NASCUS Focus for the 112th Congress: Capital Reform and Defending Against Preemption

A special message from Mary Martha Fortney, President and CEO,
March 2011

The 112th Congress is now underway and NASCUS continues to communicate several important messages to legislators on behalf of state regulators and state-chartered credit unions.

Our main legislative priority remains achieving supplemental capital for credit unions. As you know, the credit union capital structure is unique among financial institutions. Credit unions can only rely on retained earnings for capital growth, an archaic structure that does not allow credit unions to raise capital outside of retained earnings.

The current economic environment facing credit unions only reinforces NASCUS and state regulators’ steadfast support of supplemental capital access for natural person credit unions. NASCUS and state regulators have believed for years that supplemental capital is appropriate for credit unions, a necessary tool for safety and soundness and critical to the credit union system’s long term health and sustainability.

NASCUS is encouraging Congress to change the definition of net worth in the Federal Credit Union Act to allow other forms of capital to be counted toward net worth. As evidenced by the development of the third iteration of Basel standards, international regulators are capital planning far into the future and addressing prospective capital considerations for banks and other financial institutions.

Unfortunately for credit unions, relying on just retained earnings for net worth does not provide needed flexibility for capital planning. Credit unions cannot thrive and compete under these archaic capital standards, and we recommend Congress take action on credit union capital reform. 

Second, NASCUS is committed to defending against federal preemption. Fortunately, our efforts last year were successful to protect state law and state regulatory authority for credit unions in the Dodd-Frank Act. NASCUS encourages the 112th Congress to defend against any legislative efforts that would diminish the authority of state regulators. State regulators serve in the important capacity as local supervisors, with the ability to act in the best interests of their institutions and that of the greater state.

As the “laboratories of innovation,” the states can act quickly to advance regulatory innovation that can in turn become best practices nationwide. State regulators have been chartering and supervising credit unions for more than 100 years; this system must be retained as well as enhanced by continuing to recognize the proper role of the states in financial regulation.

There are several other issues NASCUS is watching this Congress. Both the Senate Banking and House Financial Services Committees intend to study the corporate credit union stabilization efforts. NASCUS also expects action on providing insurance parity for credit union Interest on Lawyer Trust Accounts (IOLTA) (banks receive unlimited FDIC coverage on IOLTA accounts). Interchange fee regulations on debit cards will also be an issue to watch, along with housing finance issues and efforts to reduce regulatory burden for small institutions.   

You can stay up to date on legislative news and NASCUS’ Congressional correspondence and legislative work by visiting our legislative affairs section of the website.  Please let me know if you have any questions at any time.