    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

                         H.R. 1418: THE SMALL BUSINESS
                        LENDING ENHANCEMENT ACT OF 2011

    =======================================================================

                                    HEARING

                                   BEFORE THE

                     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                              AND CONSUMER CREDIT

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                OCTOBER 12, 2011

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 112-72

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                       SPENCER BACHUS, Alabama, Chairman

    JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts,
        Chairman                             Ranking Member
    PETER T. KING, New York              MAXINE WATERS, California
    EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
    FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
    RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
    DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
    WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
    JUDY BIGGERT, Illinois               BRAD SHERMAN, California
    GARY G. MILLER, California           GREGORY W. MEEKS, New York
    SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
    SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
    RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
    PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
    JOHN CAMPBELL, California            JOE BACA, California
    MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
    THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
    KEVIN McCARTHY, California           DAVID SCOTT, Georgia
    STEVAN PEARCE, New Mexico            AL GREEN, Texas
    BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
    MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
        Pennsylvania                     KEITH ELLISON, Minnesota
    LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
    BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
    BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
    SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
    NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
    JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
    ROBERT HURT, Virginia
    ROBERT J. DOLD, Illinois
    DAVID SCHWEIKERT, Arizona
    MICHAEL G. GRIMM, New York
    FRANCISCO ``QUICO'' CANSECO, Texas
    STEVE STIVERS, Ohio
    STEPHEN LEE FINCHER, Tennessee

                       Larry C. Lavender, Chief of Staff
           Subcommittee on Financial Institutions and Consumer Credit

                 SHELLEY MOORE CAPITO, West Virginia, Chairman

    JAMES B. RENACCI, Ohio, Vice         CAROLYN B. MALONEY, New York,
        Chairman                             Ranking Member
    EDWARD R. ROYCE, California          LUIS V. GUTIERREZ, Illinois
    DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
    WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
    JEB HENSARLING, Texas                RUBEN HINOJOSA, Texas
    PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
    THADDEUS G. McCOTTER, Michigan       JOE BACA, California
    KEVIN McCARTHY, California           BRAD MILLER, North Carolina
    STEVAN PEARCE, New Mexico            DAVID SCOTT, Georgia
    LYNN A. WESTMORELAND, Georgia        NYDIA M. VELAZQUEZ, New York
    BLAINE LUETKEMEYER, Missouri         GREGORY W. MEEKS, New York
    BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
    SEAN P. DUFFY, Wisconsin             JOHN C. CARNEY, Jr., Delaware
    FRANCISCO ``QUICO'' CANSECO, Texas
    MICHAEL G. GRIMM, New York
    STEPHEN LEE FINCHER, Tennessee

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        October 12, 2011.............................................     1
    Appendix:
        October 12, 2011.............................................    51

                                   WITNESSES
                          Wednesday, October 12, 2011

    Grinnell, Gary, President and Chief Executive Officer, Corning
      Federal Credit Union, on behalf of the National Association of
      Federal Credit Unions (NAFCU)..................................    29
    Hanson, Michael C., President and Chief Executive Officer,
      Massachusetts Credit Union Share Insurance Corporation (MSIC)..    33
    Kelly, Albert C., Jr., President and Chief Executive Officer,
      SpiritBank; and Chairman-Elect, American Bankers Association,
      on behalf of the American Bankers Association (ABA)............    28
    Marranca, Salvatore, Director, President, and Chief Executive
      Officer, Cattaraugus County Bank; and Chairman, Independent
      Community Bankers of America, on behalf of the Independent
      Community Bankers of America (ICBA)............................    26
    Matz, Hon. Deborah, Chairman, National Credit Union
      Administration (NCUA)..........................................     7
    York, Jeff, President and Chief Executive Officer, Coasthills
      Federal Credit Union, on behalf of the Credit Union National
      Association (CUNA).............................................    31

                                    APPENDIX

    Prepared statements:
        Grinnell, Gary...............................................    52
        Hanson, Michael C............................................    70
        Kelly, Albert C., Jr.........................................    77
        Marranca, Salvatore..........................................    88
        Matz, Hon. Deborah...........................................    95
        York, Jeff...................................................   120

                  Additional Material Submitted for the Record

    Capito, Hon. Shelley Moore:
        Additional information provided by the Credit Union National
          Association in response to questions raised at the hearing.   150
        Written statement of the Credit Union Supplemental Capital
          Coalition..................................................   158
        Letter from the National Association of REALTORS............   196
    Hinojosa, Hon. Ruben:
        CRS Report for Congress entitled, ``Should Credit Unions Be
          Taxed?''...................................................   197
        CRS Report for Congress entitled, ``Credit Union Member
          Business Loans''...........................................   218
        Letter from the Credit Union National Association............   225
        Letter from the Independent Bankers Association of Texas.....   229
        Written responses to questions submitted to Gary Grinnell....   232
        Written responses to questions submitted to Albert C. Kelly,
          Jr.........................................................   235
        Written responses to questions submitted to Jeff York........   237
    Luetkemeyer, Hon. Blaine:
        Written responses to questions submitted to Hon. Deborah Matz   242
    Grinnell, Gary:
        Various letters submitted for the record.....................   243

                         H.R. 1418: THE SMALL BUSINESS
                        LENDING ENHANCEMENT ACT OF 2011

                                  ----------

                          Wednesday, October 12, 2011

                 U.S. House of Representatives,
                 Subcommittee on Financial Institutions
                                   and Consumer Credit,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 2:05 p.m., in
    room 2128, Rayburn House Office Building, Hon. Shelley Moore
    Capito [chairwoman of the subcommittee] presiding.
        Members present: Representatives Capito, Renacci, Royce,
    Manzullo, McHenry, McCotter, Pearce, Westmoreland, Luetkemeyer,
    Huizenga, Duffy, Canseco, Grimm, Fincher; Maloney, Hinojosa,
    McCarthy of New York, Baca, Scott, Meeks, and Carney.
        Also present: Representative Sherman.
        Chairwoman Capito. This hearing will come to order. I would
    like to inform members of the subcommittee that we are
    expecting a long series of votes, four votes, around 5 p.m.,
    this evening. It is my intent to complete this hearing before
    we leave for votes, so I will ask Members and witnesses to
    adhere to the set time limit for statements and questions so
    all Members who are present can ask questions. I appreciate
    everybody's cooperation, which I am sure I will get.
        First of all, I would like to thank Mr. Royce for his
    leadership in offering the legislation before the subcommittee
    today. He has long been a champion for providing regulatory
    relief for credit unions, and I commend him for his efforts.
        Credit unions across the country serve many different
    populations. The Federal charter for credit unions was created
    by the Federal Credit Union Act of 1934, and since then, credit
    unions have grown across the Nation, serving members through
    either a single common bond, multiple common bonds, or through
    community credit unions which are limited to a specific
    geographic region.
        There are currently 7,950 credit unions across the Nation,
    serving 90 million members, with nearly $679 billion of
    deposits. These institutions primarily serve consumer credit
    needs of their members, but some credit unions do engage in
    business lending for their members.
        The Credit Union Membership Access Act of 1998 limits the
    credit union's aggregate member business lending to the lesser
    of 1.75 times the credit union's net worth, or 12.25 percent of
    the credit union's total assets. The legislation before the
    subcommittee seeks to raise this cap to 27.5 for credit unions
    who meet specific criteria.
        I look forward to our witnesses' testimony on the merits of
    this proposal. I am specifically interested in learning more
    about the breadth of credit unions involved in member business
    lending, why more credit unions are not currently involved in
    member business lending, and the cost and benefits of
    increasing the cap on credit union member business lending.
        I would like to thank our witnesses for participating in
    this afternoon's hearing and I look forward to the testimony. I
    would now like to recognize our ranking member, the gentlelady
    from New York, Mrs. Maloney, for the purpose of making an
    opening statement.
        Mrs. Maloney. I want to thank the chairwoman for calling
    this important hearing. This is an issue that I look forward to
    learning more about, and I also want to welcome you, Chairwoman
    Matz, and thank you for being here.
        Credit unions are a vital element of our financial system.
    They provide critical financial services to their members, and
    I am privileged to represent a number of thriving credit unions
    in my district which serve unique populations. United Nations
    Federal Credit Union serves the employees of the United Nations
    across the world in some areas where there are no financial
    institutions. The entertainment industries--the Actors Federal
    Credit Union--to name a few, and just this past year, the first
    credit union to be created in New York in 60 years was created
    in my district at the Queens Bridge Houses, the largest public
    housing project in the City of New York.
        Member business lending is a service that credit unions
    provide to their small businesses. The average loan size is
    about $220,000, and credit union business lending has a
    slightly lower delinquency rate than FDIC-insured institutions
    lending to small businesses, according to one report that I
    read.
        In my State, there are 111 credit unions that offer member
    business lending, often in underserved neighborhoods where
    there are no other financial services. And I have heard from
    many of them that raising the cap--which they support--on
    credit unions has the potential to put out more liquidity,
    employ more people, and help more projects go forward. This
    sounds encouraging, yet financial institutions and community
    banks have grave concerns about raising the cap.
        They argue that raising the cap would give credit unions an
    unfair advantage over banks because credit unions serve special
    underserved areas, and enjoy a special tax status that banks do
    not have. Some banks state that this increased activity would
    allow them to deviate from their mission of serving members of
    modest means and makes them functionally equivalent to banks.
    They also argue that few credit unions are near the cap, and
    the ones that do engage in member business lending do not have
    the expertise to lend to this segment in a safe and sound
    manner.
        These are some of the issues that I hope we can explore
    today. I look forward to learning more about this issue. I
    expect a lively discussion, and I know that the banks in my
    district and the credit unions in my district are deeply
    divided over this issue. So I look forward to the witnesses and
    I look forward to the debate and I look forward to exploring
    this issue more.
        I congratulate all of the Members who have worked hard on
    this issue for many years, and I yield back the balance of my
    time.
        Chairwoman Capito. Thank you.
        I would like to recognize Mr. Royce for 2 minutes for the
    purpose of making an opening statement.
        Mr. Royce. Thank you, Madam Chairwoman. Let me explain the
    intent of the bill. It is to expand access to credit for
    creditworthy borrowers. And I think if you look at the New York
    Federal Reserve study in October, they say that three-quarters
    of small businesses looking for credit in the summer of 2010
    were turned down or received only some of the financing that
    they requested. Three-quarters. And then you have the Wall
    Street Journal story, smaller businesses seeking loans still
    come up empty, and that story cites an 8.6 percent drop from
    last year in terms of the business lending.
        Also, I want to point out that unlike previous versions of
    this bill, this is not a blanket increase in the member
    business lending cap. In order to qualify, a credit union must
    be well-capitalized. It must have at least a 5-year history of
    sound member business lending experience. It must be operating
    near the cap for at least a year, and it must receive the
    approval of their regulator, the NCUA.
        It is also worth noting that this plan differs from other
    proposals we see from the government because, whether it was a
    trillion dollar stimulus bill that failed to meet expectations
    or the recently created Small Business Lending Fund (SBLF)
    program, I just want to point out that the Journal reported
    that of the $4 billion disbursed by Treasury through SBLF, over
    half has come back to the Treasury in the form of TARP
    repayments. One participant even labeled it a shell game.
        So what this does is it allows us, without borrowing the
    money, the ability to free up capital that is currently sitting
    on the sidelines, and economists say it will allow up to $13
    billion to be lent to small businesses, which in turn could
    create 140,000 jobs.
        In closing, I don't believe this legislation will be a
    cure-all, but I do believe it is an idea worth considering
    given the current state of the economy. In the way we have
    crafted the bill, I would urge its support. Thank you.
        Chairwoman Capito. Thank you, Mr. Royce.
        I would like to recognize Mrs. McCarthy for 2 minutes for
    the purpose of making an opening statement.
        Mrs. McCarthy of New York. I would like to thank Chairwoman
    Capito and Ranking Member Maloney for holding this hearing on
    H.R. 1418, the Small Business Lending Enhancement Act,
    companion to a Senate bill introduced by Senators Udall and
    Snowe.
        I believe all my colleagues will agree that we need to
    promote initiatives that will spur job growth and move us
    further towards our efforts towards the economy. In doing so,
    we must look at ways to provide business growth and access to
    credit, especially for our small business community hit the
    hardest by the financial crisis. Small businesses are the
    engine of our Nation's economy, and by enhancing their access
    to credit and lending opportunities, jobs will be created.
        The legislation before us today will enable credit unions
    to further assist American small businesses to increase their
    member business lending authority only after meeting certain
    qualifying criteria, as my colleague Mr. Royce has said. We
    must do all we can to promote economic growth and job creation,
    and this bipartisan, bicameral legislation provides an
    opportunity for credit unions to fill the lending void for our
    small business community.
        This is something that certainly I think is worth
    exploring. It is certainly something I support. With that, I
    yield back the balance of my time.
        Chairwoman Capito. The gentlelady yields back.
        Next, I would like to recognize Mr. Westmoreland for 1
    minute for the purpose of making an opening statement.
        Mr. Westmoreland. Thank you, Chairwoman Capito, for
    yielding and for holding this hearing.
        Credit unions are a vital part of our Nation's financial
    sector. They serve their members well and are in touch with
    their local communities. I belong to a credit union. They are
    good people. Right now, the most important thing credit unions
    and banks can do, however, is to work together. They can and
    must find common ground. Neither one of these groups are going
    to get the reforms that they need with the other standing in
    the way.
        I encourage the witnesses here today in both industries to
    look at themselves and identify their priorities, identify the
    common ground, and work for compromise that will help both
    industries create jobs and get more money into the hands of
    small businesses.
        Additionally, I want to charge the National Credit Union
    Administration and all the banking regulators to work to take a
    hard look at all their regulations and see where changes can be
    made to encourage financial institutions to lend. After all,
    putting capital into the hands of entrepreneurs and business
    owners, large and small, is the only way to get our economy
    back on track and get more Americans back to work.
        Thank you, Madam Chairwoman, and I yield back.
        Chairwoman Capito. Thank you.
        I would like to recognize Mr. Hinojosa for 2 minutes for
    the purpose of making an opening statement.
        Mr. Hinojosa. Thank you. Chairwoman Capito, thank you for
    holding this important and timely hearing today as our Nation
    continues to climb out of the worst economic recession since
    the Great Depression. New Federal laws and regulations are
    changing the structure and face of the financial services
    industry. Today, however, Members of Congress on this
    subcommittee turn our attention one more time to debate whether
    it is wise to increase credit unions' commercial lending limit
    from 12.25 percent of their assets to 27.5 percent of their
    assets. I doubt that such a change would help improve our
    economy and that credit unions have the capital to engage in
    complex commercial lending.
        In 1998, Congress instituted a member business lending cap
    of 12.25 percent of assets in order to ensure credit unions
    stay focused on their mission of serving their membership. This
    is intended to allow credit unions to help their members start
    small businesses, as opposed to allowing credit unions to make
    complex and very large commercial loans.
        A large number of credit unions remain undercapitalized. As
    of June 2011, 381 credit unions are on the NCUA's watch list,
    and five corporate credit unions are in conservatorship.
    Certain data coming across my desk indicates that approximately
    6,900 community banks are adequately capitalized and could
    make, but apparently are not making, commercial loans. If
    community banks are unable or unwilling to make commercial
    loans at this time, why should we believe that credit unions
    can make up the difference when, as noted, over 381 of them are
    on the watch list?
        I realize that many will disagree with my statements. I
    welcome a productive dialogue on the commercial lending limit
    currently imposed on credit unions and legislation that would
    increase it from 12.25 percent of assets to 27.5 percent of
    assets.
        And with that, Chairwoman Capito, I yield back the
    remainder of my time.
        Chairwoman Capito. Thank you.
        I would like to recognize Mr. Luetkemeyer for 2 minutes for
    the purpose of an opening statement.
        Mr. Luetkemeyer. Thank you, Madam Chairwoman.
        Today, we are examining legislation that would more than
    double a credit union's ability to make business loans, despite
    the fact that there are presently few credit unions that engage
    in member business lending, and even fewer that are at the
    current 12.25 percent cap.
        Also, an interesting fact to be aware of in this discussion
    is that between 2008 and September 2010, member credit unions
    that offered business loan products actually decreased from
    1,942 to 1,758, an almost 10 percent drop.
        History tells us that Congress enacted limits on credit
    union business lending in 1998 in order to ensure the safety
    and soundness of the credit union industry and to maintain
    their focus on their lending mission. As we know, credit unions
    enjoy a more favorable tax status than banks and are required
    to comply with different, and in some cases less onerous
    regulations. Each has its own niche to service. Each has its
    own set of rules.
        The question then is, do credit unions really need to get
    out of their niche? In my discussion with credit unions in my
    State, it would appear that a few big national credit unions
    are pushing for this expansion, while the rest really aren't
    all that interested. Many of those largest credit unions are
    bigger and more complex than the average community bank or
    credit union in Missouri. It kind of reminds me of the
    difference in business models between Wall Street banks and the
    community banks.
        I remain unconvinced that the issue at hand is truly one of
    access to credit, as there is plenty of capital and willingness
    to lend in the financial services industry, whether it lies in
    the fact that few businesses are interested in growing in this
    economic climate. Instead, they are hunkering down and trying
    to just survive because of the uncertainty caused by the
    punitive nature of our tax policy and regulatory policy.
        Both the banks and the credit unions have a niche in the
    financial services industry that they serve. Both do a good job
    of servicing their customers in that niche. This bill, however,
    appears to me to be an effort by the credit union industry to
    try and move into another area without having to play by the
    same rules others in that niche have to play by, and that
    causes great concern for me.
        Thank you, Madam Chairwoman. I yield back.
        Chairwoman Capito. The gentleman yields back.
        I would like to recognize Mr. Scott for 2 minutes for the
    purpose of making an opening statement.
        Mr. Scott. Thank you, Madam Chairwoman.
        This is, indeed, an important bill, but the fundamental
    question we have to ask ourselves up front is: What is in the
    best interests of the overall economy? What is in the best
    interest of small businesses especially?
        We currently have a problem of getting money out and
    lending it to small businesses. Is this the sole domain of the
    banks? Do we need to expand the capacity of credit unions? I
    don't know the complete answer to that. Hopefully, we can get
    that answer today.
        I think it would be a good point if we could determine and
    get our hands around an assessment of just how many small
    businesses have been turned away from banks and have been, as a
    result of that, received by the credit unions. I think we have
    to measure this very carefully. Both our banks and our credit
    unions are very important players in our economy, and I think
    when we make this decision on whether or not or how far to
    extend the capacity of credit unions in terms of their total
    assets in terms of their capacity of lending, the decision has
    to be made based on what is in the best interests of the
    consumer, what is in the best interest of small businesses, and
    what is in the best interest of creating jobs.
        And I think in order to do that, we really have to get our
    hands around the entire issue. And the big question is, where
    have banks failed to respond to small businesses? It is
    important that we get that accurate information so that we can
    make the most accurate and the most intelligent decision as far
    as going forward with this bill, and I am interested in working
    on it. I am interested in asking the questions to get to the
    answer, and hopefully, I think, if we can get some good data to
    show that need, it will be very beneficial for both the banks
    and the credit unions, but most importantly, it will be a great
    benefit to our small business community.
        With that, Madam Chairwoman, I yield back.
        Chairwoman Capito. Thank you.
        I would like to recognize Mr. Canseco for 1 minute for the
    purpose of making an opening statement.
        Mr. Canseco. Thank you, Madam Chairwoman.
        If there is one thing to take away from the title on the
    focus of today's hearing, it is that lending to small
    businesses has been severely hampered in recent years, and the
    economy and our ability to create jobs is suffering as a
    result. As I travel the 23rd District of Texas and talk to
    banks, credit unions, and small businesses looking to grow, the
    one word I keep hearing is ``uncertainty:'' uncertainty over
    new rules; uncertainty over the economy; and uncertainty over
    our Nation's enormous debt.
        It has become very clear that a large reason lending to
    small business is hurting right now is from an onslaught of
    regulation that has frightened or forbidden lenders from taking
    any risk. This is threatening the ability of consumers to
    choose from a vast array of financial services and products and
    lenders. It is a monumental problem which could be helped
    through regulatory relief for all types of lenders, especially
    those in small communities, and I look forward to hearing from
    today's panel on how we can help fix this problem.
        Thank you, and I yield back.
        Chairwoman Capito. Thank you.
        That concludes our opening statements.
        I would like to welcome our first panel, which has one
    special witness, and I would like to recognize you for the
    purpose of giving a 5-minute opening statement, the Honorable
    Deborah Matz, who is chairman of the National Credit Union
    Administration. Welcome.

      STATEMENT OF THE HONORABLE DEBORAH MATZ, CHAIRMAN, NATIONAL
                   CREDIT UNION ADMINISTRATION (NCUA)

        Ms. Matz. Thank you, Chairwoman Capito, Ranking Member
    Maloney, and members of the subcommittee.
        I appreciate this opportunity to discuss credit union
    member business lending legislation, regulation, and
    supervision, and the significance for small businesses. As you
    may know, credit unions have always offered member business
    loans, even before the cap was imposed in 1998. Over time, this
    lending has evolved with the needs of entrepreneurs who deserve
    greater, not fewer, affordable credit options.
        Today, credit unions have more than $36 billion in
    outstanding loans to member-owned businesses. Member business
    lending provides three tangible benefits:
        First, it allows small businesses to obtain reasonably
    priced loans. Simply put, more competition benefits the
    marketplace and has positive effects on credit availability and
    costs.
        Second, prudent member business lending diversifies a
    credit union's portfolio. This improves the ability to
    withstand economic cycles.
        Third, member business lending supports communities. It
    spurs job growth and expands consumer access to goods and
    services.
        As the prudential regulator, NCUA recognizes that member
    business lending poses unique risks and requires specialized
    oversight. In response, NCUA has tailored rules to emphasize
    sound underwriting, solid collateral, and tested management.
    These criteria form the foundation of prudent lending.
        Like other loans, member business loan performance is
    cyclical. Recent trends reflect the economic downturn. Member
    business loan delinquencies stood at 53 basis points in 2006,
    peaked at 3.93 percent in 2010, and has since improved by 29
    basis points. While delinquencies and charge-offs increased
    during the recent downturn, these increases primarily resulted
    from the severe decline in real estate values in the five sand
    States: Arizona; California; Florida; Nevada; and Utah.
        Nationwide, more than 2,100 credit unions make member
    business loans. Such lending has increased by 44 percent since
    2007 despite the downturn, but these statistics don't capture
    the fact that member business lending serves an important
    market segment: small businesses; and entrepreneurs.
        On the whole, credit union loans are much smaller than
    other business lenders. The average member business loan is
    only $222,000. Of course, this average represents a wide range
    of loans for a variety of purposes. For example, credit union
    loans for commercial and industrial purposes, such as building
    or equipment, averaged just $128,000. Similar bank loans
    averaged more than five times larger. Credit unions are
    frequently the only lenders making small loans to expand an
    auto repair shop, start a day care center, or open a bodega.
    Member business loans also support local restaurant owners,
    farmers, and other self-employed entrepreneurs who may have
    nowhere else to turn for credit.
        However, credit union member business lending is
    constrained by a cap. Currently, more than one in five credit
    unions making member business loans that are subject to the cap
    have reached 50 percent or more of this ceiling.
        To expand credit union service to small businesses,
    Congressman Royce and Congresswoman McCarthy have proposed H.R.
    1418. The bill's tiered approach would allow healthy, well-
    capitalized credit unions, meeting high standards, to increase
    lending in small, manageable increments. Authority to exceed
    the first tier would not be automatic. Credit unions would have
    to meet stringent standards that place a premium on a proven
    track record of successful management.
        Let me assure you, if Congress increases the current cap,
    NCUA would promptly revise our regulations to ensure that these
    changes would not threaten credit union safety and soundness.
    NCUA would also remain vigilant in carrying out our supervisory
    authority. The proposed bill, together with our responsible
    regulatory approach, would allow credit unions to prudently
    grow their member business lending. In doing so, credit unions
    would diversify loan portfolios and reduce concentration risks.
    H.R. 1418 would require less than adequately capitalized credit
    unions to suspend business lending. This safeguard mirrors
    NCUA's current rule.
        In sum, H.R. 1418 is a well-conceived, balanced approach to
    making more capital available to small businesses while
    ensuring that these loans are made prudently, and consistent
    with each credit union's abilities. Entrepreneurs work hard,
    take risks, and put people to work, but to fulfill their
    dreams, they need capital. Credit unions have long met these
    capital needs. It is discouraging to hear stories from well-
    managed, well-capitalized credit unions which have to turn away
    long-time member businesses because of the cap. H.R. 1418 would
    permit credit unions to empower more enterprising individuals
    and safely meet the needs of more small businesses that are
    expanding and creating jobs for their communities.
        Thank you, and I look forward to your questions.
        [The prepared statement of Ms. Matz can be found on page 95
    of the appendix.]
        Chairwoman Capito. Thank you very much.
        And I will begin the questions.
        Let me just, in point of clarification, I think you said in
    your statement that 2,100 credit unions are now doing member
    lending; is that correct?
        Ms. Matz. That is correct.
        Chairwoman Capito. Okay. And then you said only one in five
    are over the 50 percent cap; is that correct?
        Ms. Matz. Yes.
        Chairwoman Capito. And then you went on to say that they
    are turning down--that there are credit unions that are turning
    down--and you and I talked about this before. Would it be
    accurate to say that not many of these are up against the cap,
    or very few are up against the cap, and so I guess I am kind of
    wondering why the cap--what you think the cap would need to be
    raised to--if people aren't even pushing up against the cap
    that exists right now.
        Ms. Matz. The cap constrains all credit unions, those that
    are making business loans and those that haven't begun. Credit
    unions that haven't started making business loans, but want to,
    have told me that they don't do it because of the cap, because
    they don't want to make the significant investment in hiring
    commercial lenders and in purchasing the infrastructure if they
    are limited by a cap.
        I recently had some credit union CEOs in my office. I asked
    them the question you just put to me, and I got some
    interesting responses. There was one credit union which has
    $220 million in assets. He is currently at only 25 percent of
    the cap. He has made $6 million in business loans, but he knows
    that he has only $18 million left. So he figures that in 3
    years, he will be at his cap. He had a commercial lender who
    resigned, and he made the decision not to replace her because
    he feels that with 3 years left, he is not really going to be
    ramping up. He is going to be splitting the work between the
    remaining employees and not really generating a lot of new
    business. Mostly, he will try to fill the needs of existing
    members.
        I heard something similar from someone who had a $100
    million credit union. She also had $6 million in loans that she
    made, but her cap was a little over $12 million, and she said
    that she is now only making loans to existing members who have
    business loans and need additional loans for expansion, because
    she knows she is going to get near the cap and that she doesn't
    want to turn business away.
        With all of this in mind, my impression is that the cap
    affects all credit unions that are making business loans or
    that want to make business loans.
        Chairwoman Capito. Okay. Can a credit union loan to a
    nonmember--a business loan to a nonmember?
        Ms. Matz. No.
        Chairwoman Capito. No, okay. So that doesn't happen. I
    didn't think so.
        You also mentioned in your statement that member business
    lending had increased by more than 44 percent, and I believe
    Mr. Luetkemeyer in his statement or somebody mentioned that it
    was principally just the very, very large credit unions that
    are doing a lot of the business lending. Was a lot of that
    occurring in the larger credit unions, the increase in business
    lending over the last 4 years?
        Ms. Matz. The largest credit unions have the most capacity,
    but there are credit unions of all sizes making business loans,
    however more of them make loans if they are over $50 million,
    and certainly the larger they are, the more capacity they have
    to make business loans.
        Chairwoman Capito. Right. To make the investment, because
    as you and I talked on the phone, they have to hire commercial
    lending specialists that can analyze the risk, etc.
        Ms. Matz. Right.
        Chairwoman Capito. And the delinquency rate is low for
    member business lending at credit unions. Could you talk a
    little bit more about that? I know you said it had risen over
    the last several years, but if you could just expand on that?
        Ms. Matz. I wouldn't classify it as low, but it is trending
    down, and it is lower than the bank delinquency rate for
    comparable levels of delinquency, but I don't get all that
    concerned about delinquency because once you see the
    delinquency, we supervise it, we will get in and get the credit
    unions to manage it. Delinquencies don't necessarily result in
    charge-offs, and charge-offs don't necessarily result in losses
    if the loans were well-collateralized, and if they were
    underwritten well.
        As you know, I look at delinquency as a trigger as to
    whether the credit union needs to change something about the
    way it is doing business, but it is not something that alarms
    me, and it is not necessarily related to their losses.
        Chairwoman Capito. Are more--and you might have said this
    in your statement--credit unions entering the member business
    lending arena or exiting it right now, with this cap the way it
    is?
        Ms. Matz. It depends on the timeframe you are looking at,
    but we have had an increase over the past several years of
    credit unions making business loans.
        Chairwoman Capito. Thank you. My time has expired. Mrs.
    Maloney?
        Mrs. Maloney. Thank you. Do credit union members have the
    ability to encourage or prevent their credit union from
    originating member business loans?
        Ms. Matz. No.
        Mrs. Maloney. They don't? So if this bill were to become
    law, how can NCUA, or your organization, ensure that the credit
    unions will continue to maintain prudent safety and soundness
    standards?
        Ms. Matz. If this becomes law, we will develop regulations
    that tier the increase. Under the proposed legislation, a
    credit union could increase their loans by 30 percent each
    year. We will probably develop some sort of tiering which gears
    the increase to certain levels of accomplishment.
        We also have been looking at revising our member business
    rule to perhaps increase the experience level of the senior
    member business lending official. So we will develop stringent
    regulations to enforce the legislation and make sure that it is
    done safely.
        Mrs. Maloney. In your view, what are the most important
    reasons for Congress to consider this bill and pass it, the
    Small Business Lending Enhancement Act?
        Ms. Matz. It enhances safety and soundness because of the
    tiered approach. It permits credit unions to make loans and to
    make them in a safe and sound manner. It also fills a very
    important need in the community. I encourage credit unions to
    think about making business loans because it diversifies their
    portfolio. Credit union portfolios are made up almost
    exclusively of autos and mortgages, and often they are long-
    term, fixed-rate mortgages which have interest rate risk. So
    having a percentage of member business loans on their books
    diversifies their portfolios and that in itself is a safety and
    soundness measure.
        In addition, they are filling a need in the community. As
    you know, these are very small loans. The average is $222,000,
    and it is sometimes difficult for small businesses to get that
    size loan from another financial institution.
        Mrs. Maloney. In your view, how many credit unions would
    meet the requirements listed in the bill and be eligible to
    lend up to the 27 percent of assets?
        Ms. Matz. Of the credit unions that are 80 percent or more,
    I think about half of them. I don't remember exactly, but I
    think about half of those that are up against the cap would
    immediately qualify to go above it, but I don't have the exact
    number.
        Mrs. Maloney. How does the credit union decide to go into
    lending business loans and to begin lending in that area? I
    know that many of my credit unions in underserved areas do not.
        Ms. Matz. It is really a business decision between the
    management and the credit union board of directors, if they
    have the need in their community, they feel that they can make
    the investment, they have enough capital, and they are well-
    managed enough and can get approval to start making the
    business loans. It is really an individual decision made by the
    board and the management.
        Mrs. Maloney. You mentioned, or it was in your testimony
    that raising the member business lending cap would increase
    diversity in the lending portfolio; is that correct?
        Ms. Matz. Yes.
        Mrs. Maloney. And why is that important?
        Ms. Matz. Because credit unions are concentrated in auto
    loans and mortgage loans, and a great many of these mortgage
    loans tend to be fixed-rate mortgage loans, so in that, there
    is interest rate risk. This is an opportunity to diversify
    their portfolio and get some of that interest rate risk off of
    their books.
        Mrs. Maloney. Thank you. My time has expired. Thank you for
    your testimony.
        Ms. Matz. Thank you.
        Chairwoman Capito. Thank you. I would like to recognize Mr.
    Renacci for 5 minutes for questions.
        Mr. Renacci. Thank you, Madam Chairwoman, and thank you,
    Chairwoman Matz, for being here.
        I am trying to get a handle on demand. What is the demand
    of small business loans? What is the demand--the community
    banks, when I talk to them, say there is not enough demand
    today, and the loans that they are seeing may not be as
    creditworthy as they are allowed to assume or finance.
        So the question I would have for you is--and I know in your
    conclusion you said that this bill has the potential to
    increase the access of small businesses to capital, promote job
    growth, and diversify credit union portfolios. I agree with the
    third position. I am trying to get a handle on the first two.
    If the demand isn't there, where is the borrowing capacity that
    credit unions are looking for? If the small community banks
    can't finance that loan, why are the credit unions able to do
    it?
        Ms. Matz. I am not in a position to address the community
    bank situation, but credit union member business lending has
    been going up, and since 2006 it has gone up by 44 percent. It
    has gone up even in this past year. So there is a demand for
    credit union loans and--
        Mr. Renacci. I am going to interrupt you there, but I am
    trying to get to that point. What type of loans--are these
    loans that the community banks aren't able to do?
        Ms. Matz. In some cases, they are. In some cases, I am told
    that credit unions have made loans that have not been made by
    banks, probably because of the size, because they are very
    small loans. They are not because of the risk quality of the
    loans, because the credit unions do good underwriting, but
    generally I believe it is because of the size.
        But to the point that was made before by I think Mr.
    Westmoreland, I often hear from credit unions about credit
    unions and banks working together. I hear from so many credit
    unions that, aside from the squabbling on the national level,
    that in their communities they do work with the banks and that
    they send members to banks if they can't make the loan, and
    frequently the banks will send them members for loans that they
    feel they can't make. So I think there is some reciprocity
    actually in the communities.
        Mr. Renacci. I still am a little bit--and again, in your
    testimony, you said that it has increased 44 percent. Give me
    some examples. Give me five or six examples of credit unions,
    what they have lent to in the business community that maybe
    could not be handled by a community bank or a small community
    bank. Again, I am getting back to the demand situation.
        Ms. Matz. I don't know if these can or can't be handled by
    the community banks, but what I am told is that they might make
    loans to someone who is starting a day care or opening or
    expanding a restaurant or young people who might be starting
    some business in their community, small businesses generally in
    the community.
        Mr. Renacci. So you don't believe there is any chance that
    the creditworthiness is an issue; you think it is very similar
    from--
        Ms. Matz. Delinquency rates for credit unions are a little
    bit lower than they are for banks, so I don't believe that
    creditworthiness is the issue.
        Mr. Renacci. I know back in Ohio, in my district and also
    in the State, when I have talked to the credit unions--and I am
    a big supporter of all proponents. We have to get dollars back
    out to small business owners, but when I keep hearing small
    business owners cannot borrow money because of regulations and
    some of the overburden of regulations--I have personally seen
    options where the only way that a bank could lend money to a
    small business owner or to one of the businesses you have
    talked about, is they have to put up a hundred percent cash as
    collateral or there have to be certain collateralization of
    those mortgages.
        So I question where credit unions--and most of the credit
    unions in Ohio said that they are not up against these limits.
    There are only a few. There are some. And so the question
    really comes down to, do the credit unions--this doesn't seem
    to be a capacity problem for all of them. It seems to be a
    capacity problem for just a few; is that correct?
        Ms. Matz. Yes, that is correct. But the cap has been a
    limiting figure for all credit unions that make business loans,
    because they are mindful of the cap. So they, as I said before,
    in some cases, if a staff person leaves, they won't fill the
    position or they won't really market, they will just deal with
    repeat customers because they are mindful of the cap. They
    don't want to get close to the cap and then have to turn away
    business.
        Mr. Renacci. Thank you, Madam Chairwoman.
        Chairwoman Capito. Thank you. And I would like to recognize
    Mr. Hinojosa for 5 minutes for questions.
        Mr. Hinojosa. Chairwoman Matz, Congress created the
    Corporate Credit Union Stabilization Fund you proposed. It
    allows credit unions to spread the entire cost of replenishing
    the losses experienced by the conservatorship of the corporate
    credit unions over a 7-year period. Had Congress not created
    the Corporate Credit Union Stabilization Fund, credit unions
    would have been forced by law to recapitalize the losses from
    the recent crisis in 1 year, thereby endangering many credit
    unions and their membership. It is my understanding, as I noted
    in my opening remarks, that a number of those credit unions
    remain undercapitalized.
        As of this year, June 2011, I believe you placed 381 credit
    unions on your watch list, and 5 corporate credit unions have
    been put in conservatorship. I also noted certain data
    indicates that 6,900 of those community banks are adequately
    capitalized and could make, but they are not making commercial
