Big Banks Fight Small Business Jobs Bill

Written by Eli Lehrer on Saturday June 11, 2011

Next week, the Senate will consider a bill that will free up business credit and create thousands of jobs without costing the U.S. a dime. So why are banks trying to kill it?

Next week, the Senate will hold hearings on something called the “Small Business Lending Enhancement Act.” On its surface, the bill offers policies that should warm every free-marketer’s heart. By sweeping aside some dated regulations, it will free up much-needed business credit and create thousands of jobs without costing the United States Treasury a dime. To date, however, only two sitting Republican Senators, Maine’s Susan Collins and Olympia Snowe, have joined the 16 Democrats signed up to sponsor it.  And this points to some problems with the Republican Party.

Overall, the bill isn’t anything that complicated. Proffered by Sen. Mark Udall (D-CO), it will free up more credit by allowing credit unions--democratically governed, non-profit entities that provide bank-like services to a defined, limited membership--to increase lending to businesses. Since 1987, federal law has limited them to lending 12.25 percent of their assets to businesses that belong to them; the law would raise this as high as 27.5 percent for some entities. Because credit unions often have insider knowledge of their members’ business climates (many of the largest credit union business lenders specialize in serving unusual classes of entrepreneurs like organic farmers and taxi drivers) they can often figure out how to break even on loans that banks wouldn’t touch. Since many banks continue to throttle back on some types of business lending, furthermore, anything that expands business credit makes good economic sense.  And, because credit unions comprise only about 6 percent of the total depository institution economy, there’s no real chance they’ll ever displace a significant number of banks.

But even the minimal threat of increased competition, it appears, is too much for many banks to stand. Working through their trade associations, banks have fought tooth and nail to stop similar legislation from passing in previous Congresses and to keep Republicans (in particular) from co-sponsoring it.  This may help bank owners but it does nothing for the economy as a whole. The Udall bill isn’t an economic cure-all but it’s exactly the sort of small measure that anyone intent on sweeping away pointless government regulations should support.  It’s frankly a problem for the Republican Party that more of its members don’t support it.

The bottom line: if Republicans really want to put some meat on the bones of the “get government out of the way” agenda, they should take a close and careful look at Sen. Udall’s proposal.