Stop Honking: Cook Bankers’ Christmas Goose
Third-quarter figures for federally insured credit unions last week were welcome news and the result of a lot of hard work by credit union professionals around the country. Certainly not a gift, though we all appreciate those (iPad2, please), but something to savor because you’ve earned it.
Credit unions can certainly ring out the jingle bells over their third-quarter figures. Loans grew 1.6%, six straight quarters of loan growth. Despite still historically high share growth, the loan-to-share ratio nationally increased throughout the year to 68.4%, roughly a percentage point below last year’s close but not the meteoric 7, 4 and 3 percentage point plummets, respectively in 2009, 2010 and 2011.
Now for an industry-wide New Year’s resolution, clean and jerk that ratio right up over its head–just like you’ll be pumping up your biceps with your new gym membership.
Private student loans jumped nearly 13% in the third quarter, tallying a 38% annualized increase. Student lending is a great way to attract younger members, and learning from them and engaging them with your credit union and its other products will help credit unions remain relevant in a world that no longer requires anyone to have any relationship with any traditional financial institution. One concern of course with the student loans is whether this bubble will pop like a party balloon, particularly if unemployment continues its agonizingly slow improvement.
The Cooperative Trust’s Brent Dixon wrote an excellent blog for the CU Water Cooler recently highlighting exactly how the generation born into this modern world can fulfill all of their financial needs without financial institutions. A scary thought, but these are exciting times we live in.
Expanding credit union business lending could help fix that, but Congress doesn’t seem ready to do that. Credit union representatives have testified on Capitol Hill about their small business activities and constraints. They’ve hiked the Hill on business lending until it’s nearly worn down to a nub. The NCUA has told Congress it would strictly regulate who got the increase and the reporting. There is truly no other reason not to pass an expansion in business lending for credit unions except that the bankers will pitch a hissy fit.
Well, too late for that. Frank Keating of the American Bankers Association wrote in a recent op-ed in The Hill, “In an era of crushing deficits, is it appropriate for an extremely profitable $1 trillion industry to freeload while all other businesses in the United States pay their fair share of federal taxes? Moreover, should Washington policy steer business away from institutions that pay a third of their income to support critical government services to institutions that pay nothing and enjoy those same services?”
Two things. First, business is not being steered anywhere. It’s called free will of the business owners to do business as they see fit. Second, banks do not pay one-third of their income to government revenues.
A 2007 GAO study found that banks’ tax deductions totaled $108 billion in 2004 and tax credits tacked on another $200 million. By comparison, the Treasury Department estimated that the value of the tax-exempt status for credit unions was only $1.4 billion in 2007. In addition, banks’ net income increased an average of 7% annually over the decade prior to the study, while credit unions’ net income was up just 3% in the same time period. In 2006, banks and thrifts earned $146 billion compared to $6 billion in retained earnings for the entire credit union industry.
“What’s worse, small town bankers worry they will be left to pick up the pieces when credit unions with newfound powers do what so many of the inexperienced do: underestimate and overextend,” Keating wrote condescendingly. Banks bailing out credit unions. That’s rich.
In fact, in line with one of the bankers’ arguments for why credit unions don’t need an expansion on the MBL cap, credit unions haven’t charged eagerly toward their 12.25% cap over the last 14 years since it was implemented. Credit unions are easing into business lending, with the NCUA reporting just a 1.5% increase in the third quarter. And, counter to the Keating article, credit unions aren’t particularly known for a Polar Bear Club attitude when it comes to taking risks, so they aren’t diving into Arctic waters with both feet.
But if bankers know anything, it’s about underestimating and overextending. Credit unions grew lending this year while credit quality improved. The community’s delinquency ratio dropped to 1.17%, relative to commercial banks, which declined to 5.03% as reported by the Federal Reserve. The banker Grinches can stick that in their holiday pipe and smoke it.
People are turning to credit unions more than decades. Credit unions’ membership increased 2.9% in the last 12 months according to CUNA’s figures. Credit unions and consumers deserve the gift that keeps on giving–burgeoning credit union membership and expanded services, including small business lending.