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




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

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 12, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-72








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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

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

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

             SHELLEY MOORE CAPITO, West Virginia, Chairman

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

















                            C O N T E N T S

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

                               WITNESSES
                      Wednesday, October 12, 2011

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

                                APPENDIX

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

              Additional Material Submitted for the Record

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

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

                              ----------                              


                      Wednesday, October 12, 2011

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

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

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

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

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

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

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

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

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

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

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

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

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







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