Banks' business lending drops; credit unions fill void Largest drop in bank lending since 1942
persists as banking trades fight efforts to make credit more
Pewaukee, Wis. - Wisconsin credit
unions – financial institutions owned by their members – saw
a 13% increase in business lending in 2009 while Wisconsin banks saw a
15% decrease over that same period. But while the void for affordable
business credit has shifted greater responsibility to credit unions to
make the kind of loans our state needs to stimulate the economy and
preserve jobs, credit unions can’t do more because of an arbitrary
federal cap on their business lending.
The drop in lending by Wisconsin banks
aligns with a national trend described by the Wall Street Journal as the
largest since 1942. And while credit unions have rushed to help –
by lending to firms turned down by banks because the requested loan was
deemed “too small” and to entrepreneurs whose bank lines of
credit were suddenly and inexplicably pulled – they are hard
pressed to do more. Some are bumping up against a federal cap that
limits how much they can lend to businesses; others can’t offer
business loans at all because the cap prevents them from recovering the
costs of doing so.
Prior to 1998, when the cap was put in
place, credit unions had no statutory limits on their business lending
and had been making safe, secure business loans for more than 80 years.
In fact, credit unions’ business loan loss rate today is just
one-ninth that seen by Wisconsin banks. Credit unions have acted so
responsibly, in fact, that federal regulators have voiced support for
increased credit union business lending.
“If the current cap were lifted,
credit unions could offer $362 million of new business credit and add
3,937 jobs in Wisconsin in the first year alone. Nationally, credit
unions could offer $10 billion in new credit in the first year, creating
108,500 new jobs,” explained Brett Thompson, League President
& CEO. “And this can be done without expanding government and
at no additional cost to taxpayers.”
Bills in both the U.S. House and U.S.
Senate would raise the cap to 25% of total assets as well as raise to
$250,000 the threshold for a loan to be considered a member business
loan. Wisconsin Reps. Steve Kagen, Tammy Baldwin and Tom Petri are
co-sponsors of the House bill.
Organizations ranging from mortgage
brokers to grocers, farmers and insurance agents and others have voiced
support for credit unions. However, banking groups including the
Wisconsin Bankers Association (WBA) are trying to kill both measures.
Credit union supporters have fought back with visits to Washington,
D.C., emails to Congress, the Treasury and the White House, and a
letter-writing effort by businesses left in the lurch by a lack of
“Banks’ opposition to this
effort is an affront to the average person on Main Street who has
already paid dearly for the sins of those on Wall Street,”
Thompson said. “Considering many credit unions’ business
borrowers were denied by banks, it’s incredible that banks will
stand in their way of receiving credit from a willing source – all
to the detriment of job creation and our state economy as a
Thompson also explained that Wisconsin
credit unions’ average business loan is around $170,000 – a
pittance compared to the multi-million dollar loans banks typically seek
– and added that most credit union business loans are to
households with annual incomes below $50,000.
Making loans to small businesses is part
of credit unions’ REAL Solutions initiative, which helps Wisconsin
families save and build wealth.
"The WBA denies that banks have pulled
the rug out from under Wisconsin businesses, saying that if a business
owner is current with loan payments, has strong cash flow and can expect
to be strong and profitable, a bank is not going to turn away a
business,” Thompson said. “But therein lies the rub: how
many Wisconsin businesses see big profits on their near-horizon? What
many of them need is affordable credit just to help them tread water.
Banks don’t in fact want the kind of loan the average Wisconsin
business needs. That’s why loans from credit unions – that
exist primarily to serve members and not make a profit – are
critical now. They’ll help businesses survive.”
“There’s no way banks can
continue to distance themselves from the credit crisis when their
actions – and the latest data citing banks’ failure to lend
– prove otherwise,” Thompson added. “Banks
aren’t competing with credit unions for the same loans, so they
should get out of the way of the credit unions that are willing to help