FED Report Underscores Need For MBL Reform

May 14, 2013 at 7:33 am 2 comments

imagesreport released by the Federal Reserve Bank of New York yesterday underscores that MBL reform is more than a proxy for the never ending battle between banks and credit unions:  it is also a common sense proposal to increase access to capital for small businesses that continue to be choked off from growth.

According to the results of the New York FED’s small business credit survey covering New York, New Jersey and Connecticut, “the ability to access credit remains a wide-spread growth challenge for small businesses in the region even among profitable firms.”  Here’s the bottom line from a policy perspective.  Of the 800 small businesses surveyed, 49% cited access to capital as a barrier to growth but only one-third reported even bothering to apply for credit, apparently believing that the effort wouldn’t be worth the time.  This is actually an improvement over previous surveys.

What about the bankers’ argument that they are actually ready, willing and able to make small business loans but just can’t find applicants?  The success rate for small businesses applying for credit ticked up slightly in 2012 at 63% and this slight increase was primarily attributable to increased availability of lines of credit.  In one of the more disturbing statistics from the report small businesses seeking loans over $100,000 had a 73% success rate; whereas those seeking loans below $100,000 had a 57% success rate.

Here’s my polemical point of the day.  According to the survey, the average small business loan was $100,000.  Could someone other than a banker opposed to MBL reform please explain to me why a law that defines a $50,000 loan as a business loan makes any sense?  Politicians all say they want to help small business, but most of the small businesses I know of are run by one or two people and when the equipment goes down, they can’t work.  A law that allows every financial institution that wants to lend out money for a new truck for the landscaper or a new mill for the lumber jack would help more than just those lending institutions.  It would help our economy grow.

 

Entry filed under: Advocacy, Economy, General, Political. Tags: , , .

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2 Comments Add your own

  • 1. Keith Leggett  |  May 14, 2013 at 8:09 am

    Henry:

    The $50,000 threshold arose from Congress in 1998 copying NCUA’s regulations. In 1993, NCUA raised the de minimis threshold for a loan to be subject to its business loan regulations from $25,000 to $50,000. When NCUA implemented its MBL regulations, it determined that loans below a certain dollar threshold did not constitute a risk to the NCUSIF and did not have to adhere to NCUA’s tougher MBL requirements. Also, the agency believed this would reduce paperwork and reporting requirements.

    It does not make sense to exclude any business loan no matter how small from reporting requirements.

    Reply
  • 2. Lionel  |  September 24, 2014 at 3:00 am

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    I have a blog centered on the same ideas you discuss and would love to have you share some
    stories/information. I know my viewers would value your
    work. If you are even remotely interested, feel free to send me an email.

    Reply

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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