CHATSWORTH, Calif. — In the weeks after the conservatorship of $318-million Telesis Community CU, banking lobbyists have been holding it up as an example of why credit unions should not be granted expanded member business lending authority.
"This underlines the fact banker hypocrisy knows no bounds," said Mike Schenk, senior economist with CUNA. "They are ignoring the context of the exemplary conduct by credit unions over the years. Charge-offs and delinquencies by credit unions are a quarter of what banks have reported. Going back to 1997, the net charge-off rate for credit union business lending averaged 0.23%, while in the banking industry it was 0.91%."
Brad Thaler, VP of legislative affairs for NAFCU, stressed there are "many" CUs that do business lending "very successfully."
"The legislation pending before Congress has many safeguards and steps," he said. "Business lending may only grow by certain percentages each year up to the new cap (27%). NCUA would have to report back to Congress on how CUs are doing with the new cap within three years after it is implemented. NCUA would have to report the amount of MBLs by insured credit unions, performance of business loans by delinquencies and charge-offs."
Bob Arnould, SVP-government affairs for the California/Nevada league, called the bankers' mesage "desperate," adding, "If you follow their argument to the logical conclusion, you have to say because banks are failing at five times the rate of credit unions, they should be forced to stop doing business lending or have a cap placed on them."
Schenk acknowledged the financial crisis did cause losses at CUs to increase, but he noted the same factors led to losses increasing for all lenders. The charge-off rate on credit union MBLs was lower than bank real estate loans, lower than bank credit cards and lower than other consumer loans banks have made.
"It is interesting to see the charge-offs for MBLs is lower than other areas within credit unions," he said. "What this tells us is additional MBL activity at credit unions would cause charge-offs to go down, not up, and the diversification would be helpful."
When the economic crisis began in late 2007 the numbers of banks and credits unions were roughly equal at approximately 7,400. Since then, Schenk said, there have been 429 bank failures and 107 CU failures. Further, only one of the 55 CU failures during 2009-2010 was due primarily to business lending.
"If the banks are running around talking about curtailing financial institution failure by curbing lending, they should look at themselves," he declared. "Millions of dollars were plugged into the banking industry to stop the bleeding, but credit unions did not require this help. The FDIC went into the red, but the NCUSIF did not."
Schenk said financial regulators and the U.S. Treasury Department stand "firmly behind" expanded business lending authority for credit unions, with the Treasury Department stating it would add to CU bottom lines, beef up capital positions and add diversification.
