The Obama administration wants to let credit unions make more business loans, butting into the bread-and-butter business of commercial banks.

Not surprisingly, Missouri and Illinois bankers are cold to the idea.

The law now forces credit unions to stick to their traditional role as consumer lenders, making mainly home and car loans and issuing credit cards. Business loans are limited to 12.5 percent of their assets.

The administration's proposal in the Senate would raise that limit to 25 percent, letting credit unions fight it out with banks for the allegiance of small and mid-sized businesses.

Debbie Matz, chief federal regulator for credit unions, was in St. Louis last week and gave the proposal a push. She sees it as a way for credit unions to diversify their assets beyond consumer lending, thus spreading risk.

She has been warning credit unions against holding too many low-interest mortgages. That could put them in a bind if interest rates rise and they have to pay more interest to depositors.

Matz says credit unions lend mainly to small-fry businesses who can't get the attention of commercial banks.

"They lend in the neighborhood, to someone who wants to open a boutique or a restaurant," she said. "There's a tremendous need for these kinds of loans."

Matz chairs the National Credit Union Administration, which examines credit unions for safety and runs the credit union deposit insurance fund.

But bankers point out that business lending brings its own risks, and claim credit unions aren't equipped to handle them. Dozens of St. Louis banks are suffering from failed business loans, mainly to developers and commercial real estate operators.

"If commercial lending is done well, it's not an issue," Matz said.

That's the rub, bankers say. "Commercial lending is complicated, and you have to have the expertise," says Craig Overfelt of the Missouri Bankers Association. A lender used to making car loans doesn't have the background to analyze a business, bankers say.

Banks and credit unions have fought a long-running lobbying war. Banks claim that credit unions have an unfair advantage because they don't pay federal income taxes. Credit unions are not-for-profit co-ops owned by their customers.

Only 37 of 7,600 credit unions in Illinois are bumping up against the current 12.5 percent cap on business loans, notes Debbie Jemison, spokesperson for the Illinois Bankers Association.

So, loosening the cap won't make much difference to businesses looking for loans, she says.

But credit union operators say the cap discourages them from even trying. Some credit unions won't invest in the people and systems needed to begin commercial lending because of the limit on growth, says Amy McLard of the Missouri Credit Union Association.

There are roughly 80 credit unions in the St. Louis area. Most are tiny, but a few rival mid-sized commercial banks. The biggest, First Community Credit Union, has $1.6 billion in assets.

In general, the local contingent weathered the recession in good health although earnings are down.

Regulators give banks and credit unions safety ratings on a one-to-five scale called CAMEL, judging the adequacy of capital, assets, management, equity and liquidity. In Missouri, 87 percent of assets are in credit unions with high CAMEL ratings of one and two. Another 12.98 percent are in credit unions rated a worrisome three. Only 0.02 percent of assets are in four small credit unions rated a dangerous four and five.

But the business isn't out of the woods. "The rest of the year will be a difficult one for credit unions. We won't see a turnaround until some time next year," Matz said.