CRS Report: Raising MBL Cap Will Benefit Large CUs, Not Small CUs

The Congressional Research Service (CRS) in an October 28, 2015 report, Policy Issues Related to Credit Union Lending, concluded that legislation to raise the member business lending (MBL) cap would benefit large credit unions, not small credit unions.

According to the report,

"These credit unions would be unlikely to increase their presence in the commercial lending market substantially because it would not be cost effective for them to invest in the necessary underwriting systems for the volume of commercial lending that they would feasibly be able to do.27 Hence, credit unions with assets under $10 million would be less likely to become more substantial providers of MBLs.

By contrast, increasing the MBL cap would benefit credit unions that already enjoy a presence in the commercial lending market or a sufficiently large asset base. Lifting the MBL cap would allow credit unions already operating close to the current statutory limit to increase their presence in the commercial lending market."

According to data provided by the National Credit Union Administration to CRS, credit unions with assets of $10 million or less collectively made 458 of the MBLs originated by the credit union system in 2012; the median of the average size for this group was approximately $60,000. Credit unions having more than $10 million in assets made the remaining 175,514 or 99.7% of the MBLs in 2012. Credit unions with over $1 billion in assets made 68,088 or 38.7% of the MBLs in 2012. The median of the average MBL size in 2012 was $99,228 for credit unions with $10 million to $100 million in assets; $159,396 for credit unions with $100 million to $500 million in assets; $242,079 for credit unions with $500 million to $1 billion in assets; and $303,958 for credit unions with over $1 billion in assets.

The report further notes that the MBL lending cap is a blunt instrument as it imposes the same requirement on all credit unions. The MBL cap does not take into consideration in asset size and market purview. In lieu of a lending cap, CRS stated that there are other policy tools that would cause credit unions to take into account the costs of originating MBLs, such as higher asset risk weights for MBLs in a risk-based capital system or subjecting MBLs to unrelated business income taxes.