Peter Rice

The criticism is predictable: Credit unions that acquire community banks are abusing tax policy, drifting from their mission and distorting competition.

But that framing dodges the real question: What better serves local communities – their own financial cooperative, or a financial institution ultimately accountable to hedge funds and outside shareholders?

The claim that credit unions grow using “untaxed income” overlooks the people at the center of the model. Credit unions are owned by more than 144 million members, who are taxpayers themselves. They pay federal income taxes, state income taxes, property taxes and sales taxes, just like bank customers do. The difference is that credit union earnings are not distributed to outside shareholders.

The federal nonprofit tax exemption reflects ownership structure, not privilege. Credit unions don’t issue stock, and they don’t distribute profits to outside investors. Surplus stays local – returning to members through lower loan rates, reduced fees, higher savings yields and retained capital that strengthens lending capacity.

That’s not tax avoidance. It’s cooperative capitalism.

At its core, credit unions represent a founding principle of the American system: voluntary association, private property and communities pooling their own capital to solve local problems. Neighbors financing neighbors. Workers financing small businesses. Families financing homes.

If institutional investors pooling billions is market efficiency, then working families pooling savings cannot be market abuse.

The Right to Grow

Cooperative capital should not be treated as second-class capital.

Credit unions are great gardens of community capital – locally cultivated savings reinvested locally. They should absolutely have the right to purchase assets, including other banks, when doing so preserves service and strengthens communities.

And remember: Credit unions can convert to banks if their members vote to do so. It is their capital. They own it. That path exists.

It does not work the other way around. A shareholder-owned bank cannot convert into a cooperative and transfer ownership to depositors.

Ownership in the investor model is not designed to democratize. That asymmetry tells you where power – and profit extraction – sit.

 What Is Actually Creating Banking Deserts

If critics are worried about community harm, look at consolidation.

Since the 1990s, the number of U.S. banks has been cut by more than half. Between 2017 and 2023 alone, over 10,000 bank branches closed nationwide. Rural areas and working-class cities were hit hardest.

That is how banking deserts form, and in Massachusetts, the problem is increasingly visible outside Greater Boston.

In Gateway Cities like Springfield, Holyoke, Pittsfield, New Bedford, Fall River, Brockton and across much of Western Massachusetts, branch density has thinned. Local lending relationships have weakened. In several of these communities, residents are dangerously close to losing reliable in-person banking access altogether.

Now add another reality: Many of these same areas face limited broadband infrastructure. Banking deserts and broadband deserts overlap. When branches close in places that also lack reliable high-speed internet, residents cannot simply “bank online” as policymakers assume. The digital substitute doesn’t exist.

When brick-and-mortar banks disappear and broadband remains uneven, small businesses lose lending relationships, seniors lose face-to-face support and households are pushed toward high-cost alternatives.

That trend is not driven by cooperatives. It is driven by shareholder-driven mergers designed to eliminate overlap and improve return on equity.

Regional acquisitions close branches. Centralization follows, and decisions move farther away.

A Massachusetts Risk

Massachusetts banking legislation is increasingly rigid and uncompetitive. While other states allow flexible asset transactions and adaptation pathways, our framework often slows or discourages strategic growth.

When local institutions cannot scale or strengthen their capital base, they don’t remain independent. They are absorbed.

Overregulation does not preserve local banking. It accelerates consolidation – and shifts control further out of state.

If we block cooperatives from growing, we risk accelerating the very banking deserts we claim to fear.

Credit unions hold roughly 8 percent to 9 percent of U.S. financial institution assets. They remain one-member-one-vote. They cannot be publicly traded. They cannot distribute profits to hedge funds.

When they grow, scale lowers costs, strengthens compliance capacity, expands small-business lending and builds resilience in underserved markets.

That is a mission scaled, not abandoned.

 The Question That Must Be Asked

So, let’s ask it plainly: Is a Gateway City in Western Massachusetts better served by a financial institution owned by its depositors, governed democratically and reinvesting surplus locally?

Or by one focused primarily on maximizing shareholder return?

Credit unions are not tax-exempt because they are small. They are tax-exempt because they are cooperative. Their members already pay taxes. Their capital is local. Their ownership is democratic.

Banking deserts are real. Broadband gaps are real. Community fragility is real.

Communities helping themselves is not distortion.  It is resilience.

The real anxiety is not about abuse.

It’s about what happens when cooperation works – and works well enough to compete.

Peter Rice is president and CEO of Hanscom Federal Credit Union.