WASHINGTON – The possibility that Congress will act to give credit unions authority to raise supplemental capital for their net worth calculation is very remote and such authority still could be years off, observers agree.
“It’s a high mountain to climb,” said Brad Thaler, senior lobbyist for NAFCU, which is focusing the brunt of its efforts in this Congress on increasing the cap on member business loans. The credit union lobbyist conceded that the supplementary capital provision could be added to another bill in progress but the opportunities are dwindling.
Even though both NAFCU and CUNA have agreed to language for a supplementary capital bill and NCUA Chairman Debbie Matz has asked Congress for the authority, congressional leaders have yet to include the necessary provisions in a bill and timing is running out on this year’s legislative session.
An NCUA panel chaired by NCUA Board member Gigi Hyland yesterday issued a report endorsing the concept of supplementary capital to be counted as net worth under the agency’s minimum capital, or prompt corrective action, rules, and an outline of three different forms supplementary capital could take.
All three Board members have endorsed supplementary capital in public remarks. During her speech at CUNA’s Governmental Affairs Conference, Matz told credit union executives, “I believe that you should be able to gain access to supplemental capital to help relieve the pressure that all those new deposits put on your capital ratio.” On Dec. 7, Matz sent a letter to House Financial Services Chairman Barney Frank stating, “I encourage Congress to consider authorizing qualifying credit unions, as determined by the NCUA Board, to issue alternative forms of capital to supplement their retained earnings.”
But it is growing increasingly unlikely that NCUA will provide Congress with a model for legislative language in this year’s session, sources told Credit Union Journal yesterday. That means it probably won’t be until the next Congress before the issue is debated.
The NCUA report noted that many fast-growing credit unions have seen their net worth ratios decline as their deposits increase, putting regulatory pressure on some of the best-run credit unions. In its report, the NCUA panel said supplementary capital should be joined with a risk-based capital system for credit unions as part of capital reform.
The NCUA report outlined three potential forms of supplementary capital which could be counted as net worth: Voluntary Patronage Capital, Mandatory Membership Capital and Subordinated Debt. Voluntary Patronage Capital would be uninsured instruments offered to individual, but not institutional, members. Mandatory Membership Capital would be required of all members, similar to the model of corporate credit unions, and would also be uninsured. Subordinated Debt would have a five-year minimum initial maturity or notice period with no early redemption option for the investor and would be limited to institutional investors.
The NCUA group acknowledges some of the controversy surrounding the issue of supplementary capital including the potential dilution of members’ voting and the recent experience with the failure of two corporate credit unions, U.S. Central FCU and WesCorp FCU, which wiped out their supplementary paid-in-capital and membership capital shares.
