"My Karma ran over your Dogma." Unknown
As we move closer to a government shutdown by a dysfunctional government one wonders if Vladmir Putin might step in with a solution like he did in the recent Syrian crisis. Whatever your politics the present political situation demonstrates a total lack of leadership on both sides of the political aisle.
Several bankers have asked me how the NCAU determines if a credit union qualifies for the low income designation and, as a consequence, is freed from the business lending cap of 12.5% of assets?
Under the NCAU regulations low income members must constitute 51% of the credit union's membership. How is that determined? The NCAU regulations (12 CFR 701.34) state that any federal credit union whose members' family income is less than 80% of median for the metropolitan area where they live or national metropolitan area whichever is greater. Similar guidelines apply to individual members. Member earnings are reported based upon data reported by the U.S. Census Bureau.
NCAU makes the low income designations based upon the above types of data and then notifies the credit union that it has made the low income sweepstakes for business loans. Note that no actual earning data is used in this process. However, if a credit union thinks it qualifies it may submit actual income data from loan files. It may also use surveys to establish its low income membership qualification. Actual income data must be compared to data from the metropolitan area or the national metropolitan area. NCAU imposes some rather strict statistical deadlines on survey results.
Any person interest in credit unions and their impact on the financial services industry may wish to look at a study of the competitive advantage of the tax exemption for credit unions. In a 2004 study, Competitive Advantage: A Study of the Federal Tax Exemption for Credit Unions (Tatom), traces the history of the exemption and its effect on the financial services business. The study predates the recession and Dodd-Frank and in true academic fashion avoids a clear verdict. However, the study clearly shows that large federal credit unions derive a competitive advantage from the tax exemption. Both political parties have avoided tackling the credit unions, and Tom Udall of New Mexico is a sponsor of legislation to remove the lending cap for business loans. Face it, despite budget deficits the exemption is here to stay.
Dennis Domrzalski, of Albuquerque Business First weekly business newspaper, continues to do excellent work on banking in New Mexico. In the newspapers' publication of September 6-12, he surveys all sectors of the financial services community--including credit unions--to explore whether the nation learned anything from the last economic meltdown. On balance, the answer seems to be "no". A highlight of the issue was an interview with Bill Enloe, retired CEO of LANB, who concluded with strong evidence that things might be worse now than in 2008. The nub of Enloe's reasoning is that the "big banks" are at risk in the international game and need more capital. Enloe's argument that small banks do not need the same regulatory framework as big banks is not unique, but grows increasingly obvious. After all it is hard to imagine a Hobbs bank engaging in the type of trading practices in which the "London Whale"engaged. Albuquerque Business First's website is www.albuquerquebusinessfirst.com. The Albuquerque Journal's Winthrop Quigley is the unquestioned intellect of New Mexico financial reporting, but Domrzalski may be Quigley's equal in banking.
I think I hear Harry Truman's ghost uttering muffled obscenities about what is happening in Washington, D.C.
Do good,
Marshall G. Martin
505-982-4611
505-228-8506