    loans for some reason. If community banks are unable or
    unwilling to make those loans at this time, why should we
    believe that the credit unions can make up the difference?
        Ms. Matz. Credit unions have been increasing their business
    loans. As I said before in my testimony, since 2006, business
    lending in credit union--
        Mr. Hinojosa. I cannot hear you. Can you speak a little
    louder?
        Ms. Matz. Business lending in credit unions has increased
    44 percent since 2006. So they have been increasing their
    business lending.
        Mr. Hinojosa. Why should Congress alter the member business
    lending cap it imposed on the credit unions back 15 years ago?
        Ms. Matz. I'm sorry, I didn't--
        Mr. Hinojosa. Why should Congress alter the lending cap it
    imposed on the credit unions in 1998?
        Ms. Matz. It will provide more opportunity for credit
    unions to make business loans, which serves an important need
    in their community. These are loans that are very small. The
    average is $222,000. They are made to small businesses that are
    members of the credit union. So they fill an important need in
    the community. But as a regulator, I think it is important
    because it helps to diversify their portfolios. And I think
    that it provides an extra measure of soundness, of diversity to
    their portfolio, which is another safety and soundness measure.
        Mr. Hinojosa. How do you feel about Congress taking and
    reforming the Act that allows the credit unions to make loans
    and consider changing the tax exemption that you have, or that
    they have, and letting you all pay taxes?
        Ms. Matz. Tax exemption is an important issue, but it is
    really a decision that Congress has to make. As a potential
    regulator, I just focus on safety and soundness. And if credit
    unions were taxed, it would have a very serious adverse impact
    on their safety and soundness, because the only way credit
    unions can raise capital is through retained earnings. They
    can't sell stock. They can only have retained earnings from
    within their membership. If they were limited to their retained
    earnings and they were taxed, their net worth would be reduced
    significantly. So it would have a very serious impact on their
    safety and soundness.
        Mr. Hinojosa. I yield back.
        Chairwoman Capito. The gentleman yields back. I would like
    to recognize Mr. Royce for 5 minutes for questions.
        Mr. Royce. Thank you.
        Chairwoman Matz, would you pull the microphone close to you
    there, just pull it up close. Okay.
        One of the things you say in your testimony is that
    empirical results suggest that each dollar of new member
    business lending by credit unions generated 81 cents of an
    entirely new credit source for small businesses. So lending to
    small business is higher when credit unions are making small
    business loans. You say that most credit union member business
    lending is not simply taking the place of small business
    lending that banks would have done anyway. In other words, if
    that dynamic is going on, is that because many of these loans
    are smaller loans?
        Ms. Matz. Yes, that is my understanding.
        Mr. Royce. That is what drives it, and that in turn, your
    argument is that this drives access to credit in a way that
    otherwise wouldn't occur?
        Ms. Matz. That is correct.
        Mr. Royce. Without--maybe explain for a little bit the
    problem that the credit unions under the $45 million in assets
    have when making member business lending loans, given that such
    programs have a certain economy of scale, right?
        Ms. Matz. Yes.
        Mr. Royce. And so you are up against the 12.25 percent cap.
    Two-thirds of credit unions are under this $45 million in
    assets. For those above, they have generally had the member
    business lending programs, but the cap then is a factor in them
    making the decision in terms of member business lending, right?
        Ms. Matz. That is right.
        Mr. Royce. Because of the economies of scale?
        Ms. Matz. That is correct.
        Mr. Royce. Let me ask you another question. As the
    regulator tasked with ensuring credit unions remain safe and
    sound, do you believe credit unions have the experience and
    expertise for this type of member business lending?
        Ms. Matz. Definitely, yes, and I think that their track
    record indicates that. Their delinquencies are competitive.
    Their charge-offs are not very high. Between 2009 and 2010, 55
    credit unions failed, and only one of those failures was
    related to business lending. So I think they have a very good
    track record.
        Mr. Royce. Let me ask you another question. Are you
    concerned that raising the cap would open the credit unions up
    to additional risk?
        Ms. Matz. No, I am not. I think that the tiered approach
    provides an excellent way for credit unions to increase their
    lending in a very safe and sound way. We would be supervising
    it very carefully, and they would have to meet some very
    significant thresholds in order to get beyond the 12.25
    percent.
        Mr. Royce. And the methodology here is also this isn't a
    blanket increase for all credit unions; there is a series of
    criteria that would have to be met in order to qualify--they
    would have to show they had this expertise. As I understand the
    way it would work, they would have to get the approval--
        Ms. Matz. That is correct.
        Mr. Royce. --in order to move forward? Let me ask you
    another question. We have alternative programs out there, but
    one of them was the $30 billion Small Business Lending Fund.
    Now, for those of us here, we know how that was supposed to
    work, but the Wall Street Journal just ran a piece last October
    6th that says that more than half of the money that has gone
    out has come back to the Treasury so that those institutions
    can get out from under the TARP restrictions and higher rates.
    One of the participants even called this a shell game.
        The advantage with respect to the approach we are doing
    here is that we are not taking Federal--we are not going out
    and borrowing additional Federal funds to do it. We are trying
    to take a focused area of expertise that certain credit unions
    have on small business lending and expand that cap in a way
    that for the segment of the market where what, three-quarters--
    I am going through the study by the Fed--three-quarters of
    small businesses are saying they don't have access, they were
    turned down in terms of the credit that they were seeking in
    2010, or they received only some of the financing that they
    requested. Would this help meet that demand?
        Ms. Matz. Very much so. Our chief economist has estimated
    that the passage of the legislation that you have introduced
    would add $5 billion in new lending.
        Mr. Royce. And that is a lot of jobs that would go with
    that $5 billion?
        Ms. Matz. A lot of jobs.
        Mr. Royce. Madam Chairwoman, my time has expired. Thank
    you, Chairwoman Matz.
        Chairwoman Capito. The gentleman's time has expired. I want
    to recognize Mrs. McCarthy for 5 minutes for questions.
        Mrs. McCarthy of New York. Thank you, Madam Chairwoman.
        I know we have all asked you to speak a little bit louder.
    You have a very soft voice so all of us up here are really
    struggling to hear your answers. So if you could speak right
    into the microphone, it would help not only us, but everybody
    behind you, to hear you.
        If you could really discuss a little bit deeper the
    adjustments in regulations and oversight from when the NCUA
    first adopted rules and regulations regarding member business
    lending prior to the lending cap, up to currently with the
    lending cap in place.
        Ms. Matz. The rules that we have put in place?
        Mrs. McCarthy of New York. Yes.
        Ms. Matz. We have had numerous iterations over the years in
    the regulations overseeing business lending, we have limits on
    how many loans can be made to one borrower, on the experience
    level of the business lenders on how much collateral is
    required, and on personal guarantees. So we have put in place a
    number of regulations to make sure that business lending is
    done in a safe and sound way, that it is underwritten well and
    well-collateralized.
        Mrs. McCarthy of New York. So if this legislation moves
    forward, what kind of legislation do you see coming down--or
    how do you basically look to put regulations out there for
    safety and soundness to make sure that this is being carried
    through in the intent of what the bill is looking for?
        Ms. Matz. I could see NCUA coming through with regulations
    dealing with the 30 percent annual increase, so that credit
    unions that made the cut to the second tier couldn't
    automatically go up to 30 percent increase in their business
    lending. There would be additional thresholds for them and
    additional qualifications that they would have to have in order
    to get there. We probably would also increase even further the
    experience required of their senior commercial business lender.
        Mrs. McCarthy of New York. Just to kind of follow through
    on that. With the developments that have occurred within the
    member business lending, which calls for enhanced migration of
    risk, should the member businesses' lending cap be raised; how
    will NCUA ensure proper risk management; and what criteria
    would be used to approve a credit union for additional member
    business lending authority?
        Ms. Matz. The criteria put into the legislation would be a
    very good start, that a credit union would have to have made
    business loans for 5 years. They would have to be well-
    capitalized, which means they would have to have at least 7
    percent capital. They would have to be at 80 percent or more of
    their cap for a year, and they would have to demonstrate that
    they have sound management and sound underwriting experience.
    So those are very significant hurdles for a credit union to
    overcome in order to get into the second tier.
        Mrs. McCarthy of New York. Thank you. I yield back my time.
        Chairwoman Capito. The gentlelady yields back. Mr.
    Luetkemeyer for 5 minutes for questions.
        Mr. Luetkemeyer. Thank you, Madam Chairwoman.
        Chairwoman Matz, do you know what a participating loan is?
        Ms. Matz. Pardon?
        Mr. Luetkemeyer. Do you know what a participating loan is?
        Ms. Matz. I do.
        Mr. Luetkemeyer. That is where you sell off part of the
    loan because you either can't make it, it is too big or--
        Ms. Matz. That is correct.
        Mr. Luetkemeyer. Do credit unions participate?
        Ms. Matz. Yes, they do.
        Mr. Luetkemeyer. How long do participation loans--or do you
    know, what part of the loans or percentage of the loans that
    these credit unions are making right now that are at the cap,
    do you know what percentage they participate at?
        Ms. Matz. I don't know the answer to that. I can get that
    for you.
        Mr. Luetkemeyer. I would appreciate that, if you would.
    That is something that perhaps many of the Members may not
    realize is another alternative. Instead of raising the cap,
    existing credit unions could participate out with other
    members, other credit unions in the area, or with even banks or
    whoever they want to, they could participate out the balance of
    the loan, and everybody would share. You could even sell it,
    without recourse, where there would be no undue liability back
    from the loan itself; is that not correct?
        Ms. Matz. They could, but they probably wouldn't be
    inclined to do that with the small loans. If you have a small
    loan for $220,000, you probably wouldn't be inclined to
    participate that out.
        Mr. Luetkemeyer. If you have a neighboring credit union
    that really doesn't make a lot of business loans, doesn't have
    the expertise to do that, yet you have the ability to do that
    and you have a good customer that you don't want to lose, you
    wouldn't make the loan and participate out part of it to a
    neighboring credit union, they wouldn't take it?
        Ms. Matz. No, they wouldn't be able to. If they don't have
    the expertise, they are not allowed to make or participate in
    business lending.
        Mr. Luetkemeyer. So they can't participate?
        Ms. Matz. That particular credit union could not.
        Mr. Luetkemeyer. Interesting. Okay. One of the other things
    about this business lending model that you have is that loans
    under $50,000, SBA-guaranteed, are not included in your
    business lending statistic; is that correct?
        Ms. Matz. That is correct.
        Mr. Luetkemeyer. So therefore, it would seem that the
    necessity of this bill today to raise the cap is for larger
    loans; would that be the way to infer that?
        Ms. Matz. Larger than $50,000. The average is $222,000,
    which is still a very small loan.
        Mr. Luetkemeyer. Okay. The larger the loan, the more the
    risk, is where I am going.
        Ms. Matz. That is correct.
        Mr. Luetkemeyer. The larger the loan, the more the risk,
    the more you have to lose, and the more careful you have to be
    in making that loan.
        Ms. Matz. Definitely.
        Mr. Luetkemeyer. So it looks to me like we are making the
    cap bigger so we can make bigger loans and take on more risk.
        Ms. Matz. No, not necessarily. Credit unions tend to make
    small loans. So they can make more small loans, not make
    fewer--
        Mr. Luetkemeyer. But they can also make bigger loans--
        Ms. Matz. They could make bigger loans.
        Mr. Luetkemeyer. That is the point I am getting to. Okay.
    You also made the comment a minute ago that you were asking
    some of your credit unions to diversify.
        Ms. Matz. Yes.
        Mr. Luetkemeyer. And asked them to make some business
    loans. Do you ask a bank to loan when they may not know how to
    service these loans?
        Ms. Matz. No, I don't ask them to make loans. I suggest
    that they consider getting into the member business lending to
    diversify their portfolio. It would only be if they have the
    proper experience on their staff and make the investments and
    have to get approval to make business loans.
        Mr. Luetkemeyer. Don't you think that is a little risky to
    ask them to jump into something they don't know anything about?
        Ms. Matz. I am not asking them to do it. I am suggesting it
    as an option for them.
        Mr. Luetkemeyer. Okay. You indicated a while ago, also with
    regard to interest rate risk--let me go on to something else
    here quickly before I run out of time.
        You also made a comment about the amount of money for loans
    that you have to loan out. I am kind of curious, where does the
    money come from for the credit unions? Does it come strictly
    from deposits that are made in the credit union, or do the
    larger credit unions go out into the marketplace and take loans
    out or go into the marketplace and take up some securities, or
    they get money from other places?
        Ms. Matz. It is money from their members.
        Mr. Luetkemeyer. Only money from their members? They don't
    go out to anyplace else in the marketplace to get any kind of
    funds?
        Ms. Matz. No.
        Mr. Luetkemeyer. And I am also kind of curious; you made
    the comment a while ago with regards to I think Mr. Hinojosa's
    question on why you couldn't be taxed and then be able to
    survive. And I thought it was kind of interesting because you
    act like the only way you can pay your taxes is take it out of
    your existing earnings, and I think that--is that a fair
    statement?
        Ms. Matz. Yes.
        Mr. Luetkemeyer. If you are like a mutual insurance
    company, they are owned by their insurance holders, their
    policyholders; same thing as a credit union, by their members.
    Therefore, all you do is raise the price of your product to pay
    your taxes, and you still pay your dividends and get you enough
    retained earnings to be able to do all that; would that work?
        Ms. Matz. You are correct. Yes, they could raise their
    fees.
        Mr. Luetkemeyer. Okay. Very good. With that, just one final
    comment. I appreciate you commenting a while ago with regards
    to the banks and credit unions working together. It is
    actually--in most communities, it actually works that way. It
    seems like when we get to the regulatory time here, we get in
    each other's faces. But I think we have a great working
    relationship with most of the credit unions and banks in our
    area. Hopefully, we can continue that.
        Thank you, Madam Chairwoman.
        Chairwoman Capito. Thank you. Mr. Scott for 5 minutes.
        Mr. Scott. Thank you. Chairwoman Matz, is that correct?
        Ms. Matz. Yes, it is.
        Mr. Scott. I want to talk about the need, for a moment, for
    the legislation. Could you tell me how many small businesses
    have been denied a loan from a bank that was able to secure one
    instead from the credit union?
        Ms. Matz. I wish I could. We don't keep records on that.
    Anecdotally, I hear about it, but we don't have any data on it.
        Mr. Scott. What sort of data do you have, then, to justify
    the demand for this legislation? It seems to me that it would
    be very, very helpful if we had that sort of information. I
    think that might be something going forward, and if we want to
    increase the cap, what are the justifiable means to do so?
    Where is the demand for that? It just seems to me that would be
    the most significant empirical evidence, to show that you have
    these people coming and they have been denied by the bank--they
    can't get the service from the banks, so that is why we need to
    do that. Is there anything that--any information you have that
    could give us that justification?
        Ms. Matz. What we know is that member business loans are
    increasing. Credit unions are making more business loans, and
    that there are credit unions that aren't making business loans
    or that are making fewer business loans than they might
    ordinarily make, because they do not want to approach the cap
    or they don't want to make the investment because of the cap.
        Mr. Scott. Speaking of that, how many credit unions are
    close to the cap?
        Ms. Matz. There are just over 400 credit unions that are
    over 50 percent of the cap. So it is about one in five of
    credit unions that make business loans are over 50 percent of
    the cap.
        Mr. Scott. So tell us, what is the sense of urgency for
    this legislation is that if we can--I am looking for some
    things here that we can really hang our hat on to show the
    need, the necessity for this, that will help small businesses.
        Ms. Matz. The urgency is that it is a great way to serve
    their communities. Small businesses create jobs. The small
    businesses and the communities are having a hard time getting
    capital elsewhere, and credit unions are meeting that need.
        Mr. Scott. You said that having capital--that is what I am
    getting at. We are getting to the point that I am trying to get
    at. What do you base that on? Just--what they say to you in--
        Ms. Matz. The Fed study that Mr. Royce pointed out which
    indicated that three-quarters of the small businesses said they
    have trouble getting access to capital.
        Mr. Scott. All right. Now, you also say that this will
    create jobs. How many jobs? Where does that information come
    from? How is that substantiated and how many jobs?
        Ms. Matz. Our chief economist has indicated that this
    legislation would add about $5 billion in new lending. I don't
    have the information on how many jobs that equates to, but it
    would put $5 billion into the hands of small businesses.
        Mr. Scott. There are roughly I think 16 percent of existing
    credit unions right now who are exempt from making these loans;
    is that correct?
        Ms. Matz. Yes.
        Mr. Scott. Why is that?
        Ms. Matz. They are exempt either because they have the
    designation of a low-income credit union, and low-income credit
    unions are exempt from the cap because they were chartered for
    the purpose of making business loans, or because they
