MBL: The Next Political Round
Now comes the hard part.
As tumultuous as the House subcommittee hearing on raising the cap on member business lending was, the really difficult battle will take place in the months ahead.
That’s when credit unions will have to call in their political chits and try to persuade lawmakers to alienate bankers.
Lobbyists for CUNA and NAFCU said a major short-term task is to ensure lawmakers that there is enough need for additional business loans. At the hearing, several lawmakers and representatives for banks argued that the major problems facing businesses isn’t that they can’t get credit but that there isn’t enough consumer demand to justify expanding.
“We need to make sure that members are comfortable with the legislation and the need for it,” said CUNA Senior Vice President Ryan Donovan. “We can show that there is demand and it’s not just anecdotal.”
The House hearing on Oct. 12 followed a Senate hearing in June. NCUA Chairman Debbie Matz endorsed the measure at both sessions. However, she didn’t answer a question from several lawmakers about how much of credit unions’ business lending was the result of the inability of banks to meet lending demands.
She emphasized that expanded business lending would be good for credit union balance sheets because it would diversity their risk.
The legislation, sponsored in the House by Rep. Ed Royce (R-Calif.) and Rep. Carolyn McCarthy (D-N.Y.) and in the Senate by Sen. Mark Udall (D-Colo.) would raise the cap on MBL from 12.25% of assets to as much as 27.5% of assets.
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.
There are 86 co-sponsors in the House and 21 in the Senate.
Although the Senate failed to advance President Obama’s legislative proposal to create new jobs, Democrats there are hoping to break it up into smaller pieces, which could provide a vehicle for the legislation. The Obama administration has endorsed raising the cap but didn’t include it in its bill.
NAFCU Executive Vice President Dan Berger said it’s not clear what the appropriate bill might be for the measure but said his association is “seeking any and every possible vehicle to attach member business lending legislation to, in addition to our continued push to move as a standalone. We are leaving no stone unturned and call for its passage at every opportunity.”
It is also possible that an increase in the MBL cap could be paired with a tax and regulatory relief bill for banks, sponsored by Sen. Jerry Moran (R-Kan.) and Rep. Blaine Luetkemeyer (R-Mo.).
The tax provisions in the measure include the exclusion of income from agricultural real estate and mortgage loans from taxable income and extend and extend the five-year net operating loss carry-back provision through 2011 for community banks with $15 billion or less in assets.
The regulatory provisions include making it easier for the Financial Stability Oversight Council to overturn regulations of the Consumer Financial Protection Bureau and repeal the Federal Reserve’s authority to delegate some of its examination authority to the CFPB.
There are 42 co-sponsors of the measure in the House and four in the Senate.
ABA Executive Vice President Floyd Stoner said pairing the bank and credit union bills is a nonstarter for his trade association.
“There’s not a chance bankers would accept that,” Stoner said in an interview. “The trade off we might accept is a higher cap on member business loans in return for mandating that the NCUA make it easier to convert to mutual savings banks. That would make them pay taxes and comply with other regulations like other financial institutions that are allowed to make more business loans.”
CUNA and NAFCU also plan to point to the failure of banks to make use of $30 billion lending fund established last year, as part of job creation legislation.
The legislation allocated $30 billion for the Small Business Lending Fund, but the Treasury Department only received applications from 332 banks that sought about $10 billion worth of loans. The department approved $4 billion in loans, and of that, only $1.8 billion will be used for small business lending. The rest will be used to repay TARP funds.
During an Oct. 18 hearing of the Senate Small Business Committee, the panel’s top Republican, Sen. Olympia Snowe (R-Maine) criticized Treasury Secretary Tim Geithner for the poor design of the program and the long loan approval process.
Geithner replied that it was Congress’ intent to let small banks use the funds to repay TARP. He also said that the approval process took so long because regulators were very careful about which applications were approved, to ensure that the taxpayers’ money was used wisely.
Bert Ely, a consultant and analyst of the financial services industry, said he doubts the credit unions will be able to turn frustration with banks into support for an increase in member business loans.
“Banks will argue that they are being sensible and only making loans that are safe and sound because examiners are quick to criticize risky business loans, especially in the commercial mortgage areas,” he said. “It’s tough to see how credit unions can make a successful argument to counter that given the volatility of the economy.”