>Meanwhile, credit unions — another form of cooperative — face stringent regulations on business lending.
This was thrown as an aside, but I'm wondering what they exactly mean by that. What are these regulations? Are they government imposed or member imposed? What exactly do the regulations say? I wish the article didn't just throw out "there's regulations" without explaining what said regulations are and how they effect co-op lending.
That being said, I'm a pretty big fan of credit unions and they usually rank higher in customer satisfaction,[1][2] and tend to have better rates. They tend to be more community oriented. Though some credit unions can suck too.
Credit unions are nonprofit organizations that benefit from tax exemptions and not having to comply with a number of banking regulations, including CRA and FDIC coverage. (Most, but not all, CUs are covered by NCUSIF.)
Due to their community charters and nonprofit statuses, CUs have regulatory and statutory limits to the amount of business loans they can hand out (12% of total loan portfolio, with loans up to $50,000 or SBA-backed loans not counting against the cap). Bankers and smaller credit unions argue, I believe reasonably, that increasing commercial portfolios by CUs would create an unfair playing field (the bankers' argument) and increase CU accountholders' risks (the smaller CUs, which generally aren't going for large commercial portfolios and see this as a way for the largest CUs to reduce the smaller competition).
Lending restrictions on CUs work well -- post-2008, credit unions were considerably more stable than commercial banks, with the exception of CUs that took on outsized commercial portfolios. For example, Texans Credit Union had a waiver that allowed up to 20% of its portfolio to be commercial (and then bought a subsidiary that had billions of dollars in CRE loans that didn't count towards its cap). Even before the crash, its bad debt ate up a majority of its equity, and consumed the rest in the 2008 meltdown. As a result, the board and executive leadership were summarily canned in 2011, after three years of steady deterioration, and the NCUA took over running the institution.
Credit unions are intended to be individually focused. I believe regulations limit total business lending to 10-15% of the credit union's assets.
I think the intention there is to avoid a "company store" situation when a bunch of employees fund a credit union, and end up loaning their money to their employer or favored business. If the employer goes bust, the Federal government is left holding the bag of paying back the depositors.
This was thrown as an aside, but I'm wondering what they exactly mean by that. What are these regulations? Are they government imposed or member imposed? What exactly do the regulations say? I wish the article didn't just throw out "there's regulations" without explaining what said regulations are and how they effect co-op lending.
That being said, I'm a pretty big fan of credit unions and they usually rank higher in customer satisfaction,[1][2] and tend to have better rates. They tend to be more community oriented. Though some credit unions can suck too.
[1] http://www.emeraldinsight.com/journals.htm?articleid=842677&...
[2] http://www.emeraldinsight.com/journals.htm?articleid=855037&...