Commercial Lending During the Crisis: Credit Unions Vs. Banks
At a time when the economy needs kindling from any corner, credit unions’ stable commercial lending history shows they may be a helpful source.
This report, from David Smith, an economist at Pepperdine University’s Graziadio School of Business and Management, seeks to quantify the performance of credit union commercial lending at a time when credit unions seek to widen their access to the business lending market. If the economy needs as much kindling as possible, shouldn’t credit unions be able to help? 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. What this research does address is the argument, echoed as recently as June 2011, that “business lending is risky and raises serious safety and soundness concerns” (Wilson 2011).
This study builds on previous work by Smith and Stephen Woodbury from 2010, Withstanding a Financial Firestorm: Credit Unions vs. Banks (Madison, WI: Filene Research Institute). In it, the authors show that credit unions are surprisingly resilient to the downside of the business cycle, especially compared with commercial banks. According to that study, credit unions’ aggregate loan portfolios appear to be about 25% less sensitive to macroeconomic shocks than those of banks.
This report follows a similar methodology to examine business lending, a topic that has seen far less comparative research. Starting with high-level trends in lending, the analysis goes on to compare commercial lending delinquency and charge-off data from banks and credit unions, with special attention paid to how the two portfolios compare during unemployment spikes in the business cycle.