Filene Study Shows Credit Union MBLs Outpaced Banks During Economic Downturn

Allowing credit unions to expand their commercial loan growth not only could help the economy, but it would also improve the resiliency of their loan portfolios in times of economic stress, according to a recent Filene Research Institute study, which concluded that policymakers should consider relaxing regulatory caps concerning credit union business lending or consider alternative routes to promote that lending.

The study also found that while U.S. credit unions are newer to business lending, their delinquency and charge-off rates compare favorably to those at commercial banks during the past 15 years.

The study, “Commercial Lending During the Crisis: Credit Unions vs. Banks,” by David Smith, an economist at Pepperdine University’s Graziadio School of Business and Management, looks to quantify credit unions’ member business lending (MBL) at a time when they seek to widen their access to the business lending market.

The study found the following implications for credit unions:

  • Credit union commercial loan growth has been steady from 1996 through 2012. More importantly, it has been resilient during the last two recessions, suggesting that credit unions can buoy both lending growth and, as a consequence, overall business activity.
  • While banks tend to contract commercial lending during economic stress, the opposite is true for credit unions. Commercial loan growth rates for banks turned negative following the recessions beginning in 2001 and 2007, but credit union growth rates remained positive during both periods.
  • Despite the positive trends noted above, commercial lending, as measured by delinquency and charge-off rates, is more sensitive to the business cycle for credit unions than it is for banks. Yet, the data show that credit unions continue to offer business loans when others retreat.

At a time when the economy needs assistance from any area, credit unions’ stable commercial lending history shows they may be a helpful source, said the study.

The study builds on previous research in 2010 by Smith and Stephen Woodbury in “Withstanding a Financial Firestorm: Credit Unions vs. Banks,” in which the authors indicated that credit unions are surprisingly resilient to the downside of the business cycle, especially compared with commercial banks. That study indicates credit unions’ aggregate loan portfolios appear to be roughly 25 percent less sensitive to macroeconomic shocks than those of banks, Filene said.

The Credit Union National Association (CUNA) and credit unions are urging Congress to increase credit unions’ MBL cap to 27.5 percent of assets from its current 12.25-percent maximum. Doing so would open up more opportunity to offer MBLs, inject a potential $13 billion in business loans into the economy and create as many as 140,000 new jobs with no cost to taxpayers, CUNA said.


Questions? Contact a member of the Association’s Legislative Affairs team:

Jennifer Wagner, Vice President of Legislative Advocacy
Mark Minickiello, Vice President of Legislative Affairs
Stacy Augustine, Senior Vice President & General Counsel

Posted in CUNA, Economy.