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Free The Credit Unions!
By Marc Tracy
The Wall Street Journal reports that many of the nation's over 8,000 credit unions--those member-owned, not-for-profit lending institutions--remain relatively untainted by the bad assets that have brought the world's biggest banks to their knees, and consequently are open for business--which is to say, the roughly one-quarter of them who are in the business of lending to businesses are ready and happy to do so, even now.
Actually, it gets more interesting than that: the reason more credit unions don't provide business loans, and the reason that those that do don't provide more, is that a 1998 federal law prohibits credit unions from lending more than 12.25% of their assets in business loans. It isn't exactly hard to predict that as credit unions have become an increasingly viable option for business loans as compared to banks and community banks, there would be clamoring to raise or eliminate that cap, and indeed there has been: a bill that would've raised the limit to 20% has circulated without garnering enough support. It also isn't hard to guess that banks and the banking industry opposes raising the cap, which they do.
This question isn't clean-cut.
The head of one North Carolina credit union estimated in the article that the country's credit unions could make $10 billion in small business loans in a year, just like that. Obviously that sounds wonderful (although one wonders if such demand even exists, especially right now).
That said, the 12.25% cap is not "arbitrary," as another credit union figure says it is. The fact is, credit unions have the particular purpose of serving less well-off consumers, and receive specific advantages--most notably, nonprofit (and therefore tax-free) status--as a result of their special mission. Doing away with the cap would subvert their very purpose and, given their massive advantages, probably run not a few community banks out of business.
Raising the cap to 20%, in other words, sounds like a nice compromise. Looks like the bill in question gained some momentum in 2005, attaining 100 sponsors in the House of Representatives. Any legislators feel like taking this up again? We'll have your back...
Comments (2)March 4, 2009 5:52 PM
Comments (2)
If the 12.25% cap isn't arbitrary, what is it? The fact is that number was pulled out of a collective hat back in 1998. That wasn't a comprise then and it won't be a commpromise now. It's simply the inability of legislators to grow a spine and do what's right.
If this goofy cap was lifted, credit unions could inject nearly $10 Billion into the small business pipeline over the next 12 months. That's not taxpayer bail out money -- that's liquid money credit unions have available to help small business right now.
Posted by Robin Marohn | March 5, 2009 10:34 AM
Posted on March 5, 2009 10:34
Crises beg for a reexamination of the status quo. Any money that's not borrowed from the taxpayers of 2030 should be welcome money today.
Also, the King Kong of financial regulation, Chuck Schumer, is apparently on board
Posted by Ben Rogers | March 5, 2009 12:27 PM
Posted on March 5, 2009 12:27