While the nation’s credit crunch may have begun on Wall Street, it’s definitely found its way to Main Street. But for countless small businesses feeling the squeeze, another Main Street institution could be the answer to their financing woes — federal credit unions.
In this era of global banking, regional money-center banks, and stingy community banks, the nation’s unheralded credit unions should be a ready source of capital in the current downturn, except for one problem: While the big banks were deregulated long ago, federal credit unions are still hamstrung by federal red tape that sharply curbs their ability to make business loans. Meanwhile, the commercial banking industry continues to wage an unrelenting lobbying campaign in Washington to keep credit unions bottled up.
Indeed, credit unions occupy a largely overlooked corner of the financial industry. That’s because they were created under different statutory authority. They were established by Congress in 1934, largely in response to the collapse of the banking industry leading up to the Great Depression. The goal was to promote “thrift” and provide a source of credit for average working people. Credit unions fill a niche that, to this day, remains outside the banking system.
Unlike banks, for example, credit unions are non-profit, tax-exempt membership organizations. While most are relatively small compared to today’s commercial banks, the credit union industry as a whole is still substantial. Today, more than 8,400 credit unions serve more than 90 million “members” and hold more than $650 billion in assets. In contrast, banks insured by the Federal Deposit Insurance Corporation (FDIC) hold more than $10 trillion in assets. The largest federal credit union has about $23 billion in assets, while the nation’s largest bank has over $1 trillion in assets.
As non-profit member organizations, credit unions naturally have close ties to their communities, and many provide loans to businesses. What’s more, because they are small, credit unions are comfortable making loans that most commercial banks won’t touch. The average credit union business loan is about $180,000. More than 50 percent are given to businesses with assets under $100,000, and 45 percent to individuals with household incomes of less than $50,000, according to figures provided by the two main credit union associations.
Credit unions also have an unparalleled record for safety and soundness. Unlike banks and savings and loans, credit unions have never cost the American taxpayer a penny, nor has any credit union ever needed a federal bailout. Board members serve without pay, and credit unions don’t issue capital stock. With this kind of track record, why aren’t credit unions playing a greater role in the economy? It’s not for lack of trying or lack of capital.
“The chief obstacle for credit unions is the arbitrary statutory lending limits imposed by Congress in 1998 and the burdens associated with many of the SBA lending programs,” said Carl Sorgatz, president of Hawthorne Credit Union, in recent testimony before Congress on behalf of the Credit Union National Association, a group that represents both state and federal credit unions.