Make no mistake about it: it’s about money. Specifically, more money in banker pockets.

Whether this is good or bad will be left to the reader. Most people will agree that profits are a perfectly fine motive. Banks are for-profit, capitalistic institutions. Their purpose is to make money. The stock market demands that they make money. Many an excellent business has accomplished a great deal of good in the world through the profit motive. Banks have every right to be for-profit organizations. Money makes the world go round. We all need money to one degree or another.

The point of this article is that when banks call out for fair competition, what they’re really saying is, “We want to make more money!”

And credit union’s affect their ability to make more money. How? Why?

It’s quite simple. Without a profit motive, credit unions can have lower prices for their services. In addition, without the income tax burden as an expense, credit unions can further reduce prices. It’s well-documented that credit unions offer better prices than banks, despite being smaller (having lower economies of scale).

Banks (which, after the inception of credit unions decided that there is money to be made in lending to consumers) must therefore compete with those prices. Their pricing must compete with not-for-profit pricing. This reduces their profits.

Without credit unions in the marketplace, banks could raise their prices without a single penny more of expense. All of this would go to their bottom lines. To their pocket books.

Bankers don’t admit this, directly. Only indirectly. They say that credit unions have an unfair competitive advantage because of the income tax exemption. They say they can’t compete in the same markets as credit unions. Remember: this is code for, “We could make more money if not for credit unions.”

Likewise, when banks say that credit unions don’t support school children because they don’t pay income taxes, this is the equivalent of bankers using school children as human shields. “We want to make more money. So, therefore credit unions should help school children.” They place the school children in front of themselves, to hide their true motives.

And who, in the end, pays for those banker profits? The parents of the school children. The average consumers. The small businesses.

The thing is, as an industry, banking already makes incredible profits. While the profit margins of banks can fluctuate widely given market conditions, a search for “profit margins by industry” reveals many sources that put banks at or near the top of all industries.[1]

How much do banks stand to benefit if credit unions paid income taxes?

The topic has a fair amount of nuance that complicates the math. Here, we simplify it to keep it short, and use NCUA[2] and FDIC[3] Call Report Data, along with Federal government tax expenditure data.[4]

Because of the credit union method of accumulating reserves, in the event credit unions were taxed, they would have no choice but to generate more income to fund those reserves. That means their income would need to increase basically the same amount as the taxes.

In 2023, credit unions had total income of just over $123 billion. For the same year, the Federal government placed the credit union income tax expenditure at $2.91 billion. If credit unions paid that income tax, they would need to generate an additional $2.91 billion in revenue. That’s a gross income increase of 2.37%.

Where does this 2.37% revenue increase come from? Members—the everyday Americans using the credit union for their personal and business finances.

Simplistically, credit unions would need to increase their prices by 2.37%. If this happened, banks could likewise increase their prices and likely continue to maintain their enormous market share.

In 2023, banks had total income of $1.252 trillion. If they can increase their prices (and therefore gross income) by 2.37%, that’s an increase of over $29 billion. Where does this $29 billion come from? The everyday Americans using the banks for their personal and business finances. The parents of schoolchildren the bankers were so concerned about.

In all, consumers and businesses end up paying about $32.5 billion more, for a tax gain of about $2.91 billion. That’s money right out of the pockets of American consumers and businesses, only a small portion of which is used to fund government. 91% of it ($29 billion) goes into the vaults of one of the most profitable industries in the country.

Imagine if credit unions weren’t in the marketplace to act as a throttle on bank profits.

Perhaps Congress was on to something when it decided that banks didn’t need to make quite so much money, that consumers should keep more of their money.

Remember, when banks say that credit unions should pay corporate income taxes, they’re really trying to make another $29 billion a year, adding to their already very comfortable margins.