Even in the middle of recessions and the unemployment andforeclosures that come with them, credit unions have proven thatthey can weather downturns.

That's according to a new report from the Filene ResearchInstitute, “Commercial Lending During the Crisis: Credit Unions vs.Banks,” which revealed that credit unions' aggregate loanportfolios appeared to be about 25% less sensitive to macroeconomicshocks than those of banks.

Among the findings, from 1996 to now, credit union commercialloan growth has been steady and withstood the last two recessions,noted David M. Smith, author of the report and associate professorof economics and associate dean of academic affairs at theGraziadio School of Business and Management at PepperdineUniversity.

Commercialloan growth rates for banks turned negative following therecessions beginning in 2001 and 2007, but credit union growthrates remained positive during both periods.

Smith found that the bank loan delinquency rate appears to trackthe unemployment rate fairly concurrently, with a slight lag, whilethe credit union delinquency rate appears more divergent and lesspredictable.

In the 2001 recession, banks' delinquency rates led to moredelinquencies in commercial loans – relative to overall loans–whilethe opposite has occurred in the most recent recession, where theoverall delinquency rates are higher.

Turning to credit unions, their commercial loan delinquencyrate, when aggregated, almost always exceeds the overalldelinquency rate, according to the Filene report.

“This is consistent with the notion that credit unions servecustomers of modest means, including individuals who are unable toprocure loans from other depository institutions,” Smith said.“Individuals of modest means are more likely to be negativelyimpacted by an economic downturn.”

In economic boom times, such as the late 1990s and mid-2000s,bank and credit union business loan charge-off rates tended to besimilar in magnitude, according to Smith. However, during times ofeconomic stress, bank charge-offs appeared to be more responsive tothe business cycle than credit union charge-offs, an area he saidwill be tested later with an econometric analysis.

“If the economy needs as much kindling as possible, shouldn'tcredit unions be able to help?” asked Ben Rogers, Filene researchdirector. “Opponents of the loosened standards argue thatincreasing credit unions' ability to lend to businesses goesagainst their historical mandate and should threaten theirtax-exempt status, arguments that are beyond the scope of thisreport.”

An analysis of Call Report data between 1986 and 2009 from banksand credit unions showed that the most conservative estimatessuggested credit union loan portfolios appeared to be about 25%less sensitive to macroeconomic shocks than bank loanportfolios.

“This report zeros in on commercial loan performance–inparticular, loan delinquencies and net charge-offs–and examines thesensitivity of these variables to a key business cycle indicator:employment,” Smith said. “If credit unions' commercial portfoliosare as risky as, or less risky than, banks' portfolios, it shouldfollow that the business loan delinquencies and charge-offs ofcredit unions will be less sensitive to business cycle downturnsthan will those of banks.”

Indeed, there is further proof that credit unions managed tocontinue lending in the midst of financial sector relapses. In2011, the SBA published a report on how credit unions filled a voidin business lending over a 24-year period as banks scaled back.

Smith said a nationwide survey of 7,500 small businesses in fall2011 revealed limited access capital was the number one obstaclefor them to creating new jobs. Of the 1,667 small businesses thatsought bank loans over the last 12 months, less than half weresuccessful, according to data cited in the report. He also citedCUNA data that showed from December 2007 to September 2011,business lending was down 2.2% for banks yet increased 43.2% forcredit unions.

As trade groups and proponents continue to lobby in Washingtonto increase the current member business lending cap from 12.25% to27.5% of assets, some bankers have cried foul on whether morelatitude will create an uneven playing field. This, despite creditunions only having about 6% the commercial lending market share,which is a percentage that has been relatively constant for morethan 20 years, according to Smith.

Even with community bank mergers and consolidation, Smith saidif credit unions were allowed to expand business lending, it isunclear whether this expansion would materially encroach on themarkets that banks serve.

What about the periods following recession? Smith found thatcommercial loan growth rates turned negative while credit unionsexperienced positive growth between 1997 and 2010, the period ofthe country's last few recessions. Still, credit unions had to dealwith a decline most likely linked to MBL cap restraints.

“If that is the case, it has implications for the ability ofcredit unions to contribute to economic recovery in futurerecessions, if the regulatory cap is to remain in place,” Smithsaid.