A Sit-Down with the CEO: John Annaloro Discusses the History Behind the MBL Cap

By John Annaloro

First and foremost, it is important to note that the first financial institution on record in the United States was a financial cooperative (like us), not a commercial bank. It emerged in 1732, with a focus on agriculture and business lending, in New London, Conn. It was regulated (Source: Farm Credit Association, a federal regulatory agency). More than an interesting history lesson, the takeaway here is that banks don’t “own” business lending in the United States. Credit unions, in essence, were here first, doing it first.

There was no cap on credit union business lending—ever—until 1998, when the Credit Union Membership Access Act (CUMAA) was passed. Before that, credit unions could do all the business lending they wanted.

CUMAA was needed as a technical fix for “exploitable wording” in the Federal Credit Union Act, which, if read in a certain context, seemingly restricted consumer access to credit unions. The bill was proposed on the heels of the Supreme Court decision in NCUA v. First National Bank & Trust, after a series of key lower court victories by the American Bankers Association (ABA) as part of their legislative agenda to use the justice system to deal major setbacks to credit unions.

Congressional passage of CUMAA reversed this Supreme Court ruling, authorizing credit unions to have multiple common bonds among their memberships—essentially improving safety by lessening concentration risk.

To get Congressional consensus needed for passage, some political horse-trading was done between the parties, bankers and credit unions. Banks conceded passage in exchange for getting amendments that would ring-fence future credit union growth. Accordingly, the final version of CUMAA allowed for changes to field of membership, but equally had banker provisions that included:

  • Higher capital standards for credit unions than banks;
  • Limits on growing capital (safety & soundness reserves);
  • A portfolio cap on member business lending;
  • Prompt Corrective Action, or fast regulatory action that would inhibit regulator “forbearance” on temporarily impaired institutions, presumably making them fail faster.

This “deal” was made without credit unions in the room. Principals were the following individuals:

  • Peter Blocklin and Ed Yingling as top lobbyists for the ABA
  • Rick Carnell, Assistant Treasury Secretary for Financial Institutions and a Clinton appointee
  • Senator Chuck Hagel, R-Neb., who helped deliver the Republican vote as minority whip. Before coming to the Senate, Hagel had become a multi-millionaire with a cellular phone company, and among other endeavors was president of the McCarthy Group, an investment banking firm.

Because the field-of-membership corrections were so important to the credit union industry, CUNA, other trades and the credit unions “held their nose” and accepted the terms, knowing that they would eventually have to come back to Congress to fix these things.

It is now time to fix things. The banking system, as evidenced by its failures, requires change. The American economy requires change.

Credit unions have an opportunity to be a part of creating that positive change, and raising the MBL cap will be one important step in that direction.

There has never been a better time to be a credit union.


John Annaloro is the CEO of the Northwest Credit Union Association. Member Business Lending is the subject of a House subcommittee hearing scheduled for Wednesday, Oct. 12, 2011. For more information on how you can advocate in support of raising the MBL cap, read the “Call to Action” issued by the NWCUA and visit CUNA’s Grassroots Action Center.

Questions or Concerns? Contact Matt Halvorson, Anthem Editor: mhalvorson@nwcua.org.

Posted in Compliance News, NWCUA.