The feds rolled out TARP as a way to protect America’s financial institutions by supplying them with sufficient funding to defrost credit access and to shore up their bottom lines.  While banks have received access to these funds, credit unions and cooperatives have not.

There’s nothing in the letter of the law to prevent the feds from giving CUs some of the TARP money, but some feel as though the “banks only” bias displayed thus far through the distribution process is problematic.

As you might guess, for instance, it hasn’t sit well with those who operate credit unions.  A leading spokesman for the credit unions recently said:

“Although I can understand the initial actions that the Treasury Department has taken to help the large banks, insurance companies, and other major financial institutions that have faltered or failed, I am concerned about the second-place status into which credit unions and other smaller financial institutions have been placed.”

Larry Sharp, the CEO of Arrowhead Credit Union, argues that TARP was designed to help “hard-hit” areas but that the application of the policy has given banks an “unfair competitive advantage”.   Sharp’s CU is located in an area, the Inland Empire region of California, that has been suffering through the recession.  Yet Arrowhead, at least thus far, lacks  access to TARP money.

Sharp has become one of the most notable critics of TARP’s “bank-only” approach.  His Arrowhead CU is valuated as “well capitalized” and he maintains that they’ve had to make some very tough decisions to maintain that standing–decisions that banks who have access to TARP funds don’t have to make.

In a statement published on the Arrowhead Credit Union website, Sharp pointedly states:

“As a consequence of the economic challenges we face here in the Inland Empire and of the inequitable distribution of funds, Arrowhead Credit Union is proactively making across-the-board cost cutting measures to ensure we continue to maintain our ‘well capitalized’ rating. Some of these difficult but necessary decisions will directly affect our members.”

Those “difficult but necessary decisions” led to the closure of four Arrowhead locations.  They’re also looking at cutting twenty employees from their payroll in light of current and pending economic challenges.

Sharp claims that these moves are a direct byproduct of being placed in a position that they banks can avoid.  While banks are insulated by the receipt of TARP money, the CUs need to be proactive to prevent difficulties.  They don’t have a federal security blanket upon which they can rely.

The Arrowhead Credit Union CEO sees the situation in stark terms.  His argument for fairness is compelling:

“It’s upsetting that while we are wisely reducing our costs, banks, including healthy ones, are collecting billions in taxpayer dollars from TARP to beef-up their balance sheets instead of stimulating the economy.”

There are a number of good arguments against the very idea of a banking bailout.  You can craft a position that maintains we’d be better off if TARP didn’t exist in the first place and it might be pretty persuasive.

However, it does seem that if we plan on having TARP, financial institutions of all sizes should have access to the funding as a matter of competitive fairness.

Although we don’t always think about it, all of our hometown banks and credit unions are in competition with one another and the larger national/international institutions.  When billions are given to one part of that competitive group and not to others, it certainly does seem a bit unjust.

Until we either give up on the TARP program or start to administer it with a greater level of equity, institutions like the Arrowhead Credit Union will need to continue to work a little harder than some banks to stay sound.