NASCUS has consistently encouraged NCUA, Congress and others to consider capital reform for credit unions as a tool for enhancing safety and soundness. As an active member of the Coalition for Credit Union Access, NASCUS has worked tirelessly to build consensus on this issue to ensure that credit unions are given the tools they need to maintain safe capital levels during good and bad economic times.
A capital structure limited exclusively to retained earnings significantly disadvantages credit unions in facing unexpected economic shocks, and penalizes well-run institutions that are simply attracting deposits too quickly. Under the current system, a credit union that has been successful at attracting deposits may find itself in regulatory trouble if its lending does not increase at the same pace as deposits. The new deposits increase the credit union’s assets, which can deplete its net worth ratio and trigger statutory action from regulators.
The Capital Access for Small Businesses and Jobs Act (H.R. 719), introduced by Representatives Peter King [R-NY] and Brad Sherman [D-CA], addresses this fundamental problem by allowing healthy, well-run credit unions to utilize certain specified forms of supplemental capital. The bill amends the Federal Credit Union Act to empower federal credit unions to hold certain specified forms of supplemental capital. The bill redefines “net worth” with respect to any insured credit union (other than a low-income credit union) to include uninsured non-share capital accounts that:
(1) do not alter the cooperative nature of the credit union;
(2) are subordinate to all other claims against the credit union, including the claims of creditors, shareholders, and the National Credit Union Share Insurance Fund;
(3) are available to cover operating losses in excess of retained earnings and, to the extent so applied, will not be replenished;
(4) if they have a stated maturity, have an initial maturity of at least five years, and their net worth may be discounted at the Board’s discretion when the remaining maturity is less than five years;
(5) are subject to disclosure and consumer protection requirements as determined by the Board;
(6) are offered by a credit union that is sufficiently capitalized and well-managed, and
(7) are subject to such rules and regulations as the Board may establish.
Capital Coaltion Resources
The Coalition for Credit Union Access (“Coalition”) is a broad-based coalition representing federal and state chartered credit unions of all asset sizes and geographic diversity and state credit union leagues. Coalition members are united in their belief that access to supplemental capital is critical to credit unions’ ability to continue to serve their historical role as sources of affordable financial services and as important sources of credit necessary to secure a lasting economic recovery in the broader economy. Access to supplemental capital is essential to the long-term health and sustainability of the credit union system. Visit the Capital Coalition here for see the Coalitions many resources.
Research, White Papers, Information
White Paper Reinforces Need for Credit Union Access to Supplemental Capital
A new white paper published March 3, 2011 authored by Dr. James A. Wilcox titled “Reforming Credit Union Capital Requirements” presents a strong case that supplemental capital is an important and necessary reform for credit unions.
Filene Research Institute Releases Study Making Case for Alternative Capital for Credit Unions
In a NASCUS supported study, the Filene Research Institute makes the case for expanded sources of credit union capital in the newly released Alternative Capital for U.S. Credit Unions? A Review and Extension of Evidence Regarding Public Policy Reform. read more>
Q&A on Supplemental Capital for Credit Unions – NASCUS answers commonly asked questions about suppplemental captial for credit unions. (Updated June 2010)