    historically have made business loans, and they were
    grandfathered in in 1998 when the cap was put into place.
        Mr. Scott. And given--what would be your assessment if
    this--for the future of credit unions, if this bill is not
    passed? How detrimental would this be to your--
        Ms. Matz. It would really limit their ability to enter a
    new and important market. It would curb their ability to enter
    that market, which I feel is an important market for them. As I
    said, from a safety and soundness point of view in terms of
    diversifying their portfolio and moving away from some of the
    interest rate risk, it is very important.
        Mr. Scott. All right. Thank you very much.
        Chairwoman Capito. Thank you. Mr. Huizenga for 5 minutes
    for questions.
        Mr. Huizenga. Thank you, Madam Chairwoman. I appreciate the
    opportunity and I thank you.
        I have been here--how long exactly have we been here, a
    little over an hour, and I have been listening to the questions
    and the answers, and I am still not sure--and I want to give
    you an opportunity--maybe I am just not hearing it, except I
    feel like I have kind of heard both sides of this issue, and
    the direct question I have is: Is there or is there not a need
    in the increase for the cap from your perspective?
        Ms. Matz. There is.
        Mr. Huizenga. You believe there is. Okay. So despite the
    very small number of credit unions that are either at their
    limit or near their limit, you believe that there is a distinct
    need for this to happen to make sure that there is sufficient
    credit out and available?
        Ms. Matz. There is, because I believe it is inhibiting all
    credit unions, not just those that are at or near the cap. It
    is inhibiting those that are significantly below the cap
    because they are afraid of getting close to the cap, and it is
    inhibiting credit unions that aren't making business loans at
    all because they are concerned about making the investment and
    not having the economies of scale to make that investment back.
        Mr. Huizenga. Okay. Right. That is fair enough.
        The other element that I am kind of curious about is why do
    you think, if there is such a fairly small number of entities
    or credit unions that are accessing this and there doesn't
    appear to be such significant competition out there, why do you
    think that there are people who are afraid of raising this cap?
    In a way, I sort of feel like my kids are coming and telling
    me, hey, we are going to stay up and we are going to catch
    Santa. And my answer to them is, knock yourself out, go ahead,
    stay up as late as you want, kids, because I know at 10:30,
    they are falling asleep. It doesn't matter, and in a way, if
    there is no need or lack of demand for this, then what is the
    harm in authorizing an increase in this loan cap. So I am just
    curious if you can address that a little bit.
        Ms. Matz. I don't see any harm in increasing the cap. I
    advocate for it. I think it is important. I think it will not
    detract from safety and soundness. I think it will increase the
    safety and soundness, and as a regulator I say that. But in
    addition, it will provide capital to small businesses and
    create jobs, but as a regulator, I am concerned about the
    safety and soundness.
        Mr. Huizenga. And you believe that that can be addressed--
        Ms. Matz. I do.
        Mr. Huizenga. --the safety and soundness element?
        Ms. Matz. Yes, I do.
        Mr. Huizenga. So even despite the fact that there does not
    seem to be significant demand for this, at least as far as the
    numbers, you think it is significant enough?
        Ms. Matz. I think the number is kind of invisible, because
    you look at the numbers that are near the cap, but that doesn't
    tell you all the credit unions that are holding back or not
    doing it because they are put off by the cap.
        Mr. Huizenga. So just to play devil's advocate on this,
    even despite the advantages that have been granted
    legislatively, some of the things that have been talked about
    here, the tax-exempt status and those kinds of things, and it
    is a different playing field--I am not going to make a judgment
    as to whether it was even or equal or whether all those other
    things, that there is a reason for the chartering the way that
    it was in the legislation--you still believe this, that this is
    something that is important to do?
        Ms. Matz. Yes, I do.
        Mr. Huizenga. Okay. I appreciate that. Thank you, Madam
    Chairwoman. I yield back.
        Chairwoman Capito. Thank you. Mr. Meeks for 5 minutes.
        Mr. Meeks. Thank you, Madam Chairwoman, and thank you,
    Chairwoman Matz.
        Let me just follow up on that. If the caps were to be
    raised, what would you anticipate the difference being? What
    would you anticipate the functioning of the various credit
    unions? What would they do differently than they are doing now
    with the caps raised? What do you see? Let me just ask you that
    question before I give you the answer to it.
        Ms. Matz. More credit unions would make more loans. They
    wouldn't hold back. They wouldn't be afraid of approaching the
    cap. So, as I said, if you have a credit union that is $100
    million and can make $12 million in loans and they are already
    at $6 million, so she is at 50 percent and she is telling me
    that she is slowing down, she doesn't want to get to the cap,
    if that cap were raised, she is telling me she could just keep
    making loans. And so even those that aren't even very close to
    the cap are are feeling that they cannot keep making loans, and
    then there are those who have chosen not to make business loans
    at all because they don't want to make the investment.
        Mr. Meeks. So as Mr. Scott was trying to find out, he was
    trying to get specific data. Are you telling us that it has
    been the general feeling that there have been a number of
    credit unions that have articulated to you that they would do
    substantially more and couldn't, because they fear the demand
    from individuals who are coming into their credit unions for
    these loans and they wish they could give them to them, but
    they don't because it doesn't fit their own business model
    because of the cap; is that correct?
        Ms. Matz. That is correct.
        Mr. Meeks. And so I think that what we are also--let me
    just ask this question before I go there. You said that there
    were three categories of individuals, about 60 percent that are
    exempt from the cap. One was low-income communities, if the
    credit union was in a low-income community; is that correct?
        Ms. Matz. It is a credit union whose members are 51 percent
    low income.
        Mr. Meeks. Okay. And of those members, then that credit
    union can offer business loans? Because I know some can and
    some can't,
        Ms. Matz. They can, yes.
        Mr. Meeks. They can? And you also indicated earlier in your
    testimony that there were some credit unions, because they did
    not have the experience nor had they ever done it before, they
    could not offer business loans; is that correct?
        Ms. Matz. That is correct.
        Mr. Meeks. If there is someone now who cannot offer
    business loans currently, what would they have to do if, in
    fact, in the future they wanted to offer business loans? What
    would be their requirements to go from one level to the other?
        Ms. Matz. They would have to hire an experienced business
    lender, and they would have to have a business plan and
    policies for how they would make their business loans, how they
    would underwrite them, how they would collateralize them, and
    it would have to be approved by NCUA.
        Mr. Meeks. Wearing your hat as a regulator then, would be
    how you would make sure that there is not additional risk going
    out there in regards to the loans that are being given by the
    credit unions; is that right?
        Ms. Matz. Yes.
        Mr. Meeks. We know that, for example--well, let me ask this
    question first, because I didn't understand the whole
    definition of net growth, because I have had some credit unions
    come to me who are fairly successful, and they have
    complimented you on saying that there should be some
    supplemental capital. But net growth, from what I understand,
    excludes supplemental capital and, therefore, could possibly
    punish healthier credit unions for attracting new deposits
    because that is not--can you tell me about that definition and
    how can we discuss the need for supplemental capital further,
    and what is NCUA's plan for seeking legislation necessary to
    provide that kind of relief?
        Ms. Matz. You are entirely right. The definition of net
    worth is retained earnings divided by assets. So the more
    deposits credit unions get, the larger the denominator gets,
    and that pulls down the net worth. So, even though it seems
    counterintuitive, when members have confidence in the credit
    union and they put their deposits in the credit union, it can
    pull down their net worth. So that is why there are many credit
    unions that feel that they need to have access to supplemental
    capital. And I agree with that if they are a healthy credit
    union and that the supplemental capital would be so that they
    do not have to discourage deposits.
        Mr. Meeks. So my question to you: Do you think that
    something should be done with that definition regulatorily, or
    is it good to keep it the way it is because it has more
    soundness? What are your thoughts on that?
        Ms. Matz. I think it should be modified.
        Mr. Meeks. Thank you. I agree with you.
        Chairwoman Capito. The gentleman's time has expired. Mr.
    Grimm for 5 minutes.
        Mr. Grimm. Thank you, Madam Chairwoman. I appreciate and
    thank you, Madam Chairwoman.
        I do have to disagree with my colleague, Mr. Huizenga. I
    think you put the rugrats to bed early because Santa Claus gets
    tired and wants time to eat the cookies and stuff like that.
    Santa Claus is getting older and older, as you know.
        But I think Santa Claus is a member of a credit union.
    There has to be a credit union for all of those bunny rabbits,
    all those things that are around.
        Ms. Matz. I am sure there is a field of membership for
    Santa Clauses.
        Mr. Grimm. A lot of my questions have been answered
    already. Just to--there is one thing that seems to disconnect,
    not whether it is good or bad. Just we do hear--and I just came
    from another hearing in Oversight with community banks that
    demand is down overall, and that seems to gibe with what I am
    hearing from a lot of the small business owners that I speak to
    who simply say, I can't risk expanding my business right now
    because I have no idea what is going to happen as a result of
    the new health care law. I can't predict what our tax rates are
    going to be tomorrow, because there is constantly this banter
    between raising them and lowering them.
        So the overall uncertainty is leading, I think, to the many
    small businesses holding what they have and corporations
    sitting on cash and waiting for some of this uncertainty to
    dissipate.
        Why do you think--and to some extent, I am asking you to
    speculate, and this isn't a court of law, so I can ask you to
    do that. Why is it different for the credit unions to see--I
    think it has gone up 44 percent since 2007?
        Ms. Matz. Six.
        Mr. Grimm. Since 2006.
        Ms. Matz. Since 2007, that is correct.
        Mr. Grimm. I am good with numbers, memorizing them. So why
    do you think that it seems to be different than what I am
    hearing from the small businesses and from the local banks for
    credit unions? It is an anomaly, if you will.
        Ms. Matz. I can only speculate. Credit unions tend to have
    a good relationship with their members, and so if the member
    needs a loan, particularly a small loan, they will go to the
    credit union for it. I don't have an answer for it, but that is
    just my guess.
        Mr. Grimm. Is it plausible that to a small extent, some of
    the issues I have been hearing from the local banks, community
    banks, is that the regulators have been particularly onerous,
    and as they clamp down and really look to second-guess almost
    every loan they do, they are denying anything that is even
    remotely questionable, and loans that probably should be
    approved are not being approved and maybe that is some of the
    overflow business that you are seeing--is that just a
    possibility?
        Ms. Matz. I can't comment on my colleagues at the FDIC. I
    hear the same thing from credit unions, also. I think there is
    always a natural tension between regulators and those that they
    regulate. But I really, I don't know why the situation is like
    it is with the banks.
        Mr. Grimm. And one last question. I understand why someone
    would be reluctant to spend a lot of capital if they think that
    they are going to reach their limit and they won't--it is
    scalable and I understand that. But what happens when they
    reach their limit? Are they looked at differently? What is the
    reality? Can you just explain to the committee the reality of
    hitting your limit? We keep talking about hitting the limit.
    Could you just articulate what that means in real life for a
    credit union?
        Ms. Matz. It means that they can no longer make business
    loans when they hit that limit, and even at 80 percent, they
    are telling me they are turning new members away because they
    want to use that capacity for existing members who have
    business loans who need more or larger loans to expand.
        Mr. Grimm. Okay. So if I can just make sure that I
    understand it. You want to be able to make sure that you are
    servicing your current members, and if you get close to that
    limit, extending credit to new members, there may be an
    existing member that you have done a tremendous amount of
    business with who needs to go back to the well, so to speak,
    and now you don't have that liquidity, that access for them,
    and now you're denying members, which is just not good business
    for any business; am I correct?
        Ms. Matz. Correct.
        Mr. Grimm. Thank you so very much. I appreciate it.
        Chairwoman Capito. Thank you. Mr. Carney for 5 minutes.
        Mr. Carney. Thank you, Madam Chairwoman, and thank you,
    Chairwoman Matz, for coming in today and helping us with this.
    I have been listening to this for over an hour now, and I am a
    little bit confused. Some of the questions that I ask I am sure
    will be redundant or repetitive for others. I am trying to
    understand the logic of all this.
        Before 1987, there weren't regulations on credit unions as
    it related to these types of loans. I am just reading from
    background materials.
        Ms. Matz. Yes, there were no regulations; that is correct.
        Mr. Carney. Right. So then there were regulations put in
    place because there were failures, my background material
    indicates, caused by risky loans on businesses; is that
    correct? Are you familiar with the pre-1987 experience?
        Ms. Matz. I am not all that familiar with it, but what I am
    surmising is that the NCUA saw that credit unions were starting
    to make business loans and there were no regulations. So in
    order to make sure that they were being done in a safe and
    sound manner, regulations were implemented.
        Mr. Carney. So NCUA developed those regulations and set
    limitations, presumably?
        Ms. Matz. Yes.
        Mr. Carney. Those regulations, according to this background
    material, were put into law in 1998. Is that when the cap--
        Ms. Matz. The cap was put into law in 1998.
        Mr. Carney. Okay.
        Ms. Matz. Yes.
        Mr. Carney. And so is the logic there that the cap--the
    purpose of the cap was to prevent the risky business loans that
    caused the problem prior to 1987?
        Ms. Matz. I don't know why the cap was put in place.
        Mr. Carney. Because your testimony basically is that
    business lending is, frankly, good for the safety and soundness
    of the credit unions; is that correct?
        Ms. Matz. Yes. I don't know why the cap was put in place,
    but I don't believe it was done for safety and soundness
    reasons.
        Mr. Carney. And so today, we have this cap. It doesn't
    appear--there are kind of two ways you can look at the cap. One
    is that credit unions are bumping up against the cap and want
    to lend more. That doesn't seem to be the case, although you
    indicate that business decisions have to be made as to whether
    to make investments to do appropriate lending above that. But
    it doesn't appear that enough credit unions are at that point
    yet; is that fair?
        Ms. Matz. All credit unions that are interested in doing
    member business lending are affected by the cap, regardless of
    where they are in relation to the cap.
        Mr. Carney. But your own view is that the cap really is
    unnecessary; in fact, it hurts safety and soundness; and in
    fact, we have low-income credit unions which operate in areas
    where with people--or I guess members with their--50 percent of
    which are below a certain income level that don't have any cap?
        Ms. Matz. That is correct.
        Mr. Carney. Does that make any sense? From that
    perspective, is income some kind of determinant of whether
    those loans are paid back or not?
        Ms. Matz. I don't think it is in relation to it. It is
    really their credit history, not necessarily their income. Low-
    income borrowers can be perfectly good credit risks.
        Mr. Carney. So is it your view that there shouldn't be any
    cap at all?
        Ms. Matz. That would be my preference, but I certainly
    support the legislation as it is written, with a doubling of
    the cap.
        Mr. Carney. And that goes to probably my last question,
    which is, where did the--maybe I should ask one of the
    sponsors--27.5 percent cap come from and what is magical about
    27.5 percent? How do we get--maybe I should ask, how did we get
    12.25 percent in the first instance?
        Ms. Matz. I don't know how we got the 12.25 percent, but I
    am told that the 27.5 percent came from negotiating for
    Treasury support of the legislation, and they wanted to have
    the 27.5 percent.
        Mr. Carney. So it looks like I have time for one more
    question. There have been a lot of questions asked of you of
    the need--small businesses needing this. And I am wondering if
    this is competitive space with small community banks, or is it
    space where the credit unions fit a particular niche, in your
    view?
        Ms. Matz. I do hear from credit unions that they are making
    loans that banks in their community did not or would not make.
    But there is also the Small Business study which was released a
    couple of weeks ago, which indicated that for every dollar in
    loans credit union make, 81 cents is new money. So there might
    be some competition with banks, but it seems like it is very
    limited.
        Mr. Carney. Thank you. My time has expired.
        Chairwoman Capito. Thank you. I believe Mr. Manzullo has no
    questions, that is correct. So, Madam Chairwoman, we will
    dismiss you. Thank you for your testimony and your answers to
    our questions. The first panel is dismissed.
        I would now like to call up the second panel of witnesses.
    I will introduce them individually once they get set up. In the
    meantime, I would like to ask unanimous consent to insert the
    following statements into the record: the Credit Union
    Supplemental Capital Coalition; the National Association of
    REALTORS; and the Consumer Bankers Association. Without
    objection, it is so ordered.
        I want to thank you all. That was a pretty quick transition
    there. So I am going to introduce everybody individually for
    the purposes of making a 5-minute opening statement.
        Our first witness on the second panel is Mr. Sal Marranca,
    director, president, and chief executive officer, Cattaraugus
    County Bank, on behalf of the Independent Community Bankers of
    America. If you could pull the microphone close, everybody,
    when you give your testimony. Welcome, and you are recognized
    for 5 minutes for an opening statement.

