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Commercial and Small Business Lending Limits
Expand federal savings associations' capacity to make commercial and small business loans.
Position Statement
ABA strongly supports eliminating the lending limit restriction on small business loans for federal savings associations, while increasing the aggregate lending limit on other commercial loans.
Explanation
In 1996, Congress liberalized the commercial lending authority for federally chartered savings associations by adding a 10 percent "bucket" for small business loans to the existing 10 percent limit on commercial loans.
Today, savings associations are increasingly important providers of small business credit in communities throughout the country. As a result, the 10-percent limit poses a constraint for an ever-increasing number of institutions. At the end of 2006, for example, nearly $50.8 billion, or 3.6 percent of total thrift assets, were in commercial loans, half of which were made to small businesses. This represents an increase of approximately 4 percent in commercial lending by savings associations during the previous year. The importance of this line of business for savings associations was underscored by the recent actions of the Office of Thrift Supervision (OTS). In three separate regulatory moves, the OTS has attempted, within the statutory constraints, to provide or propose additional flexibility in the area of commercial and small business lending. While all of these changes are welcome and important – and were encouraged by ABA – legislative action is needed.
Expanded authority would enable savings associations to make more loans to small- and medium-sized businesses, thereby enhancing their role as community-based lenders. An increase in commercial lending authority would help increase small business access to credit, particularly in smaller communities where the number of financial institutions is limited. This is wholly consistent with the historical orientation of savings associations toward local markets. An increase in the small business and commercial lending limits will allow them to serve these markets better, without otherwise modifying the objectives of the qualified thrift lender test.
ABA is working with Congress to draft regulatory relief proposals for 2008 that would eliminate the small business lending limit restriction on federal savings associations and increase from 10 to 20 percent of total assets the lending limit restriction for other commercial loans. The full House of Representatives previously approved a similar provision, but it was subsequently omitted from the compromise bicameral regulatory relief bill that was signed into law on October 13, 2006.
Contact for further information: Cathy McTighe (202) 663-5331.
