WASHINGTON – Credit union leaders are trying to resolve long-time divisions in the movement over alternative capital sources in order to seek a legislative fix for the diminishing capital in the credit union system.
Draft language prepared by NAFCU for a bill would allow credit unions to offer new forms of capital accounts to existing members, ensuring that outside investors in credit unions do not alter the ownership rights of existing credit union members. The issue has long vexed the credit union movement which has failed for many years to arrive at a true consensus on how to seek a way to supplement existing capital, which now can only be accumulated through retained earnings.
NAFCU President Fred Becker said over the weekend the industry is exploring several legislative avenues to boost credit union capital, which could also include enactment of risk-based capital, a solution that has eluded credit unions for the past decade. Becker said they are seeking to arrive at a consensus with CUNA, before asking for NCUA’s support.
The issue has become more pressing over the past 12 months with the problems at U.S. Central FCU and WesCorp FCU and growing credit union failures eating deep into credit union capital. According to NCUA, credit unions lost 3% of their capital, or $2.6 billion, between June 30, 2008 and June 30, 2009. That has pushed the industry’s average capital ratio down from 11.2% to 10%.
For the past 10 years NCUA has allowed credit unions designated as low-income, which now amounts to about 1,200 credit unions, to raise alternative capital. But most credit unions may not. The challenge now will be to devise a solution that will allow credit unions to add capital that will be able to be counted as net worth under GAAP, without sacrificing any of the mutual ownership of credit unions.
On Friday NAFCU called on CUNA to support draft language for a bill to authorize all credit unions to raise alternative capital from existing members, with several conditions. They are: that the capital be considered as net worth under Generally Accepted Accounting Principles, or GAAP; that alternative capital accounts do not affect members’ ownership or control of the credit union; that the accounts are uninsured; and that they are subordinate to all other claims against the credit union.
NAFCU’s Becker said in a letter to CUNA President Dan Mica on Friday that they would like the two groups to come to a consensus soon on legislative language they can bring to NCUA for its backing, before going to Congress. "NAFCU would like for our organizations to present legislative language to the NCUA in the next few weeks so that we may immediately begin the process of garnering the support of the agency, the U.S. Department of Treasury and the U.S. Congress," said Becker. Becker sent copies of the letter to the chairmen of the NAFCU and CUNA boards, and the chairman and president of NASCUS.
CUNA said Friday it was not prepared yet to comment on NAFCU’s proposal.