    STATEMENT OF SALVATORE MARRANCA, DIRECTOR, PRESIDENT, AND CHIEF
       EXECUTIVE OFFICER, CATTARAUGUS COUNTY BANK; AND CHAIRMAN,
      INDEPENDENT COMMUNITY BANKERS OF AMERICA, ON BEHALF OF THE
            INDEPENDENT COMMUNITY BANKERS OF AMERICA (ICBA)

        Mr. Marranca. Thank you, Chairwoman Capito, Ranking Member
    Maloney, and members of the subcommittee. I am Sal Marranca,
    director, president, and CEO of Cattaraugus County Bank. I am
    also chairman of the Independent Community Bankers of America.
        Cattaraugus County Bank, a 110-year-old bank, is a State-
    chartered community bank with $180 million in assets located in
    Little Valley, New York. I am pleased to represent community
    bankers and ICBA's nearly 5,000 members at this important
    hearing to testify on legislation that would expand credit
    union powers by raising the cap on member business loans.
        We strongly oppose the Small Business Lending Enhancement
    Act, H.R. 1418. Congress should not expand credit union
    business lending powers unless it also is prepared to tax
    credit unions and require compliance with the Community
    Reinvestment Act. The tax exemption is directly linked to their
    original mission of serving individuals of modest means. After
    decades of ``mission creep,'' resulting in multibillion-dollar
    credit unions, the tax exemption can no longer be justified.
        Credit union business lending is an immediate threat to my
    bank. I am not afraid to compete with other taxpaying lenders,
    even larger banks, but the credit union exemption creates an
    unfair advantage and distorts the market. I have lost business
    lending opportunities with established customers to credit
    unions who underpriced my competitive rates.
        H.R. 1418 would allow the NCUA to approve member business
    loans up to 27.5 percent of the credit union's assets, more
    than double the current cap of 12.25 percent. The cap was not
    set arbitrarily, but was intended to ensure that commercial
    lending would be no more than a marginal part of a credit
    union's lending.
        The credit unions have portrayed H.R. 1418 as an effort to
    make more credit available for small businesses and create
    jobs. This is simply not the case. Demand for credit is very
    weak in the current credit environment. My bank and thousands
    of community banks stand ready to assist our small business
    customers as demand for credit returns.
        It is also true that only a small number of credit unions
    are at or near the current member business lending cap, just
    over 2 percent of the approximately 7,300 credit unions
    according to the NCUA. Over 70 percent of credit unions report
    no member business loans at all.
        Those credit unions that are at or near the cap are the
    largest and most complex credit unions, and the business loans
    they make are often multimillion-dollar deals, not small
    business loans. There is ample capacity for the remaining 98
    percent of credit unions to expand their member business
    lending. What is more, there are numerous exemptions to the
    member business lending cap, including any loan of less than
    $50,000, SBA loans of up to $5 million, and nonmember loans and
    loan participations purchased from another credit union.
        Some advocates of H.R. 1418 claim that expanded credit
    union commercial lending would come at no cost to taxpayers.
    The Joint Committee on Taxation, OMB, and CBO have all
    identified credit lending as a tax subsidy. That is why the
    bipartisan Policy Center's Debt Reduction Task Force
    recommended eliminating the tax exemption. We urge the Joint
    Select Committee on Deficit Reduction to consider that as well.
        What is the cost of the subsidy? The most comprehensive
    analysis to date was done by the nonpartisan Tax Foundation
    which valued the subsidy at $32 billion over a 10-year budget
    window. The credit union tax exemption also deprives State and
    local governments of revenue, many of which are facing deep
    cuts to essential services to remain solvent. Repeal of the
    credit union exemption is warranted, not only for the sake of
    deficit reduction, but as a matter of tax equity. If credit
    unions expand their business lending powers and become the
    equivalent of banks, tax exemption can no longer be justified.
        Thank you again for convening this important hearing. As a
    community banker, I feel the direct impact of credit union
    commercial lending. ICBA strongly urges the committee to reject
    calls for new powers and tax-subsidized credit unions that will
    not, despite assertions to the contrary, expand small business
    credit or create jobs.
        I look forward to answering your questions. Thank you.
        [The prepared statement of Mr. Marranca can be found on
    page 88 of the appendix.]
        Chairwoman Capito. Thank you.
        Our next witness is Mr. Albert C. Kelly, Jr., president and
    chief executive officer, SpiritBank; and chairman-elect,
    American Bankers Association. Welcome.

        STATEMENT OF ALBERT C. KELLY, JR., PRESIDENT AND CHIEF
      EXECUTIVE OFFICER, SPIRITBANK; AND CHAIRMAN-ELECT, AMERICAN
        BANKERS ASSOCIATION, ON BEHALF OF THE AMERICAN BANKERS
                           ASSOCIATION (ABA)

        Mr. Kelly. Thank you, Chairwoman Capito, and Ranking Member
    Maloney. My name is Albert Kelly. I am president and CEO of
    SpiritBank in Bristow, Oklahoma, and chairman-elect of the
    American Bankers Association. Thank you for the opportunity to
    testify today.
        ABA is strongly opposed to recent efforts by the credit
    union industry to expand the business lending authority of
    credit unions. This effort, most recently embodied in H.R.
    1418, would allow qualified credit unions that are within 80
    percent of their member business lending cap to significantly
    increase their business lending at the expense of making
    consumer loans. This increase in business lending would shift
    some business loans to tax-exempt credit unions from tax-paying
    banks, causing an increase to the Federal deficit just when
    Congress is looking for ways to reduce the government debt.
        Under current law, credit unions have an aggregate member
    business lending cap of 12.25 percent of assets. Business loans
    under $50,000 do not even count against this cap, nor do many
    other types of business loans. These exemptions mean that
    credit unions already have an unlimited ability to fund small
    business loans without the need to seek increases in their
    member lending limits.
        This proposed increase is only directed at larger loans and
    would benefit only a few large, aggressive credit unions which
    are already effectively tax-exempt banks. Just 96 credit unions
    out of 7,292 are within 80 percent of their congressionally
    mandated cap. This is just over 1 percent of the entire credit
    union industry.
        There are good reasons for a limit on credit union business
    lending. Business lending is riskier than consumer lending, and
    thus poses a safety and soundness risk to the Credit Union
    Insurance Fund. In fact, business lending was found to be a
    major contributor to failure in 7 of the 10 costliest credit
    union failures. Also, the credit union tax exemption was
    created to serve people of modest means, possessing a common
    bond.
        Instead of raising the member business loan cap, there is
    another alternative. Credit unions that want to engage in
    expanded business lending can switch to a mutual savings bank
    charter. This charter provides the flexibility credit unions
    desire and preserves the multimember focus that is the
    trademark of a credit union charter. In fact, the members of
    HAR-CO Federal Credit Union recently approved switching to a
    mutual savings bank charter. Another credit union, Technology
    Credit Union, has just begun that process.
        The decision to become a mutual savings bank is based upon
    the opportunities provided by this charter. Unfortunately, the
    NCUA has erected obstacles, making it extremely difficult for a
    credit union to exercise its choice to become a mutual savings
    bank. Some credit union trade associations actively oppose
    credit union conversions. Removal of the NCUA's opposition to
    conversion would be a far better alternative to enable more
    business lending, and since mutual savings banks pay taxes,
    conversions would help to reduce the Federal deficit.
        Make no mistake about it, H.R. 1418 would allow a credit
    union to look and act just like a bank, without the obligation
    to pay taxes or have bank-like regulatory requirements such as
    the Community Reinvestment Act or examinations by the FDIC.
        I understand that the argument for this expansion is based
    on making loans that create jobs. I have had the opportunity to
    talk with bankers all over the United States, and I can tell
    you that in my community and around the country, banks are
    making all the loans that can be made. Additional lending by
    tax-exempt credit unions will either take loans away from tax-
    paying banks or will add risk that will translate into failed
    loans and failed institutions, not increased employment.
        The correct path to increase business lending is not
    expanded flexibility for credit unions but conversion to a
    mutual bank charter.
        Thank you for the opportunity to share ABA's thoughts on
    credit union member business lending. I am happy to answer any
    questions.
        [The prepared statement of Mr. Kelly can be found on page
    77 of the appendix.]
        Chairwoman Capito. Thank you.
        Our third witness is Mr. Gary Grinnell, president and chief
    executive officer, Corning Credit Union, on behalf of the
    National Association of Federal Credit Unions. Welcome.

       STATEMENT OF GARY GRINNELL, PRESIDENT AND CHIEF EXECUTIVE
        OFFICER, CORNING FEDERAL CREDIT UNION, ON BEHALF OF THE
         NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS (NAFCU)

        Mr. Grinnell. Good afternoon, Chairwoman Capito, Ranking
    Member Maloney, and members of the subcommittee. My name is
    Gary Grinnell. I am testifying today on behalf of NAFCU.
        I appreciate the opportunity to share my views with the
    committee on H.R. 1418 and credit union member business
    lending. We hope you will agree that raising the artificial and
    outdated cap on member business lending is overdue and a
    necessary pro-growth step that will help small businesses and
    communities recover from the current economic crisis.
        H.R. 1418 is about jobs: saving jobs; and creating jobs.
    Who could be opposed to that? It is important to note that
    credit unions have a nominal market share of the small business
    lending universe, approximately 5 percent; clearly, not a
    threat to the domination of banks in this market. A 2011 SBA
    study indicates that credit union business lending increased
    during the recent financial crisis while banks decreased. This
    is evidence that credit unions continued to meet the capital
    needs of their business members, even during the most difficult
    times.
        Corning Credit Union currently exceeds 80 percent of its
    cap, and we forecast that we will reach the cap by mid-2012 if
    Congress does not act.
        During the recent economic downturn, as banks stopped
    lending to their clients, Corning Credit Union has been able to
    fill an important role to provide these businesses with funding
    they need to continue to grow and create jobs. We even helped a
    bank employee when she couldn't get help from her own industry.
    This member is a commercial lender who works at a community
    bank. She also owns rental properties. After a bank informed
    her that they would not renew her commercial mortgage after the
    initial 5-year balloon period, she wasn't even able to obtain
    financing from her employer, let alone other banks in the area.
    She came to Corning Credit Union, and we were able to refinance
    her investment property loans.
        Mayor Bill Saffo of Wilmington, North Carolina, turned to
    us after he received numerous calls at his office from small
    business owners desperate to obtain financing. The banks, both
    local and national, have aggressively moved to slash access to
    credit in this market. The mayor recognized that Corning Credit
    Union is one of the few financial institutions that buck this
    trend. I ask permission to insert a letter from Mayor Saffo in
    support of H.R. 1418 into the hearing record.
        I have also brought with me a stack of letters from small
    businesses that we have helped with loans. These letters tell
    stories of how bankers have turned their backs on small
    businesses and how they appreciate the member-focused customer
    service that they get at Corning Credit Union. These letters
    are asking for your help in making sure that Corning Credit
    Union and others like us will be able to meet their business
    loan needs in the future. I ask that these letters also be
    inserted into the record.
        Due to our strong balance sheet, we have almost $300
    million available to lend, but our hands are tied because of
    the arbitrary cap. We should emphasize that these are not
    taxpayer dollars or government stimulus. It is cash from our
    depositors that can be used as a source of credit-productive
    purposes, such as helping small businesses in our communities.
        In response to some of the criticisms of H.R. 1418, I think
    it is important that some key points are made. First, an
    examination of call report data indicates that credit unions
    with MBLs actually have lower business loan losses than banks.
        Second, credit unions make the small loans many banks don't
    want to make. The average size of a credit union MBL is
    $222,000.
        Third, the banking industry also argues that the credit
    union MBL cap should not be raised due to the credit union tax
    exemption. What the banking industry conveniently forgets to
    mention is that a large number of banks do not pay corporate
    Federal income tax because of their Subchapter S status and
    that the value of their tax break is estimated to be just over
    $2 billion for 2010, which is significantly greater than the
    estimated value of the annual credit union tax expenditure.
        Lastly, some critics claim that only a limited percentage
    of credit unions are actually at the arbitrary member business
    lending cap, and therefore nothing needs to be done. This view
    fails to see the big picture of how the cap acts as a deterrent
    for efforts to increase business lending and create American
    jobs. Those credit unions that are not near the cap have a
    disincentive to invest in the business lending programs.
        It is estimated that enacting H.R. 1418 could help spur
    over $13 billion in new lending and create over 140,000 new
    American jobs in the first year alone. NAFCU believes that this
    is a real bipartisan jobs package that everybody should
    support. As I said in my opening, H.R. 1418 is about jobs:
    saving jobs; and creating jobs. I ask you again: Who could be
    opposed to that?
        We thank you for your time and the opportunity to testify
    before you here today on this important issue to credit unions
    and our Nation's economy. I would welcome any questions you may
    have.
        [The prepared statement of Mr. Grinnell can be found on
    page 52 of the appendix.]
        Chairwoman Capito. Thank you, Mr. Grinnell.
        Our next witness is Mr. Jeff York, president and chief
    executive officer, Coasthills Federal Credit Union, on behalf
    of the Credit Union National Association. Welcome.

