Study Claims Political Influence In CUs’ Access To Bank Bailout Funds

Register now

WASHINGTON – A study released yesterday concludes that politics influenced which of the 189 credit union applicants received capital infusions announced last month from the Treasury’s bank bailout fund, known as the Troubled Asset Relief Program.

The study, titled “Political Influence and TARP Investments in Credit Unions,” shows that credit unions located in the districts of members of the House Financial Services Committee were three times more likely to receive TARP funds relative to other eligible credit unions. “The predicted probability that a typical credit union will receive TARP monies jumps from 23% to 76% if the credit union lies in the district of a House Financial Services Committee member,” said Linus Wilson, a professor at the University of Louisiana at Lafayette – College of Business Administration, who has conducted numerous studies on distribution of TARP money.

Of the 189 credit unions that applied for capital infusions under the Community Development Capital Initiative, 48 were awarded a total of almost $70 million in funding. The funding was supposed to have gone to financial institutions that had at least 60% of their lending and other economic development activities in areas underserved by traditional financial institutions. The TARP awards allowed the recipients to borrow the money at a 2% rate for eight years.

Many of the recipients, including Hope FCU, Santa Cruz Community FCU, Opportunities FCU, North Side Community FCU and Neighborhood Trust FCU, are regular participants in federally funded community development programs, such as the Treasury’s annual Community Development Financial Institutions program.

Wilson said he found many of the credit unions receiving the bank bailout funds did not have high lending ratios. “It didn’t seem like the credit unions had a need for doing a lot of lending,” Wilson told Credit Union Journal yesterday. “They had a lot of their excess cash in investments.”

“They seemed to be doing significantly less lending that institutions that weren’t getting any [TARP] money,” Wilson said.

What the findings suggest, he said, “was that they were not really selecting institutions based on the goal of the program.”

 

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER