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Why Is Every Dissenting Credit Union a Story?

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American Banker apparently feels duty-bound to publish a story whenever it learns of a credit union that is not supporting the industry’s effort to enact legislation raising the cap that now constrains credit unions' ability to lend to small businesses ("Third Credit Union Dissents on Business Lending Bill," April 23).

Okay, you have spotlighted a handful of dissenters. One will never find unanimity on any issue in a credit union universe of some 7,500 institutions.  But as I write this letter, CUNA has tracked at least 60,000 contacts to Congress since late March from credit unions, small businesses and others in support of S. 2231, the Credit Union Small Business Jobs Act. Clearly, our legislation has broad industry and small-business support, and the dissenters are in the distinct minority.

Now, how about all the banks that have no quarrel with raising the credit union small business lending cap? A look at the American Banker's own online survey suggests they are out there, apparently in droves. Your survey posed the question, "Should credit unions be permitted to expand credit union small-business lending? 60% of your readers said yes, the competition is healthy, another 10% said yes, as long as credit unions have sufficient capital and only 31% said no.

Presumably the overwhelming majority of American Banker readers are directly in or favorably disposed toward the banking industry. Who knew 70% support our efforts to increase small business lending and job growth? I think American Banker should write about some of these bank executives.  Based on your survey, it shouldn't be at all hard to find them.

John Magill
Executive Vice President-Government Affairs
Credit Union National Association
Washington, DC

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Comments (2)
Same story here as with thrifts, but worse: OTS had lobbied Congress for years to get rid of the QTL test. Congress asked the reasonable question: "Why not convert to a commercial bank?" If you want the lending diversification, which I agree credit unions (just like the QTL test) should receive, then perhaps this insolvent industry:

1. Shouldn't be borrowing money from the US Treasury to prop up the industry. After all, the US Treasury is tax-payer money and I don't think credit unions pay taxes.

2. Shouldn't be allowed to pledge CLF stock to the FRB's discount window, which is currently proposed in the liquidity guidance. After all, why would a) an association want to invest in an insolvent corporate (five are in conservatorship and another on the way) and b) the FRB discount window want to use this as collateral (maybe a 99% haircut would be ok)

3. Should give up the Repo 105 transaction called the Excess Balance Account (EBA) which is allowing the poor quality NGN notes to move around ad infinitum.

Read the GAO's report entitled, "Earlier Actions Are Needed to Better Address Troubled Credit Unions" dated January 2012, and which can be found here: http://bit.ly/GAO_2012

The file folder located at this Dropbox location (http://bit.ly/Dropbox_TDay) is full of other interesting reports that you may also enjoy, like the information on the EBA, NGNs, and the UST backstop, tax-payer funded line of credit to support the NGNs, and any early payment defaults from collateral within the NGN (think private label RMBS) waterfall.
Posted by Stentor | Tuesday, May 01 2012 at 9:26AM ET
I read with interest John Magill's short article. I think it may be worth adding a further comment. In Canada credit unions have been very successfully serving the small business community for more than thirty years. The vast majority of Canadian credit unions provide a wide range of products and services specifically tailored to meet the needs of SME (small and medium size enterprises). Historically the Canadian Federation of Independent Business (the voice of small business in Canada) based on survey feedback from its members, has found that the quality of products and services provided by credit unions was often rated the best! I am not familiar with capital structures in the US, but there is not questions credit unions must not only have the sound capital structure, but also be willing to invest in developing the expertise required to service small business members.
Posted by Hithereterry | Tuesday, May 01 2012 at 9:30AM ET
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