NAFCU letter on how credit unions can help small businesses: small-business hearing tomorrow
Below is NAFCU Vice President of Legislative Affairs Brad Thaler’s letter to House Subcommittee on Contracting and Workforce Chairman Richard Hanna and Ranking Member Grace Meng in conjunction with tomorrow’s subcommittee hearing, “The Decline in Business Formation: Implications for Entrepreneurship and the Economy.” Members of the Subcommittee on Contracting and Workforce were copied on the letter.
In the letter, Thaler urges the subcommittee to support H.R. 688, the “Credit Union Small Business Jobs Creation Act of 2013,” introduced by Reps. Ed Royce, R-Calif., and Carolyn McCarthy, D-N.Y.,to raise the arbitrary credit union member business lending cap to better equip credit unions to help serve small businesses.
Thaler also says H.R. 719, the “Capital Access for Small Businesses and Jobs Act of 2013,” introduced by Reps. Peter King, R-N.Y., and Brad Sherman, D-Calif., would address credit unions’ inability to access supplemental forms of capital by authorizing NCUA to allow credit unions to access supplemental forms of capital that do not alter their cooperative nature.
He also says NCUA should continue to call on Congress to pass a legislative solution that modernizes capital standards to allow supplemental capital.
September 10, 2014
Re: Credit Unions Can Help Small Businesses
Dear Chairman Hanna and Ranking Member Meng:
On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents the interests of our nation’s federal credit unions, I write in conjunction with tomorrow’s hearing, “The Decline in Business Formation: Implications for Entrepreneurship and the Economy.” NAFCU appreciates the subcommittee’s interest in these issues and looks forward to working with you as we strive to spark growth and create jobs.
As you know, there was a severe reduction in the availability of capital during the financial crisis. This credit crunch is still being felt by many small business owners today. As the economy recovers, credit unions continue to serve as an important resource for small businesses to obtain capital, oftentimes in the event that they have been turned away from other financial service providers. While credit unions are equipped to help small businesses, their efforts, unfortunately, are severely hindered by the arbitrary credit union member business lending cap. This cap is denying our nation’s small businesses all the tools they need to grow and spur economic activity such as job creation. With this in mind, Representatives Ed Royce and Carolyn McCarthy introduced bipartisan legislation, theCredit Union Small Business Jobs Creation Act of 2013 (H.R. 688) to raise the arbitrary credit union member business lending cap. Both the Treasury Department and the National Credit Union Administration (NCUA) have signed-off on this proposal that would create jobs without spending a single dime of taxpayer funds. We urge you to support this effort as well.
Another impediment to credit unions providing much needed capital is their inability to access supplemental forms of capital. Under current law, a credit union’s net worth ratio is determined solely on the basis of retained earnings as a percentage of total assets. Because retained earnings often cannot keep pace with asset growth, otherwise healthy growth can dilute a credit union’s regulatory capital ratio. Representatives Peter King and Brad Sherman have introduced bipartisan legislation, the Capital Access for Small Businesses and Jobs Act of 2013 (H.R. 719), that would address this problem by authorizing NCUA to allow credit unions to access supplemental forms of capital that do not alter their cooperative nature. This would further minimize the probability of credit union insolvency, ensure they are able to maximize lending to small businesses, and allow them to grow to meet the needs of their members.
As you may be aware, NCUA recently issued a proposed risk-based capital rule that would replace the current risk-based net worth requirements with risk-based capital requirements for most credit unions with over $50 million in assets. The rule would also revise the risk-weights for many of NCUA’s current asset classifications and require higher minimum levels of capital for most credit unions with high concentrations of real estate loans, member business loans or higher levels of delinquent loans. In addition, the proposed rule includes a provision under which NCUA could require higher minimum individual capital requirements for individual credit unions based on NCUA supervisory concerns. This rule would extract a significant amount of capital from the economy that could otherwise be used to stimulate the economy through lending.
Supplemental capital authority is needed now more than ever considering the restrictions the rule would place on credit unions if made final without significant changes. NCUA should continue to call on Congress to pass a legislative solution that modernizes capital standards to allow supplemental capital. Allowing eligible credit unions access to supplemental capital, in addition to retained earning sources, will help ensure that healthy credit unions can achieve manageable asset growth and continue to serve member-owners efficiently.
We thank you for the opportunity to voice our views. If my colleagues or I can be of assistance to you, or if you have any questions regarding this issue, please feel free to contact myself or NAFCU’s Director of Legislative Affairs, Jillian Pevo, at (703) 842-2286.
Vice President of Legislative Affairs