Like most Congresses swept out in a wave of voter anger, patient the lame duck body currently in session seems likely to pass continuing resolutions, a few non-controversial measures, and go home for the holidays. Before it leaves Washington, however, there’s one provision, a measure to ease restrictions on credit union business lending, that Congress really should consider and pass if it wants to show it’s serious about getting the economy moving again.
The policy, proffered by Sen. Mark Udall (D-CO), raises the cap on business lending by credit unions—member owned, democratically controlled financial institutions with defined fields of membership—from 12.25 percent of assets to 27.5 percent of assets. The bill doesn’t allocate a dime from the federal Treasury and will produce billions of dollars in new loans, mostly to smaller businesses. If implemented, the proposal will provide loans to businesses that wouldn’t otherwise get them, encourage more lending by banks, and offer a market oriented piece of economic stimulus.
Quite simply, the bulk of credit union business lending goes to very specific types of businesses–organic farms, sculptors, and New York City taxi drivers are three representative groups—that want to post collateral most banks can’t easily value and may not have publically advertised prices anywhere. Because they serve specific groups, however, credit unions often have staff with insider knowledge of specific industries that lets them secure loans that banks balk at. As a result, a very large portion of credit union business loans go to businesses that simply wouldn’t get credit anywhere else. Since credit unions generally have about the same default rates as banks, they clearly know what they’re doing when they make these loans.
Even better, more lending by larger credit unions will have a good impact on the banks that make the most loans. Credit unions, overall, control about 6 percent of the market for depository institution services (less for business loans) and have remained at about the same place for more than three decades. Because they operate on a different calculus (“Can we, at least, break even while doing the things our members want?” rather than “How can we maximize stockholder returns?”) credit unions keep banks honest. If banks really are hoarding capital they might otherwise lend—the evidence on that is mixed—more credit union business lending will certainly encourage more bank lending.
Finally, although the bill has mostly Democratic support in the Senate (prominent Republicans including Ron Paul (R-TX) and Ed Royce (R-CA) loudly support the House version) it’s a measure that conservatives should embrace. It simply gets government out of the market’s way. Of course, it could go further–the cap was simply a political payoff to the banks and has no good reason for existing at all—but it’s a good start. Congress should enact the Udall proposal without delay.