RSS Feed MenuThere’s no reason for conservatives to get excited about the “small business lending fund” bill that the Senate plans to consider after it returns from recess. But one amendment under consideration, an easing of the the cap on credit union business lending, deserves consideration both on its own and as a template for bipartisan action to get the economy moving.
Here’s the background: Although the House-passed small business lending bill is certainly well intentioned—plenty of small businesses owners with good ideas are having trouble getting loans–the Obama administration’s idea of offering $30 billion in federal aid to small banks who will, in turn, lend more to private business seems a bit questionable. If more government intervention of any sort would have produced a strong, sustained recovery, we’d already be in the middle of one. The amendment, proffered by Sen. Mark Udall (D-CO), however, is a lot better than the bill as a whole.
In particular, it revives a proposal that’s been bouncing around for a few years to increase (but not eliminate) the government-imposed cap on lending from credit unions. Currently, credit unions –non-profit institutions that provide bank-like services to limited groups of members—can’t lend more than 12.25 percent of their assets to businesses. Udall’s amendment would lift that to 27.5 percent and thereby interject billions of dollars of new business credit into the economy. (The bill should go further: The cap has no good reason for existing at all.) Unlike the Obama administration’s proposal, furthermore, the amendment doesn’t put a single federal dollar at risk. Banks oppose the bill because they don’t want the additional competition. But it’s good for the economy.
And the underlying idea of reducing needless regulations to stimulate the economy ought to receive more consideration from Congress and the executive branch. Some other specific proposals in the bill may be worth considering—granting smaller public companies an exemption from Sarbanes-Oxley’s most burdensome audit provisions and making it much easier for small and medium-sized banks to comply with the Community Reinvestment Act—but a lot of actions won’t even require as heavy of a legislative lift.
Congress can revive the excellent but too little used concept of passing “corrections” bills intended to suspend, delay, or change poorly conceived regulations. Such bills should do what Speaker Newt Gingrich promoted when he vigorously pushed the idea in the mid-1990s: undo specific, clearly stupid government actions without modifying the underlying regulations. (That’s also important but, obviously, requires a lot more deliberation than simply making a “correction.”)
If President Obama wants to make good on his promises to streamline the executive branch and run government better, likewise, he could order a bottom-up review of federal regulations with an emphasis on undoing growth-hindering regulations. George H.W. Bush ordered such a review in 1991 and 1992 and his administration managed to streamline a fair number of antiquated rules in the process. The action didn’t help Bush get re-elected (it wasn’t exactly campaign commercial material) but it did contribute to the economic recovery that greeted Bill Clinton.
The federal regulatory state is, by almost all accounts, too big and burdensome, particularly for small business. Sen. Udall’s proposal to undo one particularly destructive regulation has a lot of merit. And it should serve as a template for further action in nearly all fields of regulatory policy.
busboy33 // Aug 30, 2010 at 8:43 am
“The federal regulatory state is, by almost all accounts, too big and burdensome, particularly for small business. ”
There may well be some merit to the overall idea . . . but IMO you might want to throttle back on the “less regulation!” mantra for a few years.
Get My Credit Report and Score – Best Online Report – Video // Aug 30, 2010 at 9:37 am
[...] For a Better Stimulus: Free the Credit Unions | FrumForum [...]
curvehead66 // Aug 30, 2010 at 9:38 am
Some areas of government still are overregulated, some anre underregulated. I am an accountant by trade; I live in New York state, far from NYC. I absolutely believe in the need for solid regulation. But because I live in the same state as Wall Street I am burdened by regulations that make great sense if you are auditing a hedge fund. Doing taxes for family farmers, not so much. So there is still some merit in fine tuning regulation to specific needs. The electorate is not so dumb that they can’t see the sense in logic greater than a sound bite.
sinz54 // Aug 30, 2010 at 9:49 am
Lehrer: If President Obama wants to make good on his promises to streamline the executive branch and run government better
He’s not serious about it.
He threw that in just to win the votes of moderate voters.
