ALEXANDRIA, Va. (4/13/10)—A white paper released Monday by the National Credit Union Administration (NCUA) concludes that “affording credit unions the ability to raise supplemental capital that counts towards prompt corrective action (PCA) 'net worth' requirements is an appropriate policy consideration.” The report, prepared by an internal working group at NCUA, explores the NCUA’s existing authority to permit federally insured credit unions to offer supplemental capital. It also attempts to identify key public policy considerations for any expansion of NCUA’s authority to permit additional sources of capital. Credit Union National Association (CUNA) General Counsel Eric Richard said Monday of the white paper, “While the report details a number of limitations that may not be necessary, we plan to study the report in detail and want to continue working with the agency to pursue supplementary capital for credit unions." Within the NCUA report, the working group also offered these additional conclusions:
* PCA regulatory reform including a stronger and more meaningful risk-based capital system, as advanced by the NCUA Board in 2005 and 2007, should continue to be pursued as a priority. The reforms combined with supplemental capital could afford credit unions the opportunity to more effectively manage capital levels; and * Any statutory change that affords credit unions the ability to count supplemental capital towards PCA “net worth” must be accompanied by robust regulatory authority to assure reasonable safeguards and risk parameters are put in place.
The NCUA board must vote to adopt the working group's white paper for it to become agency policy. No board action on the report is scheduled at this time, according to an agency spokesman. When NCUA board member Gigi Hyland announced the release of the agency report Monday, she noted 2008 discussions with state credit union supervisors. “They made a number of compelling arguments that it is time to seriously consider whether credit unions must be given access to some form of supplemental capital to continue providing members the services they need,” she said. Hyland also noted NCUA Chairman Debbie Matz’s letter late last year to House Financial Services Committee Chairman Barney Frank (D-Mass.) outlining “two narrow legislative remedies that would help reverse the disincentive to accept new share deposits.” Hyland said that that letter is “a key starting point for any discussion about supplemental capital,” and added she hoped the new white paper sparks progress to action on “this important issue.” CUNA strongly supports credit union alternative capital authority and has steadily worked to get the Obama administration on board with the idea of alternative sources of capital for credit unions. In part, CUNA has reinforced to key contacts within the U.S. Treasury Department the importance of credit union alternative capital authority. "CUNA is acutely aware that some credit unions need to issue supplemental capital products in order to maintain their net worth ratio requirements," CUNA's Richard has said. "We have long maintained that secondary capital and PCA reform are required for credit unions for the long term. However, that future is here for some.” Use the resource links below to access the NCUA report and CUNA's summary of the white paper.