WASHINGTON (4/10/14)--The National Credit Union Administration has "very limited statutory authority" to establish supplemental capital that would benefit federally insured, consumer credit unions by enhancing their net worth for prompt corrective action purposes, agency general counsel noted in a follow-up letter to a Tuesday House Financial Services Committee hearing at which he testified.
During the hearing, Rep. Brad Sherman (D-Calif.) asked NCUA General Counsel Mike McKenna a series of questions regarding the NCUA's risk-based capital proposal, including one about supplemental capital as it relates to the RBC plan. The follow-up letter to committee leadership is intended to provide greater clarity on McKenna's answer, the agency said.
McKenna in response to Sherman said the agency could consider allowing credit unions greater access to supplemental capital as it finalizes proposed RBC regulations.
In his clarification letter, he noted that with the exception of low-income designated credit unions, Congress has limited the definition of "net worth" to retained earnings as defined by generally accepted accounting principles.
"Therefore, unless Congress amends the statutory definition of 'net worth,' other forms of capital, including supplemental capital, cannot legally be counted as 'net worth' for federally insured, consumer credit unions, other than those with low-income designation."
The Credit Union National Association has a different interpretation of the credit union capital statute. CUNA maintains that supplemental capital could be used for risk-based capital purposes under a regulatory proposal without legislative changes.
McKenna, in his letter to lawmakers, also noted NCUA concerns that a credit union's inability to raise capital outside of retained earnings limits its ability to serve its members. He reiterated NCUA's support for the Capital Access for Small Business and Jobs Act (H.R. 719). That legislation would give credit unions an additional tool to promote capital stability by issuing supplemental capital that would count as net worth.
The NCUA general counsel concluded his letter by offering to work with House Financial Services Committee members on H.R. 719 or any similar proposal that would increase access to supplemental capital for "healthy, well-managed" credit unions.