What’s nearest and dearest to Obama’s heart is to vastly expand the scope of federal power to “help” those he thinks need a lot of help: The United Auto Workers; the National Education Association; the blacks; and the Hispanics. Who he hopes will turn right around and vote to re-elect him in 2012.
Non-Contributor // Aug 30, 2010 at 9:57 am
While they are at it lets also lower the eligibility requirements and increase the fees. Then we can bundle the loans, sell them to Goldman, and have them create derivatives so all can be resold as triple A tranches.
Of course all this assumes that small businesses actually want to borrow money to expand capacity and payrolls. My guess is there is a consumption problem and a targeted government stimulus package that creates consumption is much more worthwhile.
credit union advocate // Aug 30, 2010 at 10:23 am
Credit Unions want and need to be able to make loans to small businesses as they see fit. If bankers are against it, and they are, then it’s got to be good for credit unions.
How much it might help the economy is another issue though. As said in prior comments, there is a consumption problem that needs to be fixed. Time might be the only cure.
easton // Aug 30, 2010 at 12:10 pm
Non-contributor, that is a good point, you can’t have a consumer based economy without, you know, consumers. However Eli has a good point, I see no reason why the limit is so low (eliminating it though would be reckless, I would have no faith in one that had no limits and hence would avoid it). In addition, people use Credit unions for many things, my father belonged to one and financed quite a lot with that money.
And while the US consumer market is down, the market in Asia has been steadily going up. Americans are not the only consumers in the world. Sadly, Americans still have not gotten the knack of how to do business in China, there are a host of US consumer products you simply can not find in China.
For a Better Stimulus: Free the Credit Unions // Aug 30, 2010 at 4:23 pm
[...] the Credit Unions,” originally appeared in the Frum Forum on August 30, 2010 and can be found at http://www.frumforum.com/for-a-better-stimulus-free-the-credit-unions. Tweet Cancel [...]
Rabiner // Aug 31, 2010 at 3:21 pm
To Eli Lehrer:
“The bill should go further: The cap has no good reason for existing at all”
This is a terrible idea. While I agree that the cap should be increased, eliminating a reserve requirement would be reckless. It may not be a bank per say but as a bank like institution it should have many of the same regulations.
For A Better Stimulus: Free The Credit Unions. Or Possibly Not. Eli Lehrer And Scott Hodge Disagree About Credit Unions, And The Purpose Of The Tax Code. // Sep 2, 2010 at 5:15 pm
[...] Eli Lehrer on September 2, 2010 At the end of August, Eli Lehrer wrote an article arguing that “an easing of the the cap on credit union business lending deserves consideration both on its [...]
Letter From Washington – Typically Awful // Sep 16, 2010 at 8:41 am
[...] Senate is currently considering a “small business lending proposal” that I write about here . Unlike a fair number of proposals from the Left that can’t work on their own terms, this bill [...]
Banty // Sep 2, 2011 at 4:00 pm
“Banks oppose the bill because they don’t want the additional competition. But it’s good for the economy.”
Big banks are taking it on the chin by depositors moving to credit unions and small banks. There’s a grassroots sentiment against TBTF Banks, and people are looking for alternatives. it’s no surprise many are eager to go to credit unions for business loans.
I don’t know what the bank lobbyists call it. I call it a free market.
Stewardship // Sep 2, 2011 at 4:03 pm
Credit unions don’t pay income taxes. Why not give the same status to community banks (banks with less than $500 million in total assets, 80% of ownership lives within a 50 mile radius of the headquarters, 80% of loans made within market area). This would spur investment in small towns and cities across America…many towns that long ago lost their banks to a merger. We’d see a re-population of middle and senior management in places where there are no white collar jobs, other than the local insurance/real estate broker. Community service clubs would see a revival, etc, etc.
It may even spur the break up larger bank corporations…which, with every merger, have driven nails into the coffins of small communities across this nation. More than anything, we need a thriving, competitive community banking system….not a handful of mega banks with no stake in individual communities.