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Commercial Lending During the Crisis: Credit Unions Vs. Banks

At a time when the economy needs kindling from any corner, credit unions’ stable commercial lending history shows they may be a helpful source. Authors show that credit unions are surprisingly resilient to the downside of the business cycle, especially compared with commercial banks. 

  • David Smith Associate Professor of Economics at Pepperdine University

Executive Summary

My long stint as a mediocre Boy Scout taught me a lot of painful trivia: Apply sunscreen when trekking above 7,000 feet, sleeping bags rated for 40 degrees are virtually useless at 10, and “moon boot” is definitely not synonymous with “hiking boot.” But compensating for the painful moments were the handful of practical lessons that forestalled more painful lessons. Among them: A bowline is the best knot around, and you can’t start a raging campfire without slivers and clumps of kindling. A match (even one abetted by a generous splash of lighter fluid) just won’t light a dry log.

The US economy is struggling to catch fire after years of recession and slow growth. One of the essential components of economic kindling, business lending, is simply hard to find. An early 2012 report from the National Federation of Independent Business (NFIB) shows the “availability of loans” for small businesses as only now approach-ing 2008 levels, and the number of its survey respondents expecting credit conditions to improve during the next three months has been stagnant for more than a year (Dunkelberg and Wade 2012). The Federal Reserve’s January 2012 survey of senior bank loan officers shows that while credit is slowly easing, it is still hardest to come by for small firms (Federal Reserve Board 2012). Kindling needed.