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Wisconsin CU League News Release - 04/08/10

 


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chenzig@theleague.coop

 

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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 available

 

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 affordable credit.

 

“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 whole.”

 

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 small businesses.”

 

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