Posts tagged ‘Main Street Lending Program’

Election Post-Mortem, Continued Gridlock Means Tough Times Ahead

One thing that Barack Obama and Mitch McConnell agree on is that elections have consequences. Although the final results won’t be known for weeks, what appears to be clear from this election is that it did little more than confirm a deeply divided status quo with all sides able to point to evidence that they were the actual victors. For credit unions, this has important consequences which will shape the industry in both the near and medium term. Here is a list of some of those consequences:

  • PPP Relief Delayed – Yesterday, the Federal Reserve once again tinkered with its regulations for the Main Street Lending Program, which was designed to encourage banks and credit unions to make loans to medium-sized businesses not eligible for PPP loans. At the same time, Federal Reserve Chairman Powell issued this extremely thoughtful release in which he once again stressed that without fiscal intervention, the Fed is at the outer limits of what it can do to support a slowing economy. Although Mitch McConnell is committed to getting a stimulus bill through Congress, I really don’t see this happening with a disgruntled, lame duck President Trump in charge and two Senate elections outstanding. This delay has real consequences. The market as a whole is welcoming the apparent gridlock, but investors in regional banks are now recognizing that business activity and consumer spending will almost certainly decrease in the months ahead. 
  • The pandemic continues to spread – In case you missed it because you were glued to John King’s magic wall of vote counts, America experienced its worst single-day count of COVID-19 cases. As Federal Reserve Chairman Powell pointed out, the economy can’t get back to full strength as long as people have to worry about contracting the virus. The good news is that in the coming months, perhaps we will move away from this false dichotomy between economic growth and the need to contain the virus. The bad news is that this means one of the top priorities for your credit union, or any business for that matter, has to be discussing, maintaining and monitoring the criteria you will use in determining how to run your operations during the Second Wave. 
  • Tough times ahead in New York – Let’s be honest. The more democrats have control of the US Senate, the more aid that will come to New York State. Anyone who pays property taxes knows how badly we need it. But with hopes for a big Senate victory fading, New Yorkers are facing an unappetizing choice between budget cuts and tax increases at a time when we need more, not less, stimulus. On the bright side, the economic vice the state may well find itself in underscores the value of giving localities mandate relief in the form of credit unions being allowed to accept municipal deposits. 
  • Let’s Go Get Stoned – Five additional states legalized marijuana in some form or another on election night. Not only did New Jersey legalize cannabis, but even red states have now decided it’s time to take a puff, with Montana, Mississippi and South Dakota joining the ranks. I don’t know what it says about America that pot legalization is one of the few issues we can all agree on, but I will now bet that by the end of the next legislative cycle, banks and credit unions will have clear legal authority to provide banking services to these businesses. If you haven’t already discussed how actively your credit union wishes to engage this business or taken a deep dive into the compliance implications, now is the time. Full disclosure: I made the same prediction two years ago. 
  • Credit Union Tax Exemption is in Play – I’m always hesitant to put too much emphasis on the threat posed to credit unions and their tax exempt status. Too often, I think it distracts us from other more pressing issues. But there are four dynamics which make the coming years particularly treacherous for the industry. Even without subsequent stimulus packages, the country has gone on an unprecedented spending spree which will have to be repaid; democrats are going to be pushing hard for tax reform, especially as the pandemic exacerbates economic inequality, three – banks have already been laying the groundwork for a targeted attack against so-called “larger” credit unions and lastly – they may find common ground with the younger, more progressive AOC wing of the democratic party, which is increasingly looking to other entities – such as the Post Office and CDFIs – to provide financing for the underserved. The action points for credit unions are obvious, but if I could make myself king for a day, I would mandate that every credit union draw up a concrete list of the products, services and activities it undertakes as a result of its tax exemption. As an industry, we like to say that we don’t pay corporate taxes because we are not-for-profit institutions. In fact, we don’t pay taxes because of a policy judgment by Congress that the financial value of having not-for-profit financial institutions available to the American public outweighs the fiscal benefit of taxing credit unions. Each and every institution benefitting from that tax exemption can, should and ultimately will have to demonstrate this fact in concrete terms to elected officials anxious for cash. 

Believe it or not, there are many other points to raise, but it’s a beautiful day and I’ve depressed my readers enough. Besides, I still have to brace myself to watch the Giants play the Washington Football Team. Perhaps Ron Rivera will hand us another victory. Have a good weekend. 

November 6, 2020 at 10:25 am Leave a comment


Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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