WASHINGTON — NCUA Chairman Debbie Matz told a panel of skeptical senators Thursday that raising the cap on member business loans would actually improve credit unions' risk environment while creating more jobs,
She said at a hearing of the Senate Banking Committee that legislation introduced by Sen. Mark Udall (D-Colo.) to raise the cap from 12.25% to as much as 27.5% of assets would "give credit unions an opportunity to prudently grow their portfolios.''
In response to a question from the panel's top Republican, Sen. Richard Shelby (R-Ala.) Matz said that that allowing credit unions to make more business loans would actually allow them to "diversify their portfolios and improve safety and soundness.'
Shelby noted that 20 of the 55 credit unions that failed in 2009 and 2010 made business loans.
Matz explained that only one of the failures was primarily caused by problems in the credit union's business loan portfolio.
Committee Chairman Tim Johnson (D-S.D.) expressed concern about the increase in business loan charge offs and the resulting supervisory concerns.
Matz conceded that charge offs had increased during the financial crisis but noted that in the last quarter they had declined. And she noted that delinquent loans don't necessarily result in a loss if they have been well collateralized.
Sen. Robert Menendez (D-N.J.) said while he is a supporter of credit unions he is concerned about the possibility of increasing business loans, especially if it is at the expense of consumer lending. He also asked whether increasing business loans would increase the advantage that credit unions already have from being tax exempt.
Matz replied that credit unions are already very heavily regulated on numerous levels and her agency would beef up its regulation of business loans if credit unions were allowed to make more of them.
Menendez said credit unions aren't as heavily regulated as banks and don't have to comply with certain laws, such as the Community Reinvestment Act.
Matz replied that credit unions have restrictions on who can join them based on their field of membership.
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