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. if congress did increase the cap on member loans -- you just testified that only about 300 unions have done so -- how many credit unions do you think will take advantage of that? you just talked about the distinction between consumer and corporate. are there certain kinds you expect to be in the business before others? how do you see this going if we did this?

>> i would think that larger credit unions that are well capitalized -- in fact, i mean credit unions of 50 million and up or 100 million and up will be more likely to start making business loans. there are those that are making business loans that would be inclined to expand, as i said previously. credit unions tend not to market to business loans because of the cap. it the cap were raised, they would be more likely to market and make more loans. i am guess there are about 2000 credit unions that are over 50 million in assets that would be more likely to take advantage of this if the cap were raised. >> thank you, mr. chairman. >> senator menendez.

>> thank you, mr. chairman. i think there are some serious questions here. how is it -- we will hear from the next panel. i just want to look get some of the arguments they are presenting and give your sense of it. one is that they will say that this legislation would allow a new breed of credit unions to more aggressively pursue business customers for commercial and real estate loans. it would also serve as an invitation to credit unions that are not near this camp to focus on business lending in order to be eligible for a increase in their business lending cap. are you concerned about that?

>> it would be an opportunity for credit unions to expand their business portfolio, but the loan to share ratio is about 68%. there is a great deal of capacity for credit unions to expand business lending and still meet the needs of consumers. >> what about the fact that credit unions by their nature are tax exempt and do not live within all the regulatory requirements that banking institutions live under. if we expand the nature of their portfolio, the argument is that you have a competitive process because they are tax-exempt and because they are not subject to all of the regulatory requirements that banking institutions and doing similar transactions would be subject to. is that a fair statement? >> credit unions are more stringently regulated as far as

business lending. in 2001 the -- it was a study of credit union business lending. no evidence was found that credit union business of lending would ever impact banks. in fact, they would increase the competition with small banks. the benefit would go to the consumer. whether or not credit unions are tax-exempt is not something i deal with. i do with safety and soundness issues, but credit unions are very tightly regulated in terms of making any loans. >> they are certainly not regulated to the same extent that banks are. they do not have the community reinvestment responsibility that banks have. >> no, they do not. credit unions only serve people in their field of membership. >> the question is what would

you do if we were to pass this law? how would you go about deciding whether it is ok for a credit union to increase its member business lending? what is the criteria you use? >> hour exams are based on safety and soundness. it the credit union has experienced commercial lending staff in place and it is a well- managed credit union and well- capitalized, those are the issues we would look at. >> but right now they have very little commercial -- other than alter loans and real estate? >> there are 2200 credit unions that make business loans. >> in that universe it would be a possibility? >> i'd think it would be more than that. i think there are credit unions that are not making business

lending because of the cap. they likely would start making those loans. right now credit unions, i am told, are reluctant to get into the business lending business in some cases because they feel they would not get a return on their investment because of the cap. it is a sizable investment in terms of the staff and infrastructure. >> you are saying that if we were to do this, you are not concerned about consumer lending being squeezed out as a result of the credit unions seeking more business lending and you are not concerned about the overall risk as it relates to taking on an expanded portfolio? >> no, yes or not. >> thank you, mr. chairman. >> senator shelby. >> i was detained earlier.

i ask unanimous consent that my opening statement be put into the record. i am sorry i was not here earlier. congress, as i understand it, originally imposed business lending limitations in order to limit excessive risk taking. you may have gotten into this. i am not sure. i was not here. do you believe a higher cap on business lending would adversely impact the safety and soundness of credit unions? how would increasing the amending impact of the national credit union share insurance fund? >> i do not believe that increasing the cap would adversely impact safety and soundness. s counter intuitive as it might seem, -- >> if not why not? >> right now credit unions have

a very large book of business in mortgages and aluto loans. as we learn from the economic downturn, concentrations are not good for financial institution portfolios. being able to add business loans -- >> you mean concentrating in one spot? quite correct. being able to add business loans to the portfolio would actually diversified portfolio and reduce the concentration. in my opinion, it will enhance the safety and soundness. >> of the 55 credit unions that failed during 2009-2010, 20 a direct business loans at the time of their failure. what role did business lending play in the failure of these credit unions and how did the amount and nature of the

business loans made by these failed institutions compare to those made by healthy credit unions? i know you have gone back and look at this. >> in fact, during that time that you mentioned there was only one credit union that failed directly as a result of business lending out of the 2200 credit unions that make business loans. there were 55 failures in that time. of the 20 that made business loans -- >> there are a lot more failures in banks. we know that. >> correct. there were only 55 credit union failures in that time. >> you state that 70% of all credit unions do not engage in any business lending. you know that only about 7% of credit unions are close to the

