Federal credit unions can learn from their state-chartered brethren when it comes to alternative forms of capital, according to NASCUS.
The National Association of State Credit Union Supervisors (NASCUS) has established a task force to study alternative forms of capital for credit unions, an area where some state regulators have taken the lead and offered secondary capitalization options to their state charters, according to Jerrie Lattimore, NASCUS chair and administrator of the North Carolina Credit Union Division.
In an interview with The Credit Union Journal, Lattimore said credit unions are asking why some can have (alternative forms of capital) but they cannot." In her own state, the Credit Union Division has already approved an alternative form of capital it calls "equity shares." The first to take advantage of the ruling was Self Help CU, which has invested about $1-million into State Employees Credit Union.
"There are several different options for alternative capital in some of the states," added Mike Litzao, CEO of Colorado Central CU, Arvada, Colo., and the chairman-elect of NASCUS' Credit Union Council. NASCUS is made up of two halves-credit unions, as represented by the Council, and credit union regulators. "In some cases, there is a provision for a different type of share, but no one is doing it because there are still some other things that have to happen first."
For example, these other types of capital may be open to some state-chartered credit unions, but they do not currently meet the PCA requirements as a source of capitalization, he explained.
The NASCUS task force on alternative capital is made up of two regulators, several CEOs with CPA backgrounds, and consultants who include Chip Filson of Callahan & Associates, Lattimore said.
Another big issue for NASCUS that also has to do with providing options to credit unions is alternative share insurance.
"This is a textbook example of how we (the regulators and the regulated) work together," noted Harry "Pat" Murphy, assistant commissioner of the Tennessee Credit Union Division and chairman-elect of NASCUS. "There is a natural tension between credit unions and their regulators, but we can work together on this and other issues."
Indeed, Litzao observed one of the benefits of being part of NASCUS is the opportunity to ask a regulator in a whole different state a theoretical regulatory question without having to worry about one's own state regulator swooping in to do an audit. "I can ask Jerrie how this would work in North Carolina, for example, without raising any eyebrows at my own state's agency," he related.
"We can interpret law all day long, but they're the ones who have to put it in action every day," Lattimore offered.
That kind of comfort in working together has lead the two-tiered NASCUS to take on the overhead transfer rate (OTR), an issue that is near and dear to the hearts of both state-chartered credit unions and state regulators. The overhead transfer occurs when NCUA transfers funds from the share insurance fund (NCUSIF) to cover operating costs it says are related to state-chartered credit unions. While the federal agency recently revised the OTR down, it's still much higher than NASCUS believes is fair.
"There's a perception that NASCUS thinks the only fair rate would be 0%, and that's not necessarily true," Litzao commented.
But is the ability of those outside of NCUA to determine what is equitable that is a big part of the problem, NASCUS maintains. "It's all but impossible to determine what (part of the function at NCUA) pertains to the share insurance fund, and what part is the regulatory function," said Lori Rush, CEO of Universal 1 CU, Dayton.
"About 94% of credit union regulation (of state charters) is by the state regulators in Tennessee," Murphy explained. "Yet we get no funds from NCUA. We are statutorially limited in the funds we can bring in. What alarms me is that credit unions are beginning to notice the difference between the federal fee structure and ours. I can't compete because I don't have the warchest. I can't just cut, cut, cut. I have to have a staff."
Murphy conceded that some of the calls he's been receiving on that front have been "saber rattling" by credit unions looking to pressure the state regulator to reduce the fees paid into the state agency.
"The state boards are under a lot of pressure," Rush added. "Those calls are to keep the state supervisors on their toes, just like they're there to keep us on our toes."