NEW YORK (9/10/12)--If credit unions were allowed to raise supplemental capital, it would give them the means to better meet their members' needs for affordable credit. That move would create benefits for consumers, small businesses and the economic recovery by maintaining the flow of private credit when it is most needed, a University of Maryland business professor said in a Friday op-ed in American Banker.
"Credit unions provide essential retail financial services in the form of depository accounts and consumer loan products and services," wrote Clifford Rossi, executive in residence and Tyser Teaching Fellow at the Robert H. Smith School of Business at the University of Maryland. "Perhaps at no point since the Great Depression has the role of credit unions been of greater importance to consumers than the present financial crisis."
Retail credit unions cannot raise capital under current law, he added. "Unlike all other federally insured depository institutions that have access to some form of supplemental capital (including low-income credit unions), retail credit unions can only improve their net worth through retained earnings," Rossi explained.
A set of capital-based supervisory standards--known as Prompt Corrective Action (PCA) rules--are applied to credit unions, just as they are to all other federally insured depository institutions, Rossi wrote. "The combination of PCA rules and a restrictive statutory definition of net worth, however, create unique challenges for retail credit unions during stress periods and make it more difficult for them to address capital deficiencies should they arise," he added.
A solution would be for Congress to pass The Capital Access for Small Businesses and Jobs Act (H.R. 3993) introduced this year in the House, Rossi wrote.
"The bill would strengthen the capital and improve the safety and soundness of credit unions by allowing the National Credit Union Administration to authorize qualified credit unions to accept additional forms of capital to supplement their retained earnings," he added.
To read the op-ed, use the link.