The op-ed by State Employees Credit Union CEO Rod Staatz ("Let credit unions do their job," April 25) compels me to respond on behalf of the Maryland banking industry. In his commentary, Mr. Staatz, who runs Maryland's largest credit union, argues that the congressionally-mandated cap on credit union small business lending should be more than doubled (from 12.25 percent of assets to 27.5 percent of assets) as called for in a bill (S. 2231) pending in Congress.
We strongly disagree. This is a lending grab by a very small number of aggressive, growth-oriented credit unions to expand into an area well beyond their congressionally mandated mission in a manner that jeopardizes their safety and soundness. It is an effort opposed by both community banks and smaller credit unions.
Credit unions were created by Congress to serve individuals within a specific membership base. In recognition of the membership restrictions, they were granted non-profit status and therefore are exempt from paying state and federal income tax and other taxes and are excluded from important regulations such as the Community Reinvestment Act under which banks give back to communities through lending, investments and service. Credit unions also must limit the small business lending that they do, and rightfully so. They were chartered to serve individuals and lack the expertise or regulatory structure required to expand more aggressively into the complex world of commercial lending.
Traditional, FDIC-insured banks (there are 130 operating here in Maryland) are finding it increasingly difficult to compete against these tax-exempt credit unions. My community bank members tell me that approximately 35 percent of their net earnings go to pay for state and federal taxes. Expanding credit union small business lending will shift business from taxpaying banks. This tax revenue is used to support government programs and communities across our state. The Congressional Budget Office estimated that a bill similar to S. 2231 would result in $354 million in lost tax revenue over 10 years.
Mr. Staatz argues that the legislation is needed because community banks aren't lending. Nothing could be further from fact. Banks are actively lending and looking for lending opportunities. Banks earn a much higher return on loan interest than they do earnings on investments these days. Despite the sluggish economy, banks added over $180 billion in business loans over the last 18 months. Here in Maryland, more than $204 million in Small Business Administration Loans were made in 2011 alone, the vast majority by banks and the highest total in 10 years. Business lending increased 13.6 percent in the fourth quarter of 2011 and totaled $1.3 trillion, according to the FDIC.
The pace of business lending is affected by many things, the most important of which is demand from borrowers. A new report by the National Federation of Independent Businesses found that the top concern for businesses remains lack of sales. Without strong sales prospects, businesses won't hire more workers, grow production, or invest in new products. According to the NFIB, "Money is available, but most owners are not interested in a loan to finance the purchase of equipment they don't need."
It is a myth that the current credit union lending cap is hampering business lending. Maryland's credit unions have plenty of room to grow lending under the existing 12.25 percent cap. Interestingly, SECU itself is well below the cap with only 2.4 percent of its assets in business loans. The vast majority of credit unions in Maryland have none of their assets in business loans. And any credit union business loan of less than $50,000 or made through the SBA are not counted toward the cap.
Smaller credit unions themselves are worried about the money-grab from a few of the largest credit unions. Recent letters from credit union CEOs highlight this fact. A letter from the CEO of the Glendale Area Schools Federal Credit Union to the Senate leadership stated this concern on behalf of what he calls the "silent majority" of credit unions that neither wants nor needs this legislation. Dennis Moriarity, treasurer-manager of Unity Credit Union in Warren, Mich., wrote that he is concerned that the expanded authority would expose the thousands of credit unions that do not engage in business lending or are not at ease operating within the current limits of law to increased risk. He noted that credit unions that comply with current law could be forced to pay for the mistakes of credit union lenders who are "unfamiliar with the complexity of business lending or who might ignore risks in pursuit of revenues."
We have no beef with the non-profit status of credit unions that are serving the role intended by Congress. However, the more a credit union changes its balance sheet to operate more like a bank, it should convert to a bank charter and assume all of the responsibilities that come with being a bank. That includes complying with greater regulatory scrutiny, giving back to their communities through the Community Reinvestment Act and paying income taxes.
Kathleen M. Murphy, Annapolis
The writer is president and CEO of the Maryland Bankers Association.