Posted: 7:25 am Mon, April 23, 2012
By Mark?Anderson
Tags: 3M, Al Franken, Amy Klobuchar, Baker Tilly Virchow Krause, Ben Rogers, community banks, Harry Reid, Joe Witt, Mark Cummins, Minnesota Bankers Association, Minnesota Credit Union Network, small businesses, student loans, Tim Kosiek
Patrick Pierce says City and County Federal Credit Union can contribute more to small business growth with a little help from Congress. (Staff photo: Bill Klotz)
Congress nears key vote; banks plan lobbying blitz
Credit unions have been trying for years to persuade Congress to raise a regulatory cap on business loans that they?re allowed to make.
This year they are closer than ever to winning the argument, and it?s the promise of job creation that has been building momentum.
Credit union advocates are asking to more than double the amount of commercial loans their members can carry on their books, arguing it will pour additional investment dollars into Main Street businesses.
?Congress wants to see the economy grow, and we want to get more loans out to businesses that will put people back to work,? said Patrick Pierce, chief executive officer at the City and County Credit Union in St. Paul. ?If they let credit unions do what we do well, we?ll help create jobs, and it?s not going to cost the government a dime.?
Senate Majority Leader Harry Reid has promised a floor vote on the bill soon. Sen. Al Franken, D-Minn., is a sponsor of the bill, S. 2231, which would raise the business loan ceiling from 12.25 percent of assets to 27.5 percent. The office of Sen. Amy Klobuchar, D-Minn., did not respond to email questions on the bill. Credit union officials say they have been assured by House leaders that they will schedule a vote if the Senate passes the bill.
But before that vote arrives, members of Minnesota?s legislative delegation will get an earful from 50 Minnesota bankers who will visit Washington next week with the other side of the story.
They will tell lawmakers that the credit union initiative will take income away from Main Street community banks that serve the same small businesses the credit unions are targeting,
?This won?t affect large commercial banks,? said Jim Johannes, director of the Puelicher Center for Banking Education at the University of Wisconsin, Madison. ?Credit unions don?t have the expertise or scale to compete with them. This will fall entirely on community banks.?
And it comes at a time when community banks are already facing stiff challenges from recession-related losses, increased capital requirements, low demand for commercial or consumer loans, and a slate of costly new and existing regulations.
?Credit unions don?t have to comply with all the rules banks do, and they avoid a lot of time and expense,? said Joe Witt, chief executive officer of the Minnesota Bankers Association, who organized next week?s lobbying trip to Washington.
But like banks, credit unions do have a balance-sheet need to pursue more commercial loans, said Johannes, who also serves as a director on a credit union board.
Credit unions lost student loans, one of their staple businesses, to the federal government recently, Johannes said. At the same time, they added longer-term loans to their books rather than settling for low-earning, short-term Treasury securities. ?Now they realize they have to get some short-term assets back on their books,? Johannes said, and new business loans would fill that bill.
One of the credit unions? persuasive arguments in Congress is that they upped business lending during the recession while commercial lending at banks declined, said Ryan Donovan, senior vice president of legislative affairs for the Credit Union National Association, a national trade group.
Data from regulators showed business lending at Minnesota credit unions grew between 1.1 percent and 11.8 percent between 2007 and 2011. Meanwhile, business lending (excluding commercial real estate) fell 11.3 percent at Minnesota-chartered banks in the 2009-11 period.
Minnesota-based banks made $19.9 billion in business, construction and commercial real estate loans in 2011, compared with credit unions? $928.3 million. Fewer than 20 of Minnesota?s 143 credit unions had 7 percent or more of their assets in business loans, said Mark Cummins, chief executive officer of the Minnesota Credit Union Network.
City and County is one of the credit unions that is building its business portfolio. Commercial volume grew in each of the last three years and jumped 30 percent in 2011, Pierce said. Business loans are approaching 10 percent of the credit union?s $360 million in assets now. ?Our loans are small; many are below $50,000,? Pierce said. ?We hear all the time from borrowers that they couldn?t get that loan at a bank.?
If credit unions win in Congress and succeed in doubling business lending over the next decade (the bill would raise the cap by increments), banks say that credit unions? focus on very small loans will shift to larger loans, putting them in direct competition with community banks.
That competition will come, said Ben Rogers, director of research at Filene Research, a nonprofit financial credit union industry analyst in Madison, Wis. ?It?s na?ve to think that there wouldn?t be competition. But the law change would release capital into that space, and that has to be good for consumers.?
If they are competing for the same markets, though, bankers say credit unions will have an unfair advantage. Credit unions are nonprofits and exempt from the roughly 35 percent state and corporate income taxes that Witt said most Minnesota banks are subject to.
Witt said that exemption is based on credit unions? commitment to focus on serving low- and moderate-income communities, and that deserves a review now. ?When they want to devote one-quarter of their lending to businesses you?ve got to wonder about whether that exemption should continue,? he said.
Credit union advocates counter that many community banks also eliminate their corporate tax burden by organizing as subchapter S corporations, although those earnings will be taxed when they are distributed to shareholders, said Tim Kosiek, a partner in the financial institutions group with Baker Tilly Virchow Krause.
And Rogers said that although the original credit union statutes do require them ?to serve people with modest means? they weren?t limited to that mission. ?From the beginning credit unions have been serving businesses, initially by giving loans to workers to buy tools. It?s disingenuous to interpret that as limiting lending only to consumers and low-income communities.?
Minnesota business finance 2011
Credit unions have steadily increased their business lending, but they contribute a small portion of state business finance.
Business loans
Minnesota credit unions: $928.3M*
Minnesota-chartered banks: $19.9B**
* National Credit Union Administration
**FDIC, commercial & industrial and commercial real estate loans
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