cap on business lending. of these cute credit unions, nearly two-thirds have assets of over $500 million. which types of credit unions would benefit the most from an increase in the cap? large credit unions, small credit unions -- do you have any evidence you can share with the committee that increasing the cap would benefit small credit unions? we have a lot of small credit unions. >> the credit unions that would benefit the most are probably the ones that are over 50 million. the ones that are 50 million to 100 million -- almost half of them are making business loans. for the other category, up one budget million and above all the majority of the credit unions. the credit union's most likely to make business loans or over 50 million -- are over 50 million. >> when testified before this

committee last year -- for those credit unions that engaged in business lending and had poor ratings, all in the business loans were responsible for the low readings -- ratings. how can business loans get a credit union into trouble? how can they avoid trouble? should a credit union be required to have a high rating for -- before its cap on business lending can be increased? we are interested in the safety and soundness. >> answering the second part first, yes, they should have, particularly on management. they should have a high rating in order to go beyond the bottom tier. >> that is just common sense for safety and soundness. >> if yes. if this legislation is passed, we will implement a new set of

regulations to implement the statutes. most likely that will be one of the things we include. >> what is your estimate on the number of credit unions that are currently not making any business loans, but will start to make business loans if the cap is increased? do you have a number on that roughly? >> there are about 6000 credit unions that are exempt from -- that are not exempt from the cap. there are about 1200 that are exempt from the gap for one reason or another. of the 6000, 4000 of them are under 50 million. probably 2000 would benefit from that. >> how much with the business lending cap have to increase to basically make it cost-effective

for small credit unions to engage in business lending? have you done any work in that area? >> i do not know the answer to that. for a small credit union -- there are small credit unions that engage in business lending. frequently it is done through participation in the long war to a credit union service organization rather than doing it it themselves. >> thank you. >> i would like to welcome the witnesses for our second panel today. the president and ceo of the credit union national association, which represents most of the nation's nearly 7800 credit unions. he became president and ceo oof

cuna, falling nearly a quarter of century experience in the credit union movement. the president and ceo of grand rapids state bank is also director and member of the independent community bankers of america. the president and ceo of the first federal credit union and is also the chairman of the board on the national associations of federal credit unions. he has over 25 years of banking and credit union experience. the chairman and ceo and

recently elected chairman of the bankers' association. i thank all of you for being here today and look forward to your testimony. i will ask the witnesses to limit your remarks to 5 minutes. your written statements will be submitted for the record. police began. >> mr. chairman, ranking member shelby, members of the committee, thank you for calling this meeting. all the credit unions whether the financial crisis well, the economy as a whole is bad. more needs to be done to help american small businesses create jobs. credit unions can help of credit unit -- if congress passes the small business enhancement act. this common-sense legislation would increase the steps to the business of lending capra to

27.5% and impose statutory and regulatory safeguards on the increased lending to protect from additional risk. if this legislation is enacted, we estimate credit unions can loan of $13 billion to its members in the first year, helping them to create 140,000 new jobs without an outlay of a single taxpayer dollar. credit unions and continued to lend to their members throughout the financial crisis, increasing their business it -- if throughout the financial crisis. while the banks portfolios short by 5%. currently there are over 330 credit unions near the cap. the account for nearly half of the business loans subject to the cap. they had been the source for most of the growth of credit union business lending. over the next few years, this approach will dry up without an increase in the cap. that would be bad for america's

small businesses. we have established a two-tiered structure. tier one would be able to engage in business lending up to the current limit. tier two would have to meet more statutory and regulatory criteria and be approved. only then will they be emperor -- approved. credit unions engaging in additional business lending will do so in a safe and sound manner. it is hard to believe the government is telling credit unions but cannot help to create jobs in their local communities. there is only one reason why. the banks oppose it. this should not satisfy congress. it should not satisfy anyone. there are 140,000 reasons to record against do more small- business lending. there are no sound public policy reasons to not do so.

not letting the cat will leave money on the table that could be loaned to small businesses to create jobs. this is not for the credit union mission. credit unions have been doing member business lending since day one. credit unions do this type of lending more safely and sell late than banks. the bankers say increasing the cap will only affect a small number of credit unions. at the same time, increasing the capital art committee banks. it is a contradiction and the bankers are wrong on both counts. increasing the cap will have a profound effect on the hundreds of credit unions, but it will not adversely affect the banker dominance of the commercial loan market currently at 95%. this would help local communities, including community banks, stabilize the economy, and create jobs. bankers say that increasing credit union business of lending

will increase other lending. creance have plenty of liquidity. they say there should not be an expansion of power because of their tax status. one-third of all banks are exempt from federal income tax. credit union tax status is based on the not-for-profit structure of the credit unions, not credit union power. the bankers say increased business of lending calls into question the credit union serving the underserved. we have attempted to do more to serve the underserved. bankers have brought lawsuits to stop us. as we recover from the great recession, small businesses are underserved. bankers a small business credit is not in small supply. many small-business owners report being turned away by their banks. that is the primary reason congress gave the banks access to taxpayer dollars last year. their lending is down. our lending is up.

the market for living is increasing. increasing. credit