[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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72-613 PDF WASHINGTON : 2012
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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
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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
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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.]
A P P E N D I X