    STATEMENT OF JEFF YORK, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
    COASTHILLS FEDERAL CREDIT UNION, ON BEHALF OF THE CREDIT UNION
                      NATIONAL ASSOCIATION (CUNA)

        Mr. York. Madam Chairwoman, thank you for holding today's
    hearing.
        The recession has affected everyone. One in six households
    is currently affected by unemployment and underemployment.
    Despite recent economic difficulties, credit unions like mine
    have been there for our members. We have worked with them
    during the housing crisis and when they lost their jobs. Credit
    unions have been on the front lines of the recession, and we
    want to do more.
        Many Americans are frustrated by programs that did not live
    up to their potential and disagreements that bring the
    government to the brink of shutdown. Small businesses are being
    hit hard. To add insult to injury, banks have pulled back
    access to credit. Americans need jobs. Small businesses want to
    help create jobs. To do that, they need a partner who will
    stand with them and help them succeed. Too many are not finding
    that partner at a bank. Credit unions are willing to help, but
    the statutory cap on credit union business lending makes this
    increasingly difficult.
        I am here today to endorse a bipartisan solution for small
    business owners. Representatives Ed Royce and Carolyn McCarthy
    have introduced legislation that gives qualifying credit unions
    the ability to lend in excess of the current statutory business
    lending cap. This balanced approach permits credit unions to
    have an immediate impact on jobs without putting our share
    insurance fund in jeopardy.
        This bill will free up approximately $13 billion in capital
    for small businesses, allowing them to create 140,000 jobs in
    the first year after implementation, all without a single dime
    of taxpayer money. Let me say that again: $13 billion for small
    businesses, 140,000 jobs, no taxpayer money. Who would be
    against this?
        The banks will continue to spread misinformation about
    credit unions, our powers, and our structure to try to persuade
    you to not act on this bill. They will try to distract you with
    irrelevant and rare examples of troubled credit unions, knowing
    full well that the few credit unions that are not well-
    capitalized will not be eligible to engage in additional
    business lending under this legislation. They will blame the
    economy, examiners, and regulation for the failure to help
    small businesses when the government has all but begged them to
    help.
        The banks say there are only a handful of credit unions
    affected by the cap. My credit union is almost certainly not on
    their list, but Madam Chairwoman, I assure you that we are
    affected by the cap. My credit union has been making business
    loans for members for many years. Our business loan growth has
    pushed us to over 50 percent of the cap. I have the demand now
    to reach my cap in 6 months if that made sense for my credit
    union, but I manage the cap because hitting that wall would
    force me to abruptly shut down my business lending program, lay
    off loan officers, and impede my ability to meet the continuing
    needs of my existing business members.
        If Congress does not act, we will not be able to be there
    for some of the members that we have helped in the past like
    Slo Gas & Mart, who we helped with a loan in 2009 that created
    15 jobs; like Waterwheel, a car wash facility that we helped in
    2010 that created another 15 jobs; jobs here, and 15 jobs there
    may not sound like much, but when you consider the national
    potential, it very quickly adds up to 140,000 new jobs in the
    first year if the Royce-McCarthy bill is enacted.
        There are almost 600 credit unions like mine affected by
    the cap. These mostly small credit unions account for 75
    percent of all business loans subject to the cap, and these
    credit unions have been the primary contributors to the recent
    business loan growth. The very credit unions that continue to
    lend when the banks stop will themselves have to stop business
    lending over the next 2 or 3 years unless Congress acts.
        Make no mistake: We have the experience, the liquidity, the
    demand, and the desire to invest in our members, but we are
    being stopped by the cap and by the banks who oppose raising
    it. Unlike the $30 billion for the community banks and the
    SBLF, not a single appropriated dollar will be needed to create
    jobs under the Royce-McCarthy bill. The impact of allowing
    experienced, well-capitalized, and well-managed credit unions
    to lend beyond the current statutory cap would be substantially
    greater than the ultimate impact of the SBLF.
        My written testimony goes into further detail regarding
    this legislation which has been endorsed by the Treasury
    Department and NCUA. We appreciate 88 Members of the House,
    including the six members of this subcommittee, who cosponsored
    this bill, as well as the 20 Senators who have cosponsored the
    companion bill offered by Senators Udall, Snowe, and others.
        Madam Chairwoman, we appreciate you holding this hearing.
    Congress, please don't leave these jobs on the table. Give
    small businesses a chance to create jobs, and allow credit
    unions like mine to be there for our members. We urge you to
    pass H.R. 1418.
        Thank you.
        [The prepared statement of Mr. York can be found on page
    120 of the appendix.]
        Chairwoman Capito. Thank you.
        And our final witness is Mr. Mike Hanson, president and
    chief executive officer, Massachusetts Credit Union Share
    Insurance Corporation. Welcome.

     STATEMENT OF MICHAEL C. HANSON, PRESIDENT AND CHIEF EXECUTIVE
    OFFICER, MASSACHUSETTS CREDIT UNION SHARE INSURANCE CORPORATION
                                 (MSIC)

