CUNA Chief Economist Bill Hampel has responded to a Fitch Wire article critical of raising the credit union member business lending cap that read like it came straight off a banker lobbyist talking points list.
The April 13 article by Fitch Senior Directors Kellie Geressy-Nilsen and Joseph Scott sourced bank lobbyists, saying they “disagree that loans are hard to come by” and that “banking trade groups argue that credit unions do very little business lending.”
The article even took a shot at credit unions’ tax-exempt status. “Banks clearly don’t enjoy” the same advantage, and added that “banks and credit unions are also subject to different regulators and government rules.”
Hampel countered the claims with a basic lesson in supply and demand, as well as competition, saying that small businesses would benefit from an increase in business loan supply, finding more loans available on better terms.
“Further, numerous studies have reported on shortages of small business credit during the recession and its aftermath,” Hampel wrote.
The economist also took aim at the bank lobby’s methodology of claiming very few credit unions are being limited by the current 12.25% business lending cap. Hampel said bankers are only counting credit unions with an MBL to assets ratio between 11.25% and 12.25%.
That headcount misses credit unions that currently exceed 12.25%, either due to a grandfather clause or because they have experienced a reduction in assets, Hampel said. Further, CUNA counts credit unions with MBL to assets ratios as low as 10% as being ones that would benefit from an increase in the cap.
“For example, for a $100 million credit union with MBLs equal to 11% of assets, just four or five average-sized loans would put them over the cap,” Hampel said. “Credit unions in this group essentially have to eschew any new business, keeping their limited remaining cap authority available for existing member borrowers.”
As for the question of risk, which Fitch claimed would increase, Hampel referred to provisions in the bill that would require credit unions seeking to exceed 12.25% to have at least five years of business lending experience, be near the cap for at least four quarters, and limit business lending expansion under a tiered approach.