ICBA: New Study Proves Credit Union Legislation Unnecessary, Harmful to the Economy and Financial System

Nov 27 - The Independent Community Bankers of America has highlighted a new study that disputes the claims made by the credit union industry as part of its push to expand its business-lending authority. The study by Ike Brannon, president of Washington, D.C.-based consulting firm Capital Policy Analytics and affiliated with the American Action Forum, finds that additional business lending powers given to tax-exempt credit unions would reduce tax revenues and pose new risks to the health of the credit union industry and financial system as a whole, in addition to providing no practical positive effect on the economy.

“This new study conclusively shows that supporting controversial legislation to expand tax-exempt credit unions’ business-lending authority will do little to improve access to credit while posing serious risks to our financial system and federal revenues,” ICBA President and CEO Camden R. Fine said. “Expanding the business-lending authority for taxpayer-subsidized credit unions would widen budget deficits at the federal, state and local levels and increase the risk of failures throughout a credit union industry neither equipped nor designed to do wide-scale commercial lending.”

The paper, titled “An Analysis of the Impact of Expanding the Ability of Credit Unions to Increase Commercial Loans,” studies controversial legislation that would increase the statutory cap on credit union business lending from 12.25 percent of total assets to 27.5 percent. The study found that:

• Additional commercial lending by tax-subsidized credit unions would decrease tax revenues because taxes that would otherwise have been paid by commercial banks making those loans would not be paid. The most recent estimate by the Congressional Budget Office pegs the lost revenue at nearly $16 billion.
• Credit unions with high business loan-to-asset ratios comprise a disproportionate share of failed credit unions since 2008. While credit unions with ratios of 10 percent or higher comprise only 2.7 percent of all credit unions, they were responsible for 14.7 percent of credit union failures.
• Raising the cap could result in a marked increase in credit union failures.
• The vast majority of credit unions are nowhere near their business lending limit, and more than 70 percent of credit unions have no member business loans at all. This calls into question the need for such controversial legislation.
• Existing law provides credit unions a variety of ways to make commercial loans without impinging on their statutory business-lending cap. Loans under $50,000, loans guaranteed by the Small Business Administration or a residential mortgage, and any loan offered in part by another credit union are exempt from the cap, which means that increasing the cap will have little impact on commercial lending.
• Job-growth forecasts offered by proponents of a higher business-lending cap are highly suspect and based on assumptions that make little economic sense.

ICBA continues to oppose any legislation to raise the credit union business-lending cap, which would benefit a select few credit unions while harming taxpaying community banks.