WASHINGTON-With Congress and Treasury highly focused on the state of financial services, could this be the opportune time to push for capital reform for credit unions?
In the wake of NCUA Board Member Gigi Hyland's announcement that she is looking to "accelerate consideration of supplemental capital" for credit unions, movement leaders are angling for just the right way to get policymakers on their side.
It will not be an easy feat. Some observers have suggested that anything that could be interpreted as credit unions seeking lower regulatory capital thresholds will not go over well in the midst of a financial crisis.
Still, positioned correctly, a number of leaders told Credit Union Journal now is exactly the right time to be pushing for capital reform.
"I was pleased to see Ms. Hyland step out and take a leadership role in this," said Dennis Dollar, founder of CU consultancy Dollar Associates and former NCUA chairman. "The timing is right to pursue it because of the present financial crisis. This crisis was driven by the lack of capital to cover the extreme risk some financial institutions were taking with subprime lending. As Congress looks for way to fix the banking system, this is a tremendous opportunity for credit unions to seek capital modernization."
Sooner Rather Than Later
And it needs to happen sooner, rather than later, NASCUS Executive Director Mary Martha Fortney suggested.
"It is NASCUS' position that is it better to do this before we are in a position where we are forced to look for liquidity solutions," Fortney said, arguing against those who might suggest that a Congress embroiled in rescuing a host of institutions that are already in crisis might not be of a mind to tackle reforms for an industry that is largely seen as in relatively good shape. "It is incumbent on us to educate Congress and the Administration about what we are seeking it and why we are seeking it. Supplemental capital is not new. Low-income credit unions have had access to it for years. Five years ago the [Government Accountability Office] said why bother, credit unions are well capitalized. Well, we say, why not-and we're in a much different environment now. Times have changed."
Another selling point: giving credit unions access to supplemental capital not only helps shore up any credit unions that are ailing right now, but it also strengthens the movement's ability to be part of the economic solution.
"This isn't just about helping to support the credit union system, it's about putting the credit union system in a position to help stimulate the economy," CUNA Associate General Counsel Mary Dunn said.
NAFCU President Fred Becker agreed. "Really, we see it as economic stimulus," NAFCU President Fred Becker said. "This is a way that credit union might participate in stimulating the economy, because if we have more capital available to lend, the more we can help people. We're making the same argument regarding changing the member business lending cap."
It's also why NAFCU is pushing for risk-based capital-something Dollar fought for during his tenure as NCUA chair.
"Credit unions need to be judged on the basis of their levels of risk. That characterization or measurement of risk would show credit unions are safer than they are portrayed to be," Becker suggested.
The key, Dollar said, is to focus that bid for modernization on making sure higher-risk credit unions have higher capital requirements and access to supplemental capital if it is needed, rather than focusing on the other side of the equation-that lower-risk credit unions should have lower capital requirements. "The best way to advocate for this is to focus on making sure that capital levels are commensurate with the risk credit unions are taking," Dollar explained, noting that both sides of the equations are equally true, but one is far more amenable to Congress right now than the other.
"The whole capital issue, in my opinion, is the generational issue for this generation of credit union leaders," Dollar. "It will only be more difficult for credit union to invest in their communities and their members if the capital issue is not resolved. Their ability to branch, expand products and and services is dependent upon having capital to invest."
