FDIC officials said they would investigate further to see if something might have prevented Monterey CU's application from being accepted and added to its pending list. An official with the OCC said the agency had no record of an application from Monterey.

No one from the credit union returned calls or email requesting clarification.

Monterey Board Chairman David C: Laredo said his credit union wanted to convert to a bank because leadership believed its business lending was capped at 10% of total loans, and because of the cap it could not turn a business services profit. Laredo said banks were pressuring Monterey's small business members to move their personal accounts away from the credit union and to the banks that held their business loans.

But since it's not federally insured, Monterey is not required to comply with the NCUA's 12.25% cap on business loans, according to NCUA Public Affairs Specialist John Fairbanks.

A California credit union industry executive who asked not to be named said the state regulator does not impose its own business lending cap on credit unions. However, the executive said mutual savings banks chartered in California are subjected to a 10% business lending cap.

Dennis Adams, CEO of American Share Insurance, which insures Monterey's shares, declined to comment specifically on Monterey, but said the private insurer does not cap business lending in the same way that the NCUA does. ASI caps business lending by borrower, not as an overall percentage of assets, Adams explained. In its insurance contract, an ASI-insured credit union cannot have more than 20% of its loan assets made to any one borrower or group of borrowers.

“The risk comes from the concentration of assets with any one borrower or small group of borrowers,” Adams said.

Whatever cap Monterey might face, it is unlikely to hit it anytime soon because the credit union does not have any business loans on the books, according to financial reports filed with ASI.