BANKERS TIE EXPANDED MBLS
TO GIVING UP TAX EXEMPTION
WASHINGTON - Leading bankers told Congress last week that any increase in member business lending limits for credit unions should come in exchange for changes to the credit union tax exemption.
"Simply stated, credit unions are tax-exempt for a reason and were never meant to be commercial lenders. If they want to break from their tax-exempt purpose then they must pay taxes," Salvatore Marranca, president of Cattaraugus County Bank in New York, told lawmakers during a hearing on a bill to increase the cap on MBLs.
The New York banker, chairman of the Independent Community Bankers Association, and a separate witness for the American Bankers Association, made clear to members of Congress they will continue to fight the bid by credit unions to raise the 12.25% of assets limit on MBLs, unless credit unions agree to put the tax exemption on the table.
Among the options put forward by the bankers are easing the way for credit unions to convert to mutual savings bank with much higher business lending limits, or to repeal the tax exemption for the largest, diversified credit unions that have the biggest business lending operations.
"If credit unions would like to have the discussion about exchanging their tax status for increased business lending privileges, we will be the first one at the table," said Rose Oswald Poels, president of the Wisconsin Bankers Association, in conjunction with today's hearing.
Several lawmakers expressed agreement with the bankers' position. Republican Blaine Leutkemeyer of Missouri said he sees the bill "as an effort by the credit union industry to try to move into another area without having to play by the same rules (taxation) others in that area are playing by." Democrat Ruben Hinojosa of Texas wondered about the repeal of the tax exemption in conjunction with an increase in the MBL cap.
The credit union lobby has been fighting to increase the limit on MBLs since 1998, when the bankers succeeded in getting Congress to set a cap on business loans for the first time as part of HR 1151, the CU Membership Access Act. Congress has introduced bills at least ten times since then to raise the limit, all blocked by the powerful banking lobby despite broad support in Congress. This hearing before the House Financial Services Committee was on the latest bill, which would raise the limit all the way to 27.5% of assets.
Testifying for credit unions in favor of the increased limit were Jeff York, president of CoastHills FCU on behalf of CUNA; Gary Grinnell, president of Corning CU on behalf of NAFCU; Michael Hanson, president of the Massachusetts CU Share Insurance Corp, and NCUA Chairman Debbie Matz.
CDCUS CALL ON TREASURY TO
PERMIT CAP SECURITIZATION
WASHINGTON - COMMUNITY DEVELOPMENT CUS ARE CALLING ON THE TREASURY DEPARTMENT TO ALLOW THEM TO SECURITIZE SECONDARY CAPITAL AND A VARIETY OF LOANS, ESPECIALLY MORTGAGES, UNDER THE GOVERNMENT'S PLAN TO ISSUE AS MUCH AS $3 BILLION IN COMMUNITY DEVELOPMENT FINANCIAL INSTITUTION BONDS.
"Secondary capital is the most compelling and fruitful use for CDFI Bond proceeds," Cliff Rosenthal, executive director of the National Federation of CDCUs, told the Treasury in a comment letter on the proposal.
"Investments of secondary capital enable credit unions not merely to fund loans, but to leverage their net worth--to expand their deposit base and generate loans for the full range of credit needs in underserved communities, including but not limited to housing, microenterprise, working capital for small businesses, education, and other essential needs of their members," commented the CDCU leader.
The bonds, authorized by last year's Small Business Jobs Act, would carry the wrap of the U.S. guarantee and the Treasury would issue $1 billion in bonds per year-a total of $3 billion-to be backed by assets of CDFIs still to be determined.
Credit unions have been big beneficiaries of the CDFI program, which has awarded CDCUs more than $200 million in grants and loans since its inception, and provided access to $70 million in left over Troubled Asset Relief Program funds last year.
Mainstream credit unions are barred from accepting and counting secondary capital as net worth under NCUA's prompt corrective action rules, but 1,100 credit unions NCUA has qualified as low-income may count secondary capital as net worth.
"The CDFI Bond Guarantee program as outlined in the legislation offers the prospect of access to long-term capital at advantageous rates," wrote Joseph Thomas, president of Fairfax County FCU, one of 220 CDCUs eligible for the Treasury program. "If it is properly structured and implemented, it has the potential to stabilize and support the growth of financial institutions, such as FCFCU, that specializes in serving low- and moderate-income households who are suffering disproportionately from the current recession."
"Eligible bond proceeds," wrote David Prosser, head of community development for Freedom First FCU, "must include all loan and investment types and financing segments." He suggested the range of financing should include refinancing, capitalization of a revolving loan fund, loans to and purchase loans from other CDFIs, loan loss reserves, debt service reserves and investments of regulatory capital.
CUNA suggested that CDCUs should be eligible for a guarantee of the Treasury bonds of notes they may issue, including secondary capital certificates. Secondary capital, said CUNA in its comment letter, would assist significantly more CDCUs in their mission by enabling the credit unions to leverage their net worth to add deposits and generate loans for a range of credit needs in low-income communities.
The Federation's Cliff Rosenthal urged that the CDFI fund consult with NCUA "to ensure that secondary capital investments under the CDFI Bond program conform, or can be conformed, to NCUA regulations."
Most of the credit union letters were identical form letters.
NCUA SAYS IT COMPLETED
EARLY REDEMPTION ON CDS
SAN DIMAS, Calif. - NCUA said it completed the early redemption of CDs held by members of WesCorp (Bridge) Corporate FCU last week.
The early redemption of $1.9 billion in CDs is projected by NCUA to save WesCorp Bridge $32 million as part of the resolution of the one-time $34-billion corporate, the agency said.
NCUA said it did not proceed with the early redemption of CDs at U.S. Central (Bridge) FCU, as earlier planned, but may still reconsider it.
NCUA is in the process of winding down the two failed corporates and is soliciting bids separately for the remaining assets of each. The federal regulator held a teleconference last week for corporate credit unions interested in acquiring the WesCorp assets, and a separate meeting for potential bidders for U.S. Central's remaining assets.
NCUA said it is in the process of soliciting bids and will not comment or speculate what will be offered or asked by the prospective bidders.