        Mr. Hanson. Thank you, Madam Chairwoman. Thank you for
    holding today's hearing.
        My name is Mike Hanson, and I serve as president and CEO of
    MSIC, the Massachusetts Credit Union Share Insurance
    Corporation. We are the Nation's oldest insurer of credit union
    deposits. We were formed by an act of the Massachusetts
    legislature in 1961 to effect a public policy that all credit
    union members in Massachusetts be fully ensured. This year,
    MSIC celebrates its 50th anniversary, and we continue our
    history of providing safe and secure deposit insurance for
    Massachusetts consumers in good times and in bad.
        Today, MSIC is an excess insurer, and we provide deposit
    insurance for amounts in excess of those insured by the NCUA.
    We insure 97 member credit unions operating in Massachusetts,
    and those institutions hold $18 billion in assets and serve
    approximately 1.6 million consumers.
        MSIC also serves as the receiver for the Massachusetts
    Commissioner of Banks, and we provide technical capital
    management and training assistance to our member credit unions.
        MSIC is a not-for-profit cooperative corporation. We run an
    insurance fund contributed to by our members over the years,
    and our fund backs the insurance, as well as it being backed by
    our 97 member credit unions. We are a true cooperative, and we
    are not sponsored or funded by any governmental activity.
        In managing our insurance risk, we have a substantial
    monitoring program which evaluates both Massachusetts credit
    unions and the industry as a whole, and our independent
    evaluation of the condition of the credit union industry is the
    basis for my testimony today.
        My own background, by way of introduction, has been
    submitted with my written testimony, but there is one relevant
    fact. In 1991 and 1992, I served as Massachusetts Commissioner
    of Banks during the height of the New England banking crisis,
    and so unfortunately, I have a lot of experience supervising
    and evaluating institutions under adverse conditions.
        Based upon our review, we believe H.R. 1418 is sound public
    policy, and I urge its timely adoption. Consider the following:
    The Nation's economy is clearly in need of added small business
    lending in order to stabilize the economy, ease the
    unemployment crisis, and provide a foundation for future
    economic growth. H.R. 1418 will allow the redeployment of
    existing credit union capital to member business lending,
    thereby increasing the amount of available lending to this
    important economic segment. This action does not require any
    financial contribution by the Federal Government.
        Of the Nation's 7,300 credit unions, only about 2,100
    engage in member business lending; and it is true, it is done
    by the larger institutions that have the capability to do this
    to the extent necessary to create the necessary infrastructure
    to do it in a safe and sound basis. My written testimony shows
    the breakdown of member business lending throughout the
    country.
        This has become an important part of credit union loan
    portfolios, and as Chairwoman Matz said, will diversify those
    portfolios and allow them to be safer and sounder in the years
    to come. It represents $32.3 billion in lending currently, and
    that is about 5.65 percent of total credit union loan
    portfolios.
        The history of member business lending is it has been done
    safely and soundly since the 1998 cap. The delinquency rates,
    as noted before, are actually less than this type of lending in
    the banking community. We believe the added capacity will be
    done again in a safe and sound manner.
        Credit unions only have a small section of this market, and
    they should pose no competitive threat to the banking industry,
    even with this modest increase. In any event, competition is
    very good for both industries and good for the consumers.
        We believe that this bill will give credit unions the
    necessary tools to succeed and prosper in the years to come,
    that it will reduce the NCUA's insurance risk and, to a far
    smaller extent, the insurance risk of MSIC. A prosperous credit
    union industry is good for consumer lending.
        Credit unions did not participate in predatory consumer
    practices during the past 5 years, and they will not engage in
    those types of activities as they expand their member business
    lending. We believe this is sound public policy. It will be an
    important tool for credit unions and will help us create jobs
    in the broader economy.
        Thank you, Madam Chairwoman.
        [The prepared statement of Mr. Hanson can be found on page
    70 of the appendix.]
        Chairwoman Capito. Thank you.
        I want to thank the panelists, and guess I don't have to
    ask the bankers and the credit union folks to tell me what you
    really think. I have a couple of questions.
        Mr. Grinnell, you mentioned that you had $300 million--
    first of all, let me ask you, on the Wilmington, North
    Carolina, I am going to assume you have a Corning Credit Union
    facility there?
        Mr. Grinnell. Yes, we have three branches there.
        Chairwoman Capito. Three branches. So that is why the mayor
    would be approaching you. You mentioned you have $300 million
    to lend. Is that taking into consideration all of the capital
    requirements and other such things that are written into this
    bill that would require you to hold more capital, etc.?
        Mr. Grinnell. The $300 million is the excess cash that we
    have from our depositors. If the cap were lifted for us, that
    would mean we could make about $135 million in additional
    commercial loans. The point with the extra $165 million in that
    number is the bankers' claims that this would take away from
    consumer lending. My point with that is we still have over
    another $100 million to focus on our other members, to make car
    loans, and to make mortgage line loans, like we always have.
        Chairwoman Capito. But your member business loan would be
    less than half of that of $300 million?
        Mr. Grinnell. Correct.
        Chairwoman Capito. And then, Mr. York, in your figure, the
    $13 billion in capital for small business lending, is that
    figure--and I know you didn't reach this figure yourself--but
    is that figure, is that for just the people doing member
    business lending now, or is that for every credit union, or do
    you know?
        Mr. York. That would include the credit unions that are
    going to enter the market because the cap is lifted, as well as
    the credit unions that are invested in member business lending
    currently.
        Chairwoman Capito. So do we know, is that 100 new credit
    unions? I am sure it is an approximation.
        Mr. York. There are numbers in my written report that show
    that.
        Chairwoman Capito. Okay. Mr. Marranca, your testimony was
    pretty much in direct conflict with what Mr. Grinnell and Mr.
    York testified in terms of whether you are competing and taking
    business from banks. You have said basically you feel that
    credit unions in your small community could and would and maybe
    are--credit unions are providing or are able to offer, I think
    you said, a more favorable rate. How would that go? They can
    offer lower interest rates? Or how are you seeing them being a
    threat to you in terms of competition? Do they undercut you?
    You mentioned nonmember business loans, which you heard me ask
    the chairwoman if that was possible. So I would like to have
    your response to that.
        Mr. Marranca. I would be pleased to answer your question. I
    have to correct one statement that was false, first, with the
    approval of the committee.
        Chairwoman Capito. Go ahead.
        Mr. Marranca. It was stated by the spokesman from the
    credit unions that Subchapter S banks do not pay taxes, and
    that is false. That is misinformation. I believe they stated
    they did not like misinformation. Subchapter S banks pay taxes.
    There are 2,300 Subchapter S banks that pay taxes. It is
    brought down to the personal level of the individual owners of
    the bank, and they pay Federal and State taxes at up to a 30 or
    40 percent level. I would invite any credit union to pay any
    Federal or State taxes at that 40 percent level.
        To answer your question, how are they a threat or a
    competition?
        Chairwoman Capito. Right. And you mentioned undercutting,
    too.
        Mr. Marranca. They are a tax-subsidized business that
    competes directly with me. If one of you owned a dry cleaner
    shop or a restaurant or a car dealership and your competitor
    across the street did not pay taxes, you would be at a
    disadvantage. That is the disadvantage I am at. If you are
    allowing greater powers to an organization that already has a
    competitive advantage to me, that puts me even at a greater
    disadvantage. I am a small business.
        Chairwoman Capito. Do you do these small business loans,
    under $100,000?
        Mr. Marranca. We have absolutely zero cutoff. We will do
    any loan. I will make an arbitrary number of $1,000 and up. We
    are a small community bank with a $100 million loan portfolio.
    Of that portfolio, approximately $45 million of that is
    commercial loans. There is no limit on the size of the loan. So
    I disagree that there is a need for this legislation because of
    size of loan.
        Chairwoman Capito. Okay. Thank you. Gosh, I have so many
    different questions.
        Mr. Grinnell, again, if the credit unions begin to focus
    more on business lending, do you think that there is any danger
    that they would focus less on consumer lending, or would it
    just be more--I don't know, answer that.
        Mr. Grinnell. I can speak for our credit union in saying,
    absolutely not. As I had mentioned previously, we have plenty
    of cash from our depositors to make all different types of
    loans and meet our members' needs. We also are in business to
    serve all of our membership, and when you figure that, even
    with business loans right now, it is about 10 percent of our
    assets, if we only focused on 10 percent of our business, we
    would not be in business for long.
        Chairwoman Capito. Right. Are you in the top 100, or 500
    largest credit unions?
        Mr. Grinnell. I think we are about number 200 out of the
    7,200.
        Chairwoman Capito. I believe I am out of time. So, Mr.
    Scott for questions.
        Mr. Scott. Thank you, Madam Chairwoman. This is very
    interesting. It is a good hearing.
        Let me start with you, Mr. York. What is the typical loan
    size you service and the delinquency rate of your portfolio?
        Mr. York. Our average loan is just below $200,000. We do
    not have any delinquency at this time.
        Mr. Scott. Okay. And what would you say is the number one
    myth behind your ability to loan to the communities you serve
    in?
        Mr. York. The number one myth would be that we aren't
    sophisticated enough to make these types of loans, and we
    certainly are. We have built a program that you can see in our
    delinquency and charge-off ratios that has been very
    successful. Our vision is to make a difference in our
    neighbors' lives, and we do that on a regular basis by making
    loans to our community, whether it is business loans or home
    loans or car loans.
        Mr. Scott. And would you explain the current net charge of
    rate for these loans?
        Mr. York. The current charge-off is an average of less than
    50 basis points, less than one-half of 1 percent.
        Mr. Scott. And how would that compare to the remainder of
    your portfolios?
        Mr. York. It is about the same.
        Mr. Scott. Okay. Now you, and I guess Mr. Grinnell, you are
    saying that you are going to bring in, what is that, $13
    billion, $14 billion into the economy, 140,000 jobs?
        Mr. York. That is correct.
        Mr. Scott. Now, how do justify that? How do you know that?
        Mr. York. As you look at the capacity for the credit unions
    that are in business lending today, by lifting the cap, you
    will have the capacity--and it is a very conservative number,
    but the capacity to take on more small business loans. And then
    you have new entrants into the market, the smaller credit
    unions that will enter because the cap is lifted. There is some
    further detail in my written statement. It is 30 pages, but it
    is a very conservative estimate.
        Mr. Scott. It might be good as we move along, that when you
    put those figures out like that, especially because jobs is the
    number one issue we are faced with--
        Mr. York. Absolutely.
        Mr. Scott. --and we are doing all we can to create those
    jobs. We want to make sure that those numbers are justified,
    that we have some factual--if it is less than that, whatever
    that accurate figure is, and the justification for that,
    because I think--
        Mr. York. We have all that.
        Mr. Scott. --the core of how we move with this legislation
    is going to be judged upon that issue of demand and the benefit
    and what it will do, and particularly when you lay it on jobs--
    and that is what we need--we want to make sure we have
    something solid to hang our hats on.
        Now, Mr. Marranca, I think you made the point that--how
    would you argue with the credit unions who argue that their
    member business lending has increased substantially, about 40
    percent since the economic crisis, whereas bank and commercial
    lending has decreased by as much as 14 percent? If that is
    true, it might justify some demand for this legislation. So can
    you comment on why this might be and why you believe credit
    unions should not be able to meet a need that the banks are not
    meeting?
        Mr. Marranca. Congressman, I can only speak for my
    community bank, and I have spoken to hundreds and hundreds of
    community bankers throughout the country in my role as chairman
    of the ICBA. I can tell you that my community bank stands ready
    and willing to lend money to anyone at any time for any
    creditworthy purpose. I have to put on $1 million a month in
    new loans just to maintain a level $100 million loan portfolio
    that I have right now. I am having an extremely difficult time
    doing that.
        I do not turn my back on my borrowers. We established
    relationships with my borrowers, whether it is a personal
    borrower or business borrower, in good times and in bad. That
    is how we have been in business for over 110 years. It is a
    lack of demand, sir.
        A recent survey just came out by the National Federation of
    Independent Businesses that said, the Small Business survey,
    access to credit is not an issue. It is poor sales and poor
    business. I don't have one loan to any one borrower that is to
    a national stock firm at all. It is to mom-and-pop operations.
    It is to sole proprietors. It is to individual owners, and
    every one of them is basically hunkering down. This is not the
    time to go out and employ more people or expand more
    businesses.
        Mr. Scott. Let me ask you something. I really need to get
    this question in just right at the end here. What I am trying
    to get to is, have you in your, either of your banks, Mr.
    Kelly, turned down a small business person seeking a loan, and
    that person had to go to a credit union to secure that business
    loan?
        Mr. Marranca. I am aware of one person in my 30 years of
    being at the bank that we have turned down, and they went and
    acquired a loan at a credit union. That had to do with the
    credit quality of the loan. We are in a very difficult
    environment of overregulation and undue regulation and
    disconnect of the examiners in Washington. We have to very
    carefully underwrite the loans that we do so that we have the
    risk and the reward.
        Mr. Kelly. Congressman, may I respond?
        Mr. Scott. Yes.
        Mr. Kelly. I believe that from our standpoint, we are in
    low- to moderate-income areas in much of Oklahoma. Our mission
    has been to try and create jobs in those areas. We try every
    day to find ways to loan, either to create a job or to keep a
    job. And what we have seen, not that we have customers who are
    fleeing the credit unions, but we have customers we try to give
    a solution to as to how we can make the loan that comes to us.
    If we can't make it, I will tell you that in my opinion, it
    can't competently be made.
        I believe that banks across this country are sitting with
    cash, wanting to invest. The problem is not so much trying to
    find the available credit. It is finding small businesses that
    aren't being strangled today by the regulations, by all of the
    different things that come down through Washington. I have
    customers who are saying, I am considering just quitting,
    because I have this regulation and this regulation and this
    regulation.
        From the standpoint of Mr. Marranca and myself, we are
    getting ready to have the other 94 percent of Dodd-Frank hit
    us. It is a very, very expensive thing for small community
    banks such as ours, but we will continue to lend. We are going
    to continue to build our community. That is how we make it.
        Chairwoman Capito. The gentleman's time has expired.
        Mr. Scott. Thank you.
        Chairwoman Capito. Mr. Renacci?
        Mr. Renacci. Thank you, Madam Chairwoman.
        I want to thank all the witnesses today. I am still trying
    to figure out the demand question. You have probably heard it
    now 25 times: Demand, demand, demand. It appears what we have
    here is we don't have the demand because the economy is not
    growing. We need the economy to be growing to get the demand,
    and then what the credit unions would be doing is going after
    some of the loans that the banks aren't doing, so you are
    really fighting for all the same loans, because if demand was
    growing, I would hear it, and in the testimony of the previous
    witness, I think a couple of us asked, where is the demand?
    Where do you see the demand? I have heard a couple of you say
    that you personally, your banks and your credit unions, have
    demand.
        My question is for you, Mr. Grinnell. If you have that much
    demand, why don't you convert to a mutual bank charter?
        Mr. Grinnell. I don't want to be a bank.
        Mr. Renacci. Why don't you want to be a bank?
        Mr. Grinnell. We like being a credit union. We like being
    focused on our members. We want to focus on our members. We
    don't want to focus on stockholders. We feel that is what we
    are good at, and all we want to be able to do is basically use
    our money, our depositors' money, not the government's money,
    to make additional loans and invest in our communities. And we
    do have demand. As I mentioned in my testimony, I have letters
    here from members. I have a letter from the mayor of
    Wilmington, North Carolina.
        Mr. Renacci. I understand that, but you could, if you
    converted to a mutual bank charter, take care of that demand,
    correct? I know you don't want to.
        Mr. Grinnell. I am not an expert on the mutual bank
    charter, but we want to remain a credit union.
        Mr. Renacci. Okay. And one other thing before I move on,
    you did make a comment which caught my attention, too, that the
    banks, that some of these Subchapter S banks are not paying
    taxes. I am a CPA, and I would also agree, and I am assuming
    you would now agree, too, that Subchapter S's do pass on their
    earnings to their shareholders and they do pay taxes, so the
    Subchapter S banks would be paying taxes; is that correct?
        Mr. Grinnell. The bank themselves, from what I understand,
    do not pay taxes, they just pass it on to the shareholders, and
    credit unions, when we pass dividends on to our members, they
    pay taxes on those as well.
        Mr. Renacci. But banks, Subchapter S banks could pay up to
    35 percent, their shareholders could pay up to 35 percent. You
    don't have to answer the question, but as a CPA, I can tell you
    that is the case.
        Mr. York, you talked about jobs, and I know that is key,
    jobs are important, but if the demand for the small business
    owner is not there, you are lending to a small business owner,
    who is going to build jobs, who is going to increase his jobs;
    is that correct? That is what you are talking about, the
    ability to loan out to a company, a small business which is
    going to create a job; is that correct?
        Mr. York. Yes.
        Mr. Renacci. So, without that demand, you are again
    fighting loans that maybe a community bank could also be
    lending to. Would that be correct?
        Mr. York. Not necessarily. We do have that demand, and
    especially in our area, we are seeing a shrinking number of
    banks in our area, community banks, and being taken over by
    larger conglomerates, and there is definitely a demand in our
    area. We are asked for business loans just about every day.
        Mr. Renacci. Mr. Marranca, I will go back to you then. Are
    you telling me that you are turning away customers who are
    coming to your bank? I think I heard you say there might have
    been one?
        Mr. Marranca. If I was turning away customers coming to my
    bank, I would not have been there for 30 years, our bank would
    not have been there for 110 years, I would not have grown the
    bank over 30 percent in the last 4 years, no, sir. We have
    commercial lenders who are out beating on doors every day,
    trying to make loans, whether they are consumer loans,
    commercial loans. I have to put my money to work, too, and the
    only way I can put my money to work is the old-fashioned way,
    and that is by making loans. I cannot create loan demand. I can
    just be there ready and willing to lend when it is available.
        Mr. Renacci. Mr. Kelly, I am all for competition. Can you
    tell me why your bank can't compete with the credit unions?
        Mr. Kelly. I think that it is a matter--the banks compete
    with credit unions daily. The GAO had a report not too long ago
    that showed that banks served more low- to moderate-income
    people than credit unions did. We compete with them every day;
    we are forced to compete with them. They have expanded in
    almost invisible fields of membership for some of these, some
    of these very large ones that make it difficult, but the fact
    of the matter is when we have a situation where we are starting
    to run a hundred yard dash, we start on the goal line, and they
    start on the 40 yard line. Because we have to pay 40 percent
    tax wise before we can even get to that point, it makes
    competition very hard.
        I would also tell you that I think that the reason someone,
    with respect to Mr. Grinnell, doesn't want to convert is
    because he doesn't want to pay taxes when he can get this kind
    of an exception and take the customers and not pay taxes on
    them, and I would tell you, we are focused on our customers,
    not just on shareholders.
        Mr. Renacci. I know I am running out of time, but in
    conclusion, I would hope if somebody could get me information
    on demand, because I am all for competition. I am all for
    listening to both sides and hearing the credit union's side,
    but I still--nobody has given us today, I have not heard
    anything about how demand is increasing and how credit unions
    can compete with banks on a fair and even plane to cover that
    demand. Thank you.
        Chairwoman Capito. Thank you.
        Five minutes for Mr. Luetkemeyer.
        Mr. Luetkemeyer. Thank you, Madam Chairwoman.
        Mr. Grinnell, I am kind of curious here. Looking at your
    Web site, you say that you have 79,000 members worldwide,
    branches in 3 States. You charge ATM and other service fees.
    Your Web site claims that you have expanded your field of
    membership to include more than 1,000 employer groups and
    associations as well as businesses. Among your employer groups
    are All Points Taxidermy in Greencastle, Pennsylvania;
    Aniello's Pizza in Corning, New York; and Creative Minds
    Preschool in Wilmington, North Carolina. Can you tell me how in
    the world you can have a community of interest that large for a
    credit union?
        Mr. Grinnell. Those employer groups that you mentioned,
    they are all of our employer groups, and I am proud to say that
    we serve all of them.
        We were originally chartered to serve Corning Glass Works,
    which is now Corning, Incorporated. They are a Fortune 500
    company located in various markets throughout this country. We
    expanded along with Corning into North Carolina and into
    Pennsylvania; that is why we have branch presence in those
    markets.
        Since that time, certainly just from a diversification
    perspective and a safety and soundness perspective, we have
    expanded within each of those markets in North Carolina,
    Pennsylvania, and New York, to add additional employer groups,
    like you mentioned.
        Mr. Luetkemeyer. Okay. Do you participate any loans out?
        Mr. Grinnell. Sometimes, yes.
        Mr. Luetkemeyer. Mr. York, do you participate any loans
    out?
        Mr. York. We have not participated our own loans, no.
        Mr. Luetkemeyer. Why not?
        Mr. York. We haven't found the need to yet.
        Mr. Luetkemeyer. You are not at your cap yet?
        Mr. York. Not even close.
        Mr. Luetkemeyer. Therefore, you don't need to do that?
        Mr. York. We are a little over 50 percent.
        Mr. Luetkemeyer. Mr. Grinnell, are you at the cap yet?
        Mr. Grinnell. We are getting very close; we are at about 80
    percent of the cap right now.
        Mr. Luetkemeyer. Is that a viable alternative when you
    reach the cap?
        Mr. Grinnell. No.
        Mr. Luetkemeyer. Why not?
        Mr. Grinnell. We have been focused much more on
    participations over this last year and have found it to be a
    very inefficient and time-consuming process. Not only does it
    hold up getting a loan closed for our member--it sometimes
    takes over a month to get a loan closed--but also the time and
    effort, just from a pure business perspective, the time and
    effort that goes into that just from a profitability
    perspective does not make sense.
        Mr. Luetkemeyer. That is interesting, because that is the
    way a lot of banks manage to go around their loan limits is to
    be able to participate. I think it is a great way to be able to
    service your customers. I think it is amazing that you are
    being so single-minded about it.
        Mr. Grinnell. No, no, it is a very difficult--
        Mr. Luetkemeyer. One question for you.
        With regards to a statement in your testimony here, you
    make a comment with regards to the Communities First Act, which
    I happen to be the sponsor of, and you say that one approach is
    the fair relief that would be all, to all would be to both--
    would be to combine both bills and pass as a package. While
    this may not be the first choice for banks and credit unions,
    it may be a fair compromise in aiding our Nation's community
    institutions and job creation and putting job creation first.
    Failure to consider raising the member business lending cap for
    credit unions while at the same time advancing H.R. 1697, which
    is the Communities First Act, and its provisions would likely
    lead to public opposition by the credit union association, the
    entire credit union community, its members, and small
    businesses.
        That is kind of interesting. I thought you were going to
    put job creation first, and now we are going to oppose the very
    bill that you were going to use as a vehicle?
