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Bankers MBL attacks fail scrutiny
WASHINGTON (3/24/10)--Credit unions have been attacked by bankers with eight general claims against raising credit unions' member business lending (MBL) cap, but those claims do not stack up under scrutiny, according to an analysis by the Credit Union National Association (CUNA). The claims and the facts that poke holes in the bankers' arguments are the topic of a feature this week in CUNA's online legislative/regulative news analysis publication, Credit Union NewsWatch, which is published twice a month. One of the arguments centers on safety and soundness. Bankers say that raising the MBL cap to 25% of a credit union's assets (up from 12.25%) would undermine credit union safety and soundness. But data collected by the National Credit Union Administration (NCUA) and the Federal Deposit Insurance Corp. show that credit unions have a long history of engaging in safe and sound business lending, and that business lending is actually much safer at credit unions than at other institutions, says CUNA's Research and Policy Analysis. The data indicate:
* Credit union MBL net charge-off rates have been significantly lower than bank rates year-in and year-out for over a decade. Since 1997, credit union MBL net charge-off rates have averaged 0.15%, a figure that is roughly one-sixth of the 0.82% bank average during the same period. * More recently, with the increased losses at all lenders from the financial crisis and recession, the increase in loss rates at credit unions pales in comparison to bank results. During 2009, credit unions charged off business loans at a 0.59% rate--about one-fourth the 2.36% rate reported by banks over the same period. In 2008, credit unions charged off 0.33% compared with banks' 1.01%. and in 2007, the figures were 0.09% for credit unions and 0.52% for banks. * Compared to other loans at credit unions, business loan net charge-off rates are lower than net charge-off rates on credit union consumer loans and essentially identical to the net charge-off rates in credit union real estate loan portfolios. * Most credit unions have excess liquidity today that is depressing their overall earnings. Moving assets from low-yielding investments into higher-yielding MBLs, even after accounting for credit losses on those loans, will increase earnings, capital contributions and overall safety and soundness. * NCUA has indicated if the MBL cap were increased or eliminated, it would revise its regulation to ensure additional capacity in the credit union system would not result in unintended safety and soundness concerns.
To access the NewsWatch article (Members Only), use the link. To subscribe, use the second link.
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