The credit union industry has evolved with marketplace changes so that many of the financial services that credit unions provide are similar to those offered by banks and savings associations. Credit unions can only make loans to their members, to other credit unions, and to credit union organizations. 1422 and S. 1440 , the Credit Union Residential Credit Union Loan Parity Act, would amend the FCU Act to revise the statutory definition of member business loans, further enhancing the capacity of credit unions (satisfying the net worth capitalization requirements) to make more member business and commercial loans. Legislation has been introduced in the 114 th Congress that would allow credit unions to enhance their member business lending activities. H.R. 1188 , the Credit Union Small Business Jobs Creation Act, was introduced on March 2, 2015; the companion bill, S. 2028 , was introduced on September 10, 2015. H.R. Although the volume of credit union member business lending has increased over time, member business loans continue to account for a small share of lending in the credit union system. Lifting the MBL cap would allow credit unions already operating close to the current statutory limit to increase their presence in the commercial lending market. Some of the larger credit unions, therefore, could become more important competitors with small community banks as well as some midsize and regional banks. H.R. Hence, if alternative sources of capital, referred to as supplemental capital, can be used in addition to retained earnings (net worth), then credit unions would be able to increase their lending while remaining in compliance with their safety and soundness net worth requirements. 989 , the Capital Access for Small Business and Jobs Act, referred to the House Committee on Financial Services on February 13, 2015, would redefine net worth for credit unions to include additional sources of supplemental capital in a manner consistent with the three forms discussed in the NCUA white paper. H.R. According to the Federal Home Loan Bank Act (FHLB Act; P.L. H.R. 299 , the Capital Access for Small Community Financial Institutions Act of 2015, would amend the FHLB Act to require the treatment of a state-chartered credit unions as insured depository institutions, among other things; thus making it possible to harmonize FHLB membership requirements for small banks and credit unions. The House passed H.R. 299 on April 13, 2015, and its language was included in an amendment to H.R. 22 , the Surface Transportation Reauthorization and Reform Act of 2015, which was passed in the House on November 5, 2015. S. 1484 , the Financial Regulatory Improvement Act of 2015, and S. 1910 , the Financial Services and General Government Appropriations Act, 2016, also contain language similar to H.R. 299 .

			Credit Unions, Community Banks, and Competition

Community banks, which are commonly defined as financial institutions that hold less than $1 billion in assets, are arguably similar to credit unions with respect to their business models. Similarly, credit unions provide financial services to their restricted memberships. There are some regulatory differences in fair lending and taxation between credit unions and banks. Membership size and the ability to offer a full range of financial services may ultimately explain any comparative advantages that large credit unions (and large banks) enjoy relative to small credit unions and small banks. By contrast, credit unions are not awarded credits that would allow them to expand beyond the common bonds defined in their membership charters. Total credit union assets have risen while the total number of credit unions has been shrinking over time. Furthermore, industry assets are not evenly distributed. These trends are similar to the consolidation trends observed in the depository banking system.
Credit unions make loans to their members, to other credit unions, and to corporate credit unions that provide financial services to individual credit unions. There are statutory restrictions on their business lending activities, which the credit union industry has long advocated should be lifted. Specific restrictions on business lending include an aggregate limit on an individual credit union's member business loan balances and on the amount that can be loaned to one member. Industry spokespersons have argued that easing the restrictions on member business lending could increase the available pool of credit for small businesses. Credit unions also lack sources of capital beyond retained earnings, and alternative supplemental capital sources would allow them to increase their lending while remaining in compliance with safety and soundness regulatory requirements. Community bankers, who often compete with credit unions, argue that policies such as raising the business lending cap would allow credit unions to expand beyond their congressionally mandated mission and could pose a threat to financial stability.
Members of the 114th Congress have introduced legislation that would allow credit unions to expand their lending activities. H.R. 989, the Capital Access for Small Business and Jobs Act, was introduced and referred to the House Committee on Financial Services on February 13, 2015. H.R. 989 would redefine net worth for credit unions to include additional sources of supplemental capital. In addition, H.R. 1188 and its companion bill, S. 2028, the Credit Union Small Business Jobs Creation Act, would raise the current member business lending cap. H.R. 1422 and S. 1440, the Credit Union Residential Credit Union Loan Parity Act, would amend the FCU Act to revise the statutory definition of member business loans, further enhancing the capacity of credit unions (satisfying the net worth capitalization requirements) to make more member business and commercial loans. On April 13, 2015, the House-passed H.R. 299, the Capital Access for Small Community Financial Institutions Act of 2015, would amend the Federal Home Loan Bank (FHLB) Act to require the treatment of state-chartered credit unions as insured depository institutions, among other things; thus making it possible to harmonize FHLB-membership requirements for small banks and credit unions. The House included the language of H.R. 299 in an amendment to H.R. 22, the Surface Transportation Reauthorization and Reform Act of 2015, as passed on November 5, 2015. S. 1484, the Financial Regulatory Improvement Act of 2015, and S. 1910, the Financial Services and General Government Appropriations Act, 2016, also contain language similar to H.R. 299.
Small memberships limit the range of financial services that small credit unions can offer as well as their ability to accumulate enough retained earnings (capital) to substantially increase their commercial lending activities. Thus, the benefits to credit unions from legislative actions to enhance their lending ability may be greater for larger institutions. Larger credit unions, with the resources to offer a wide array of financial services to members, would also be expected to become more significant competitors with community banks operating in similar lending markets. Competition between credit unions and commercial banks, particularly those with over $1 billion in assets, would be expected to intensify.
Although total assets and membership in the credit union industry have risen over the past decade, the total number of credit unions has declined. The industry's assets are not evenly distributed. Some differences in credit union and bank regulation are unlikely to account for the competitive advantages that large credit unions enjoy relative to their smaller counterparts. These observations mirror the consolidation trends observed in the depository banking industry and are discussed in greater detail in the Appendix.