The House last week was slated to pass a bill establishing a $30 billion fund for community banks to draw on to increase business lending. But credit unions are still cooling their heels waiting for lawmakers to help them. The fund’s fate in the Senate is uncertain.

The House bill calls for the government to inject funds into community banks with assets of $10 billion or less, and, in return, the banks would pay the government a dividend. But as the bank’s lending increases the dividend would get smaller.

The Obama administration had originally wanted the fund to be part of the Troubled Assets Relief Program but changed it after requests from community banks and some lawmakers.

During testimony last month before the House Financial Services Committee, CUNA President/CEO Dan Mica said he didn’t have a problem with the fund for community banks as long as credit unions get their due. But community banks have vowed to fight any expansion of MBL capacity, and community bankers are often as popular on Capitol Hill as credit unions.

Because of the rules about secondary capital, credit unions couldn’t accept a capital injection the way community banks can. That’s why credit unions are pushing to raise the cap on member business loans from 12.25% of assets to as much as 27.5% of assets.

House Financial Services Committee Chairman Barney Frank (D-Mass.) declined to combine the MBL hike with the community bank bill but has said he will mark up legislation on MBL later this year. Lobbyists for CUNA and NAFCU are also working with Senate staffers to find a piece of legislation to attach it to in that chamber.

The Obama administration has said it could support legislation raising the cap on MBLs if there are certain regulatory safeguards and if the NCUA takes a gradual approach. The administration wants to keep the current 12.25% limit for most credit unions but increase it for those that meet certain higher standards

While the Obama administration has been encouraging lawmakers to pass legislation that would create more jobs, some in Congress have been reluctant to pass legislation that could increase government spending. Therefore, it is still not clear whether raising the MBL cap will be on Congress’ to-do list this year.

cmarx@cutimes.com