MADISON, Wis. (8/2/12)--Without an increase to the member business lending (MBL) cap, credit unions could be hindered in contributing to the next economic recovery, according to a new study from the Filene Research Institute.
The study, "Commercial Lending During the Crisis: Credit Unions vs. Banks," showed that commercial loan growth rates for banks turn negative in the periods immediately following the last two recessions, while credit union growth rates remain positive during both periods.
However, in December 2010, six quarters removed from the most recent recession, bank commercial loans were still contracting. Credit union commercial loan growth rates, while still robust, declined, suggesting that some credit unions may be reaching their MBL cap.
"If that is the case, it has implications for the ability of credit unions to contribute to economic recovery in future recessions, if the regulatory cap is to remain in place," the study said.
The study also suggests that credit unions boast delinquency and charge-off rates that compare favorably to those at commercial banks.
The report, authored by David Smith, an economist at Pepperdine University's Graziadio School of Business and Management, seeks to quantify the performance of credit union commercial lending at a time when credit unions seek to widen their access to the business lending market.
Credit union commercial loan growth has been steady during the 15 years examined in the report. It has been resilient during the past two recessions, suggesting that credit unions can buoy both lending growth and, as a consequence, overall business activity.
While banks tend to contract commercial lending during economic stress, the opposite is true for credit unions. Commercial loan growth rates for banks turned negative following the recessions beginning in 2001 and 2007, but credit union growth rates remained positive during both periods, the report said.
Results also suggest that credit unions may have better information regarding the underlying risk of commercial loans than banks. That may be related to the member relationship inherent in the credit union business model. Banks are more likely to take greater risks as a result of a governance structure that incentivizes risk-taking behavior.
The Credit Union National Association (CUNA) and credit unions have been urging the Congress to increase credit unions' MBL cap to 27.5% of assets from 12.25%. Doing so would open up more opportunity to offer MBLs, inject $13 billion in business loans into the economy and create as many as 140,000 new jobs, with no cost to taxpayers, CUNA said.
To download the report, use the link.