Wednesday, August 8, 2012
The Drought and Expansion of CU Business Lending
"You never let a serious crisis go to waste." Rahm Emanuel
As part of an initiative to assist drought-stricken states, the NCUA and the Obama Administration on August 7th announced that 1,003 credit unions are now eligible for a low-income designation, which permits unlimited lending to businesses.
The Federal Credit Union Act provides low-income designated credit unions with an exception to the member business loan cap of 12.25 percent of assets.
Rather than applying for the low-income designation, NCUA sent letters to credit unions notifying them that they were eligible for the low-income designation. All the credit union has to do is opt-in to receive the low-income designation.
The NCUA also intends to assess eligibility each quarter and then notify any newly eligible credit unions of their ability to receive low-income designation.
In addition to unlimited business lending authority, the receipt of low-income designation will allow the credit union to accept non-member deposits and access supplemental capital.
It is estimated that nearly half of the credit unions eligible for low-income designation are headquartered in states identified as having extreme drought conditions.
So, half of the credit unions are in states that are not affected by the extreme drought.
This agency is clearly taking advantage of the opportunity the drought provided.
Read NCUA’s press release. Read the White House Fact Sheet.
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The partisan politics driving this move by the NCUA appear questionable, but it would also appear to be legal under existing statutes. Let's hope that only those newly-designated low income credit unions that have the smarts to handle increased business lending and capital access actually implement the authorities. Otherwise the credit union deposit insurance fund will pay for their mistakes.
ReplyDeleteMaybe the NCUA can publish the Telesis CU Business Lending Model. Although Telesis is in Kaput Conservatorship their Business Model can provide a clear guide on the road to Conservatorship by way of Business Lending. Perhaps now unemployed former Telesis CEO Grace Mayo can make herself available for a modest consultation fee - last time I checked there was no NCUA work prohibition order issued against Grace.
ReplyDeletePlease ask both the OCC (as successor to OTS) and FDIC to place the Sandler Business Model online so that other financial institutions can offer flex-pay, not all interest covering payments to their customers so that the S&L fails causing a large NC bank to need a bailout from a SF-based Too Big To Fail bank.
ReplyDeleteThere are enough bad decision makers at both banks and credit unions to write volumes on how to make the federal deposit insurance funds pay millions and millions of dollars.