a switch for BECU much easier. He explained those standards are one vote for every dollar on deposit, up to a maximum of 1,000 votes for one individual.

“That way you could go to your bigger depositors and encourage them to vote in favor of the transaction,” he said. “While still a big task, a task that is much easier.”

Section: Standard
Word Count: 950
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Copyright Year: 2019
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