When it comes to weathering economic downturns, credit unions may have the advantage over banks with their commercial lending activity.
Credit unions' aggregate loan portfolios appeared to be about 25% less sensitive to macroeconomic shocks than those of banks, according to a new study from the Filene Research Institute titled Commercial Lending During the Crisis: Credit Unions vs. Banks.
Among the findings, from 1996 to now, credit union commercial loan growth has been steady and withstood the past two recessions, noted David M. Smith, author of the report and an associate professor and associate dean at Pepperdine University.
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.
Smith found that the bank loan delinquency rate appears to track the unemployment rate fairly concurrently, with a slight lag, while the credit union delinquency rate appears more divergent and less predictable.
In the 2001 recession, banks delinquency rates led to more delinquencies in commercial loans – relative to overall loans – while the opposite has occurred in the most recent recession, where the overall delinquency rates are higher.
Turning to credit unions, their commercial loan delinquency rate, when aggregated, almost always exceeds the overall delinquency rate, according to the Filene study.
"This is consistent with the notion that credit unions serve customers of modest means, including individuals who are unable to procure loans from other depository institutions," Smith wrote. "Individuals of modest means are more likely to be negatively impacted by an economic downturn."
In economic boom times, such as the late 1990s and mid-2000s, bank and credit union business loan chargeoff rates tend to be similar in magnitude, according to Smith. However, during times of economic stress, bank charge-offs appear to be more responsive to the business cycle than credit union chargeoffs, an area he said will be tested later with an econometric analysis.
"If the economy needs as much kindling as possible, shouldn't credit unions be able to help?" asked Ben Rogers, Filene research director, in the study's summary. "Opponents of the loosened standards argue that increasing credit unions' ability to lend to businesses goes against their historical mandate and should threaten their tax-exempt status, arguments that are beyond the scope of this report."
In 2011, the SBA published a report on how credit unions filled a void in business lending over a 24-year period as banks scaled back.
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