Colorado legislators are working to allow credit unions to purchase state banks after the Centennial State's regulator barred these deals.

On Feb. 28, the Colorado House Business Affairs and Labor committee introduced a bill that seeks to allow credit unions to purchase the assets or substantially all the assets of a Colorado state-chartered bank. The bipartisan bill is co-sponsored by Democratic Reps. Judy Amabile and William Lindstedt, Republican Sen. Paul Lundeen and Democratic Sen. Kevin Priola.

The full House will now consider the bill, as the House Business Affairs and Labor Committee held a hearing yesterday and approved it by a 7 to 4 vote. Michael Bell, leader of Honigman LLP's financial institutions practice who advises on many credit union-bank deals, testified at the committee hearing.

"Hopefully, we're on the precipice of bringing Colorado into the vast, vast majority of states that allow state-chartered banks to sell to credit unions," Bell said in an interview. "This takes them out of the minority, then puts them into the majority and simply just gives Colorado banks one more possible option if they want to sell."

The bill would move to the Colorado Senate if it passes the House.

If the bill is passed and made law, it would stifle the state regulator's prior effort to stop these transactions. In 2020, the Colorado State Banking Board denied Cache Bank & Trust permission to sell its assets to Elevations CU. No other such deals have been struck in the state since, as the Colorado state regulatory agency board said they denied the deal because banks selling their assets to credit unions is "prohibited" in the state.

The bill was introduced after recommendations from the state's sunset review process, which is done by the Colorado Office of Policy, Research and Regulatory Reform and analyzes the state's regulatory processes and makes recommendations for improvement. The 2023 report recommended allowing credit unions to purchase state banks.

The report argued that the move would increase the number of prospective buyers for banks in the state, which would benefit shareholders so banks can consider all bids. The report also pointed to the growing popularity of these deals in other states.

So far this year, seven such deals have been announced, making up 26% of US bank M&A through March 27.

The report also acknowledged the banking industry's argument that these deals hurt the state economy as tax-paying banks are scooped up by tax-exempt credit unions.

"While credit unions are exempt from paying federal and state income tax based on their non-profit status, they do pay other taxes, including sales tax (state credit unions) and taxes on real property (state and federal credit unions). Moreover, while credit unions are exempt from paying state income tax, the income tax revenue lost from a single bank would have a limited impact on overall state income tax revenue," the report argued.