WASHINGTON — While CUNA was busy announcing it had reached an agreement with NAFCU on the parameters for alternative capital, NAFCU was just as busy suggesting the two trade groups had a ways to go before anyone should be making a cooperative victory lap.
Recognizing the growing concern surrounding the need for access to alternative capital-and the need for the two major trade associations to become a united front on this hot topic, CUNA said it has agreed to abandon previous goals of allowing credit unions to make capital investments in other credit unions and to allow troubled credit unions, those in "exigent" situations, to seek other alternatives, provisions that were opposed by NAFCU.
"This proposal has potential for giving credit unions access to additional strength to help them weather economic downturns and other strains on their capital base," CUNA President Dan Mica said in a prepared statement.
But NAFCU was reluctant to declare an agreement, saying it still opposes CUNA's support for allowing various forms of government aid, beside NCUA emergency 208 assistance, as alternative capital because of diminishment it would have on the mutual structure of a credit union. "The principals we agreed to with CUNA are that mutuality must be retained," NAFCU President Fred Becker said.
The issue of government assistance is an important one and have doomed efforts by the credit union lobby to get a share of the Treasury Department's Troubled Asset Relief Program, or TARP, invested in troubled credit unions. Credit union lobbyists insisted there was no mechanism to allow the government to acquire an equity stake in mutually owned credit unions in exchange for an infusion of cash through TARP, and also worried that accepting direct government aid would undermine arguments for retention of the federal tax exemption.
Becker said Mica called him and notified him that CUNA had eliminated the provisions to allow credit unions to invest in alternative capital and to allow much broader allowances for troubled credit unions but "we still have some things to work out," the NAFCU chief executive told Credit Union Journal.
The ongoing crisis in the corporate network has helped erase almost $3 billion of credit union capital over the past year with more charges imminent as corporates continue to struggle with the elimination of their investments in U.S. Central FCU and with large losses on mortgage-backed securities. This has given new impetus to credit unions' decade-long efforts to tap new sources of capital. Currently, the only source of credit union capital is retained earnings.
Among the principles agreed to by CUNA and NAFCU are that alternative capital can be raised from credit union members and from credit union sponsors or select employee groups, which qualify as potential members. The alternative capital would not have voting rights, would not be federally insured and could pay a higher return of interest. The alternative capital would also be subordinated to other claims against the credit union.
CUNA has also suggested that government assistance such as NCUA section 208 (of the Federal CU Act) or TARP should be acceptable as alternative capital, as well. NAFCU said the only government assistance it believes is acceptable as alternative capital is NCUA 208 assistance.
The two groups hope to work with NASCUS, the National Association of State CU Supervisors, to provide a united proposal to NCUA, which is preparing its own proposal, before they ask Congress for enabling legislation. However, the critical endorsement of NCUA for a bill will wait until the results of an ongoing NCUA study on alternative capital being conducted by Board member Gigi Hyland.
In order for the alternative capital to be counted as net worth under generally accepted accounting principles, or GAAP, they must also be approved by the Financial Accounting Standards Board, or FASB.
