'Alternate Capital' May Get The OK From Texas Regulator

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The Texas CU Commission endorsed a slate of recommended reforms to the state's CU Statute that would, among other things, allow state-chartered credit unions to offer alternative capital instruments to supplement primary capital.

"The Commission was looking at other options to allow credit unions to improve their safety and soundness positions without compromising the traditional credit union structure," said Harold Feeney, director of the state Department of CUs.

Among the proposals recommended by the panel are that credit unions be allowed to offer subordinated debt-a kind of secondary capital-to their members, or that credit unions be allowed to offer tiered shares with different dividend rates.

Still, the options would not count as net worth under NCUA's prompt corrective action (PCA) rules, as federal statute requires that net worth for all federally insured credit unions come only from retained earnings, said Feeney

Also, the Commission recommended that Texas be allowed to offer an alternative to low-income CUs, as NCUA does, enabling them to offer secondary capital in the way of non-member deposits and to count that under their net worth requirements.

The panel also recommended that state charters be allowed to offer check cashing and wire transfers to non-members within their fields of membership (FOM), something that federal credit unions would be allowed under a pending regulatory relief bill.

'An Important Issue'

"For Texas-area credit unions it's a very important issue," noted Feeney of the dozens of Lone Star State credit unions serving migrants from Mexico and other Latin American countries who are seeking low-cost financial services.

The recommendations also propose a kind of parity provision that would allow Texas state charters to do anything out-of-state credit unions are authorized to do in Texas. State charters in Texas already have a parity provision with NCUA, allowing them to do anything federal charters are allowed to do.

The panel also proposed an easing on the state's conflict-of-interest standards to allow credit unions to offer advantageous loans or services to rank-and-file employees. But the prohibition on offering preferential treatment to senior managers and directors would persist, said Feeney.

The recommendations would also allow boards of directors to meet electronically, by teleconference or the Internet.

The proposals would also expand the powers of the state supervisor to promulgate certain rules on his own.

The recommendations are expected to form the basis of a reform bill for the Texas CU League and other credit union lobbying groups. The state regulator is prohibited from lobbying lawmakers.

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