PROVIDENCE – Credit unions have been expanding their market share in recent years, and now some seem poised to increase commercial lending after a key regulatory change last year, according to a new report from the Federal Reserve Bank of Philadelphia’s Research Department.
The trend is raising further concern among small banks that they might lose ground to credit unions, the report states.
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“One of the main banking stories of the past 25 years has been the dramatic growth of large banks,” it reads. “Less well known is that credit unions have been expanding their market share during this time, too, especially after member criteria were relaxed in 1998.”
Newer regulations that took effect in January 2017 expand credit unions’ capacity to make commercial and industrial loans, and commercial real estate loans, together known as member business loans. The new rules effectively relax credit union’s ceiling on business loans, which had been set at 12.25 percent of a credit union’s total assets, by excluding nonmember business loans from the total.
The report calculated nearly a quarter of credit unions with assets between $1 billion and $5 billion and about 17 percent of credit union with assets between $500 million and $1 billion may have already been approaching the 12.25 percent limit on commercial lending. That suggests the new higher lending ceiling might prompt those institutions to further increase their business lending activities, the report found.
“The number of credit unions that might be ready to increase their business lending above the current limit totals just 228,” the report states. “That number represents about 3.7 percent of all credit unions in the United States. Although this isn’t a trivial number, it also isn’t very large.”
The raised lending ceiling may not be the end, the report reads, noting that U.S. Sen. Rand Paul, R-Ky., and U.S. Sen. Sheldon Whitehouse, D-R.I., proposed legislation in 2016 that would raise credit union’s ceiling on member business loans to 27.5 percent of assets.
“The new regulations have been a source of concern for the banking industry,” the report states. “Furthermore, commercial real estate loans represent the single-largest share of small banks’ loan portfolios.”
Scott Blake is PBN staff writer. Email at Blake@PBN.com