        Mr. Grinnell. I think--
        Mr. Luetkemeyer. In your testimony a minute ago, you said,
    ``Who could be opposed to that?''
        Mr. Grinnell. I think both of those bills, from what I
    understand, both H.R. 1418 and the Communities First Act, are
    designed to decrease regulation and to help encourage lending
    in our communities.
        Mr. Luetkemeyer. Would you be supportive of the Communities
    First Act if we didn't get this bill on it?
        Mr. Grinnell. I don't--I am supportive of additional
    lending for our communities, but I also think this is--we all
    know this is a bank versus credit union issue, and we are
    supportive of trying to get these moved together.
        Mr. Luetkemeyer. There are a lot of credit unions--
        Mr. Grinnell. We are supportive of getting both of them
    done at once to help the communities that we serve. The fellow
    next to me mentioned they want to do additional lending, they
    want to make all the loans they can, and we are very supportive
    of that.
        Mr. Luetkemeyer. Okay, quick question for Mr. Kelly and Mr.
    Marranca. What percentage of your assets do you have in
    business lending right now?
        Mr. Marranca. We have a 65 percent loan-to-deposit ratio.
    That would equate to approximately a 45 percent loan-to-asset
    ratio.
        Mr. Luetkemeyer. Okay, business loans?
        Mr. Marranca. Of those business loans, of the $100 million
    loans representing 45 percent, just about half of those are
    commercial business loans, small business loans.
        Mr. Luetkemeyer. Okay, so would what the percentage be then
    of your total assets?
        Mr. Marranca. To assets, approximately 25 percent.
        Mr. Luetkemeyer. Okay, so they want to be able to lend more
    than what you do.
        Okay. Mr. Kelly, what is the percentage of--
        Mr. Kelly. Our percentage that is tied to commercial
    lending, business lending, would be in excess of 60 percent.
        Mr. Luetkemeyer. You are 60 percent business loans?
        Mr. Kelly. Yes, sir.
        Mr. Luetkemeyer. Really? You are servicing your community,
    there is no doubt about that.
        With that, I will yield back.
        Thank you, Madam Chairwoman.
        Chairwoman Capito. Thank you.
        Mr. Sherman, for 5 minutes for questions.
        Mr. Sherman. Thank you. This bill may be the only thing
    this committee actually passes into law that creates jobs.
    Congress is pretty much locked up. This is I think the only
    pro-jobs bill that has substantial numbers of Democrats and
    Republicans both cosponsoring it.
        And I realize there is a place for commercial banks as well
    in making commercial loans. I just haven't met a single small
    business person in my district who said, don't let the credit
    unions make loans to my business because I am sure that some
    day the banks are going to approve the loan, I know, some day.
    The more lenders, the better it is for small banks--for small
    business rather.
        Now, Mr. York, I think you are at 50 percent of your cap,
    so some people would just say, well, hey, this cap isn't
    affecting you. How has the cap affected you, and has it caused
    you to turn down small business loans?
        Mr. York. Luckily we haven't had to turn any down yet, but
    we do review this on a regular basis. We have to be mindful of
    the cap. We know it is out there. We certainly want to be a
    resource, a continued resource for our business members. If we
    get closer to the cap and/or hit, bump up against the cap, we
    are not going to be able to be there for their existing
    members, let alone any new members that wanted to join and take
    advantage of those loans.
        Mr. Sherman. Are you able to gear up to make business loans
    to hire the loan officers who understand business lending,
    knowing that if that person is successful, they are going to
    hit the cap?
        Mr. York. Yes, that is a challenge for us right now. We
    certainly could ramp up and hit our cap in a very short period
    of time, but we have chosen not to do that.
        Mr. Sherman. If we do pass this bill, are you going to
    expand your business lending?
        Mr. York. Absolutely.
        Mr. Sherman. Okay. Do you have any borrowers now who say,
    thanks for the loan, but I really wanted it from a commercial
    bank instead of a credit union?
        Mr. York. We have not heard that one yet, so we are waiting
    for that.
        Mr. Sherman. I will be back in my district next week. I
    will talk to a lot of small business people, and we will see
    whether they want to prevent a major avenue of small business
    lending on the theory that some other institution should do it.
        Now, you pointed out that nearly 70 percent of the credit
    unions don't engage in any business lending. Why are there so
    few that make business loans? And I think we have talked on it
    a little bit, and that is you would have to gear up to be able
    to do it, but why are so few credit unions making business
    loans now?
        Mr. York. The smaller credit unions know there is certainly
    a cost to enter this business. You have to gear up for that and
    pay for that. Knowing there is a cap out there, you are
    certainly not going to do that if you are not going to be able
    to have a sustainable business model that will take you
    forward. These credit unions have chosen not to participate in
    business lending for either that reason, or it is not in their
    goals or business model.
        Mr. Grinnell. If I may, Congressman, Chairwoman Matz had
    pointed out that credit unions, $45 million and under in
    assets, that represents about two-thirds of credit unions
    across the country, and those are very small credit unions, so
    it just doesn't make economic sense for them to hire that kind
    of expertise to be able to make between $5 million and $6
    million in loans, but two-thirds of all credit unions are $45
    million or less in assets.
        Mr. Sherman. Even if you were making 2 or 3 percent spread
    on those loans net, if you are only making $5 million or $10
    million in loans, it is hard to pay for a full-time loan
    officer, let alone the oversight supervision that we would like
    to see in intelligent lending.
        What about your credit union, how are you affected by the
    business lending cap?
        Mr. Grinnell. We are right now about 80 percent of our cap,
    and we have--back to the demand question that has been
    mentioned several times, we have very strong demand in both of
    our markets. We are anxious to serve our members. We are
    anxious to help our communities. If this cap is not lifted, we
    are going to begin turning members away sometime next year. We
    already don't promote our program, and unfortunately, it will
    go from that to actually turning people away. And we have, as I
    mentioned before, a hundred, if the cap gets lifted, that would
    give us another $135 million, which I don't think is a small
    amount for the communities.
        Mr. Sherman. Speaking to the credit union representatives,
    do you oppose any legislation that is designed to get, allow or
    help commercial banks from making more small business loans?
        Mr. Grinnell. No, I tried to say that before, but
    absolutely not.
        Mr. York. Not at all.
        Mr. Kelly. Congressman--
        Mr. Sherman. Mr. Kelly?
        Mr. Kelly. If I might just respond to your question about
    that you hadn't had anyone in the credit union saying, I really
    want to get this from a commercial bank. I haven't had anybody
    in my bank say, I would really rather have this loan from a
    credit union.
        Mr. Sherman. I don't know your part of the country, but I
    have 1,000 different business people just in my district who
    have come to me and said, I didn't get the loan from the bank;
    I wish I could have gotten it from the credit union. I am sure
    the business people I talk to would be happy to get the loan
    from any one of the people who are up there, and if you want
    some Los Angeles business, see me after the hearing.
        Mr. Kelly. I might want to do that. I do want to point out
    that maybe--
        Chairwoman Capito. The gentleman's time has expired.
        Mr. Sherman. My time has expired.
        Chairwoman Capito. Mr. Huizenga for 5 minutes.
        Mr. Huizenga. Thank you, Madam Chairwoman.
        I appreciate the opportunity to peer into the spitting
    match that goes on here in Washington. It is good to know when
    I served in the Michigan legislature, that wasn't just a unique
    microcosm. This is a national issue between the banks and the
    credit unions.
        So I hear a lot of testimony, and quite honestly, I think
    you both have some very salient points as you are moving into
    this. I think that, as my colleague from California was
    starting to talk about, there is a credit access problem.
        I happen to believe one of those barriers to banks being
    able to make those loans is the Dodd-Frank Act that this
    committee passed, and I will give a specific example on that: A
    family-owned business that has a piece of property in Michigan
    with a $1.2 million value has a $120,000 loan on that, has a 5-
    year balloon, and based on the regulators now coming into that
    bank, which this family has had a 30- to 40-year relationship
    with, those regulators are saying, oh, real estate holdings in
    Michigan? Thanks, but no thanks, you have to move those off
    your books.
        Fortunately, that banker happened to have a very good
    relationship with one of their local credit unions and pulled
    that family in with their credit union. And I think that
    happens more often than maybe what people care to admit, but
    you had a banker and a credit union member or a lender sitting
    at the same table in a bank trying to make sure that their
    customer was being serviced. And that was directly tied to
    Dodd-Frank and some of the regulatory issues that were coming
    in.
        So that is an ongoing concern that I have as a member of
    this committee and something that we need to do, and I think
    something that can change.
        I am seeing both heads nod.
        Madam Chairwoman, just for the record, we have banks and
    credit unions agreeing.
        So I am glad I could be a unifier here.
        I do sort of want to touch on a little bit with my friends
    from the bank here, we heard the regulator from the credit
    unions, so sorry, Deborah Matz, earlier, who was addressing
    sort of the safety and soundness concerns. She doesn't believe
    that is particularly valid. I think anybody who has looked at
    this sees that there are advantages to being a credit union.
    There are advantages to being a bank for different things that
    you are trying to do.
        I guess what I am trying to get at as a member exploring
    this issue, is there really a need for the increase in the cap
    or not?
        And I guess I would ask Mr. Marranca and Mr. Kelly this
    specifically. If there is no need, because there is sort of
    this lack of demand element, then really is there a harm in
    authorizing that cap to be lifted if you are really not losing
    that much business to them? And I understand there may be
    particular instances. I experienced that one firsthand as I was
    sitting, witnessing this particular transaction. I know there
    are times that occurs, but where is the particular harm that
    could come out of this?
        Mr. Marranca. Congressman, in my opinion, it is a zero-sum
    game when you ask, is there a need? It is not an issue of
    demand. It is a zero-sum game. Any loans that will go into a
    credit union, which would be taken from a bank or a community
    bank. They would be taken from a bank that pays taxes. You are
    not going to create new loan demand when the demand is not
    there. I heard--
        Mr. Huizenga. I am going to interrupt for one second here.
    I know, being a small business owner myself, if I have an
    institution that can't particularly make that one loan come
    together, bank, credit union, whatever, as long as I grow my
    business, guess what, I will have eventual demand. And so, I
    think there is something to be said about growing the size of
    the pie in general here, and this bill may do it. I don't know,
    but go ahead.
        Mr. Kelly, I know you wanted to jump in.
        Mr. Kelly. Thank you, Congressman.
        The thing that I would say is, I would go back to my
    original testimony and point out that there is an ability right
    now for these credit unions to convert to mutual charter. When
    we see the association that Congressman Luetkemeyer addressed,
    as far as all these common bonds that aren't really common, we
    go out and look at the billboard in Los Angeles that said, can
    you join? And the answer underneath is, are you breathing? We
    are prying under a charade now that the credit unions really
    serve this common bond, and it is not really the case. And so
    my colleague here is talking about the fact that we are not
    talking about the American Airlines Credit Union that serves
    everybody associated with American Airlines. And we bless that
    and say good luck, keep going.
        We are talking about moving into the commercial field,
    which takes away, which puts a complete disadvantage there and
    also takes away from the bank's ability to truly be able to go
    out and have a level playing field of trying to get those loans
    and service those loans.
        At the conclusion of my testimony is a list of the credit
    unions that have recently failed because of their commercial
    lending forays, and I just ask you to look at that. I also have
    a quote from Dale Kerslake, who is the president and CEO of
    Cascade Federal Credit Union in Kent, Washington, who basically
    says that the majority of credit unions do not want or need
    this type of legislation, and I would just call that to your
    attention.
        Mr. Huizenga. I appreciate that, and I know my time has
    expired, but there have been plenty of banks and credit unions
    that have gone out of business because of this particular job
    environment, and that is what we are trying to change and turn
    around.
        Mr. Kelly. Thank you, Congressman.
        Chairwoman Capito. Thank you.
        I would like to thank the panel. I have an additional
    question, and Mr. Scott would like to ask an additional
    question if you would just bear with us here.
        I wanted to ask Mr. Hanson, what is your perspective on the
    National Shared Insurance Fund? If this cap were to be
    expanded, would it have any influence on it? Would it have any
    influence on what was required of the participation of the
    credit unions that pay into this fund? I know you managed the
    one for the State of Massachusetts.
        Mr. Hanson. I think the NCUA has done a very good job so
    far in managing and supervising the member business lending
    under the existing cap, and I think that their regulatory
    approach has worked quite well, as we can see from the
    delinquency numbers. So I don't think that increasing credit
    union member business lending will impose any additional risk
    on the fund, and in fact, the diversification of those
    portfolios is a very big and important issue, especially given
    the fact that mortgages are now at 40-year generational low
    interest rates.
        As interest rates rise, mortgage loan portfolios will carry
    interest rate risk, and so it is very important for credit
    unions and all community financial institutions to diversify
    their portfolios so that they will not have future interest
    rate risk. So this action, I think, will actually help and will
    ease the stress on the NCUSIF.
        Chairwoman Capito. Thank you.
        Mr. Scott?
        Mr. Scott. Thank you, Madam Chairwoman.
        In listening to this debate and this discussion and debate
    between you, it seems to me that what all of this is boiling
    down to is competition, and I think that it would be very
    important for us to ask the question of each of you because,
    Mr. Kelly, I believe it was, you made a statement, you said
    something relative to shifting of tax-impacted loans to tax-
    exempt loans. So I would like for each of you to answer the
    issue about this competitive edge of credit unions having the
    tax exemption status, how that relates--and I think it is very
    important for the credit unions to give us a good answer on
    this, because I think that all this is weighing in on this
    competition between banks and here.
        The increase from 12.2 to 27.2, I believe, is a sizable
    increase here, so I think that as we evaluate this and look at
    it, I think some of this is going to come on, where does this
    lay? Is there an advantage? What is this about the tax-exempt
    status? And let's deal with this issue; is this an issue of
    competition here? Because we are trying to get demand, we are
    fuzzy on that. It is going to create jobs. It is going to
    create 250, and it is based on this or that. So is this
    somewhere where the rubber meets the road that you feel it is
    unfair for the credit unions to have this tax-exempt, and then
    they get in your bailiwick, and the credit unions are saying we
    have this demand, and we have a not-for-profit status that goes
    along with this? So could each of you give us your opinion on
    this whole issue?
        Mr. Marranca. Congressman, I am not afraid to compete. I
    compete every day. I have been in the bank for 30 years. Before
    that, I was an FDIC bank examiner. I believe in safety and
    soundness, and I believe in taking care of the communities we
    serve. My main office has been located 110 years in a town of
    800 people.
        We have to be very careful about lumping all banks together
    versus lumping community banks, which are over 7,000 in this
    country, who believe strongly in Main Street America,
    relationships, taking care of our customers and business
    customers.
        I will compete up against anybody, megabanks, credit
    unions, other community banks, but they have a competitive
    advantage when they want to be a bank, look like a bank, smell
    like a bank, but don't pay taxes like a bank, and now they want
    more powers. That puts me at an even greater competitive
    advantage. They don't have CRA. They don't have the FDIC
    regulators. They, if they want to be a bank, can be a bank. If
    you don't want to be a bank, remain as you are, but you have a
    competitive advantage. I bet you there are thousands of credit
    unions who right now are afraid of what might happen when you
    open this bottle. I am not afraid of competition. America is
    built on competition, but it is also built on fairness and a
    level playing field.
        Mr. Kelly. Congressman, I think that I would second what
    Mr. Marranca said, but I would tell you that from my
    standpoint, I can give you an example of a California credit
    union that is an entrepreneurial credit union that has come in
    and made a loan in Tulsa, Oklahoma. I think we could show you
    example after example after example of those kind of things
    going on, of out-of-State credit unions coming in and making
    commercial loans.
        The reason I bring that up is because that is really a
    pretty small percentage of the credit unions that are out
    there. The traditional credit union, the traditional one that
    really intends to cover that core group of people who work at
    American Airlines or that are truly the East Central Teachers
    Credit Union, of which there is one, those are there for a
    purpose. They stay within their bounds, but when we start
    seeing credit unions expand beyond State lines, expand into
    every possible profession that there is, it is fine to stand
    behind that and say, you know that I am a credit union, and I
    can offer 3 percent lower rates, and I am not really covered by
    FDIC and tough Dodd-Frank regulations.
        Mr. Scott. I don't want my time to expire without giving
    the other side an opportunity to respond, so could I hear from
    the credit unions?
        Mr. Grinnell. I would like to respond, thank you, I guess
    with a couple of points. The banks say that we have this huge
    advantage and the tax advantage is always thrown in there; it
    is not a level playing field. And I guess I would say if the
    advantage is that significant and that much of a competitive
    advantage, why do we only have 5 percent market share in
    business loans?
        I guess I would also say that, if the advantage is that
    significant, then why don't we see banks converting to credit
    unions?
        And then, lastly, when we have new members come in our
    doors for commercial loans, it is not because we have better
    rates. It is not because we have some tax advantage. It is for
    one of two reasons. First, again, I have letters to show that
    the banks were not willing to help these members; they did not
    have the money to lend to these members. Second, the other
    reason that we see is that the banks are more focused on their
    stockholders than they are taking care of their customers.
        Mr. Scott. So you do have evidence where people have been
    turned away from banks?
        Mr. Grinnell. Yes, I do. AsI said before, I would like to
    submit that into the record.
        Mr. Scott. Mr. York?
        Mr. York. Thank you for the question. First of all, we are
    tax-exempt because of our structure, we are a not-for-profit
    financial cooperative. That is different than a bank structure.
    And there is nothing wrong with that. It is okay that we have
    two different structures.
        They are beholden to their stockholders; we are beholden to
    our members. We are here to serve our members. That is our
    mission, to serve our members, whether they are of modest means
    or not, we serve our members. And we do that with consumer
    loans, home loans, and business loans. So it has nothing to do
    with our tax-exempt status. We have a different structure.
        This shouldn't be about our taxation or tax status. It
    should be about creating jobs. It should be about businesses
    and helping the economy, and that is what we both have said for
    this entire time, and we look forward to a positive result.
        Mr. Hanson. I will be brief.
        These are really two different industries. Credit unions
    are tax-exempt because they go places that other financial
    institutions don't go, and they serve people who need those
    resources, and that really is the heart and soul of the
    industry.
        This isn't about competition. The fact of the matter is,
    all the credit unions in the Nation have about $950 billion in
    assets. That is less than the balance sheet of Citibank.
        We serve people who need these services, and we are really
    a different industry. And we are going to deliver member
    business loans to help improve the economy as demand improves,
    and so as a result, I think the issue is clouded when it is
    looked at a competitive issue with credit unions and banks.
    This is not a zero-sum game; this is about increasing the pie
    and delivering financial services to those people who need
    them.
        Our largest credit union, Navy Federal Credit Union, is
    that way because it went places no one else would go. Thank
    you.
        Chairwoman Capito. Thank you, and I am going to give Mr.
    Luetkemeyer 5 minutes if he has any additional questions.
        Mr. Luetkemeyer. Thank you, Madam Chairwoman, just briefly.
        Mr. York, what is the interest rate that you charge on your
    auto loans?
        Mr. York. Right now, it is 1.99 percent.
        Mr. Luetkemeyer. What is the rate that you charge on your
    home loans?
        Mr. York. It is market rate, Fannie Mae, Freddie Mac rates.
        Mr. Luetkemeyer. Four percent, 4 and a quarter?
        Mr. York. Sure.
        Mr. Luetkemeyer. What is the rate you are charging on your
    commercial loans?
        Mr. York. It depends on what type of loan it is. Real
    estate, it could be 6 percent.
        Mr. Luetkemeyer. Six percent.
        Mr. Grinnell, what is your rates on auto loans?
        Mr. Grinnell. I believe the car loan rate is around 2.5
    percent.
        Mr. Luetkemeyer. Two and a half. Home loans?
        Mr. Grinnell. Again, whatever the market rate.
        Mr. Luetkemeyer. Okay, commercial loans?
        Mr. Grinnell. Depending on the type of deal, the structure
    of the deal, anywhere between probably 5.5 and 6.5 percent.
        Mr. Luetkemeyer. Okay.
        Mr. Kelly, what is your rates?
        Mr. Kelly. On our auto loans, which would be consumer
    loans, we would probably be in the neighborhood of 5 percent.
    Commercial loans, we would be usually priced off of national
    prime somewhere 4.5 to 5 percent, and we operate most of our,
    most of the loans today go into the national market, so we
    price our home loans based on the national market rates.
        Mr. Luetkemeyer. Okay. Mr. Marranca?
        Mr. Marranca. Our car loans would average between 4 and 5.5
    percent, depending upon the term of the loan, our mortgage
    loans would be the national rate, Fannie Mae and Freddie Mac,
    with the exception of we also make loans that we hold in our
    own portfolio for approximately one-third of our customers who
    do not qualify for Fannie and Freddie, and that would have a
    premium on them because we are holding those in our portfolio.
    Our commercial loans are totally negotiable based upon the
    strength of the borrower and the balance sheet, but would
    average between 4.75 and 6.5 percent.
        Mr. Luetkemeyer. Okay. What is interest rate reflective of?
        Mr. Marranca. Pardon?
        Mr. Luetkemeyer. What is the interest rate reflective of?
        Mr. Marranca. Market competitive factors.
        Mr. Luetkemeyer. Risk, right?
        Mr. Marranca. And risk/reward, absolutely.
        Mr. Luetkemeyer. It is interesting. I know Chairwoman Matz,
    and Mr. Hanson, you made a comment a while ago that it is
    important to diversify your portfolio. And I don't disagree
    with that, but it is interesting that we want to diversify in a
    more risky area. And I want you to just think about that for a
    second. Be very careful where you want to tread because you are
    going in a direction that has a lot of pitfalls in it, and that
    is the only comment I have to make.
        Mr. Marranca. Congressman, if I may quickly, I heard today
    the national credit union regulator say, and it frankly
    astounded me, that for the sake of safety and soundness, they
    want their organization to diversify into the most risky loans
    you can make for diversification and safety and soundness. And
    I can tell you I have never heard an FDIC Chairman say, I want
    you to make more commercial loans for diversification or safety
    and soundness.
        Mr. Luetkemeyer. As a former regulator myself, this is the
    wrong direction to go to if you are looking for safety and
    soundness.
        Thank you, Madam Chairwoman.
        Chairwoman Capito. I thank you, and I thank the Members,
    and I want to thank the panel for the lively discussion and
    great details which you provided in your answers. I would say,
    anecdotally, it is like Mr. York said, it is all about jobs.
    And we have to find a way to get America back to work.
        The Chair notes that some Members may have additional
    questions for this panel which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 30 days for Members to submit written questions to these
    witnesses and to place their responses in the record. The
    hearing is adjourned. Thank you all.
        [Whereupon, at 4:44 p.m., the hearing was adjourned.]

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