NCUA Chairman Debbie Matz told a House panel on Wednesday that raising the cap on member business loans in a way outlined in current legislation would help credit unions and small businesses and do so in a safe and sound manner.
She said the legislation, with the agency’s promise to beef up its regulation of business lending, will result in a structure that “prudently protects safety and soundness.”
Matz made her remarks in testimony prepared for delivery at Wednesday afternoon’s hearing of the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit. She endorsed the legislation just as she endorsed a companion bill in the Senate when she testified before the Senate Banking Committee in June.
She noted that credit unions have been lending money steadily throughout the financial crisis and are prepared to lend more but many are limited by the cap of 12.25% of assets, which would increase to 27.5% under the legislation.
“While credit contracted during and after the financial crisis, credit unions continued to lend. Over the period from year-end 2007 through the second quarter of 2011, credit union lending increased by about 6%. Total credit union member business loans, in particular, increased by nearly 44% during this timeframe. MBLs with portions guaranteed by the Small Business Administration grew by 70%,’’ she said.
But in echoing concerns raised by witnesses for CUNA and NAFCU, Matz said that some credit union executives have said they are reluctant to get into business lending because of the expensive startup costs and the limits on loan revenue because of the 12. 25% cap.
She said her agency projects that credit unions would extend between $2 billion and $3 billion in additional business loans during the first few years if the legislation were passed.
She also noted that some business loans had caused problems for credit unions, but they were the exception.
“The level of 60-day delinquent MBLs has increased from 0.53% at year-end 2006, to a high of 3.93 percent as of December 2010, moderating somewhat to 3.64% as of June 2011. The average MBL delinquency ratio by credit union, however, is 2.54%, indicating a few outliers are increasing the dollar-weighted delinquency level as they work through the impact of the economic downturn,’’ she said in her prepared testimony.
And she said that of the 55 credit union failures in 2009 and 2010, one was primarily caused by MBLs.
Reps. Ed Royce (R-Calif.) and Carolyn McCarthy have sponsored the legislation and so far it has 86 cosponsors.
Sen. Mark Udall (D-Colo.) has sponsored companion legislation in the Senate and it has 21 cosponsors.
Both bills require that credit unions must be well-capitalized, be at or above 80% of the current cap, have five or more years of member business lending experience and be able to demonstrate sound underwriting and servicing.
If a credit union’s net worth ratio falls below the well-capitalized requirement (currently 7%), it would have to stop making new business loans.