Credit unions are generally subject to commercial lending regulations (12 CFR § 723.8) designed to safeguard their members’ assets, which necessarily limits their capacity for making commercial loans. A municipal bank will increase credit unions’ capacity to make commercial loans in the aggregate by purchasing commercial loans from credit unions. It will also allow credit unions to originate larger loans by being a participant in loans that exceed the credit union’s commercial lending authority.
While credit unions already engage in loan participation practices, a municipal bank will be a ready and agile partner in this process to increase credit unions’ commercial lending capacity. The Bank of North Dakota’s collaboration with community banks demonstrates this point (here). Credit unions and community banks in North Dakota have found that it’s easier to find a participation in a loan at the public bank, so they can make more loans without having to increase their staff.
The collaboration between a municipal bank, credit unions and community banks will create a more vibrant local economy. This will create more wealth in the community, bringing more business to credit unions’ core businesses of consumer deposits and consumer loans.