TAG Too Risky, MBLs a Better Option: CUNA to Congress
"If Congress wants to enhance and expand access to credit for small businesses, there are a number of other policy options it should pursue, including S. 2231, the Small Business Lending Enhancement Act," CUNA President/CEO Bill Cheney wrote. "Credit unions are willing and able to lend to their small business members; but the most successful business lending credit unions have hit or are approaching the statutory cap on credit union business lending," he wrote.
The letter was sent to Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.) on Monday.
The TAG program would extend unlimited deposit insurance coverage granted during the financial crisis for noninterest bearing transaction accounts. Coverage is set to revert back to $250,000 at year's end. Community banks and their lobby groups, which are opposing legislation to raise the cap on credit union member business lending (MBL), are in favor of extending the TAG program. U.S. Treasury Secretary Timothy Geithner, U.S. House Majority Leader Eric Cantor (R-Va.), the Financial Services Roundtable and the editorial page of The Wall Street Journal are among those that have called the TAG extension unwarranted.
In his letter to Congress, Cheney noted small banks argue incorrectly that TAG provides liquidity to banks so that they, in turn, can make loans that will stimulate the economy. "The truth," Cheney said, "is that the banking industry's average loan-to-deposit ratio is much lower than its historic averages. In fact, this loan ratio is nearly 20 percentage points lower than it was in 2002. More than $500 billion in new deposits have entered banks since the 2008 banking crisis, and yet bank small business lending is down."
Cheney argued passing the legislation alone would be a poor policy decision. "The TAG program may provide security for very large depositors; but the banks are not lending the money. Credit unions see demand for small business lending in their markets and the most experienced credit unions face a statutory cap on how much they can help. Perhaps if Congress allowed these credit unions to do more business lending, banks would be inspired to lend more as well? They certainly have the liquidity to do so," he said.
Bills that would increase the credit union MBL cap to 27.5% of assets, up from the current 12.25% cap, have been introduced in the U.S. House (H.R. 1418) and Senate (S.2231). CUNA has estimated that the proposed MBL cap increase could inject $13 billion in funds into the economy, creating as many as 140,000 new jobs in the first year following enactment.
CUNA continues to work with members of Congress to pass credit union MBL legislation this year.
To view the full CUNA letter, click here.