When it comes to member business lending, credit unions are reminiscent of Oliver Twist.
Like the title character in the famous Charles Dickens novel, they want some more.
Poor Oliver was turned down by the head of his orphanage when he wanted more porridge, and it caused him to flee the orphanage and join the pickpocket gang led by Fagin.
Nobody, not even the ABA or the Independent Community Bankers of America, believes that credit unions will turn to a life of crime if they can’t get the cap on member business loans raised.
That’s a good thing since even though credit unions have done a great deal to make the case why Congress should raise the cap from 12.25% of assets to up to 27.5%, it is anything but certain that lawmakers will go along.
NCUA Chairman Debbie Matz and witnesses for CUNA and NAFCU were greeted with skeptical questions at a recent Senate Banking Committee hearing. Sen. Mark Udall (D-Colo.), who is sponsoring the legislation, didn’t appear at the hearing nor did any of the co-sponsors.
Credit unions would likely have to win the support of 60 senators and overcome the politically powerful banking industry to achieve this goal. That’s not impossible, but it will require a great deal of lobbying both in Washington and at the grassroots as well as a concerted effort to paint the bankers as a greedy bunch that won’t make loans to creditworthy businesses.
For a moment, let’s step away from the political prognosticating and take the advice of that well known credit union expert John Lennon.
Don’t worry, this isn’t the place where you will read about what the world might be like without Heaven.
Rather, let’s for a moment contemplate a scenario in which all the stars are aligned for credit unions and Congress passes Udall’s bill.
Much of the burden will be on the NCUA to beef up its member business lending regulations to try to minimize the risk to safety and soundness from the additional business loans.
In her prepared Senate testimony, Matz promised, using quintessential bureaucratic language, that the agency will “ensure its prudential regulatory framework is further enhanced to manage the associated risks.”
So far, the NCUA’s record in this area has been mixed. The agency’s Office of Inspector General found that in several recent credit union failures member business loans were one of the causes of the institution’s problems.
Recently, the NCUA has been increasing the frequency of its examinations and expanding the scope of its regulatory oversight in response to some of the problems that credit unions experienced during the financial crisis.
There is little doubt that whatever new regulations the NCUA proposes on MBLs, CUNA, NAFCU and many credit unions will criticize them as too restrictive.
The NCUA, like all government entities, tries to balance between allowing credit unions to innovate and its own responsibility for ensuring safety and soundness. It’s a struggle leaders have faced since the days of the nation’s founding.
“If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself,” James Madison wrote in Federalist 51, one of the essays he, Alexander Hamilton and John Jay wrote to persuade state legislatures to ratify the Constitution.
If the authors of The Federalist and the other learned men who founded the nation couldn’t settle these arguments, it’s not a surprise that we are still struggling with them.