As Monterey Credit Union converts to a bank, state regulators mull how to interpret the law.

When Occupy Wall Street protesters set up in Monterey in 2011, they were asking for lots of things, including an overhaul of the American financial system. They encouraged members of the “99 percent” to withdraw cash from big national banks and invest locally.

“We encouraged a lot of people to join the [Monterey] Credit Union,” says Monterey City Councilman Alan Haffa, who was active in Occupy. “A credit union is member-driven and more focused on the local community.”

Twenty-one percent of Monterey Credit Union’s 19,000 members cast ballots this summer, overwhelmingly supporting the board’s request to convert to a mutual savings bank. That’s step one of a two-step process to become a commercial bank – exactly the type of enterprise Haffa was encouraging people to divest from.

First, the credit union needs to cross a few bureaucratic hurdles. In September, the $210 million institution applied to the Federal Deposit Insurance Corporation (FDIC) and to the California Department of Business Oversight (CDBO) for the approvals needed to become the Community Savings Bank of Monterey.

CDBO officials have puzzled over how to treat the application. “This particular request is unprecedented, a state-chartered credit union wanting to convert to a state-chartered bank,” says Tom Dresslar, a spokesman for CDBO’s Division of Financial Institutions.

CDBO is considering the request under a statute explaining how one class of bank converts to another.

Pacific Valley Bank President/CEO Mike Wilson welcomes the conversion, even if it means more local banking competition. “A credit union model is a little unusual,” he says. “Our society is based on getting ahead. Credit unions don’t really create value for their shareholders, because their shareholders are their members.”

Haffa says he’s planning to bank elsewhere if the conversion is approved.