MADISON, Wis. - The public interest would be well-served were credit unions given greater access to alternative capital sources, according to a new report from the Filene Research Institute.
The report, authored by Filene’s former Executive Director Robert Hoel, suggests the lack of access to alternative capital is forcing credit unions to “hoard” retained earnings. Filene recently released a similar study suggesting credit unions are overcapitalized (CU Journal, Dec. 10, 2007 and Jan. 7, 2008).
In the study, “Alternative Capital for U.S. Credit Unions? A Review and Extension of Evidence Regarding Public Policy Reform,” Hoel offered these conclusions:
* Though many credit unions may not seek alternative capital now, having the power to do so would allow them to conduct business with confidence that they could build capital in a variety of ways beyond the slow retained-earnings approach, if necessary.
* Federal and state laws and regulations should be amended to permit credit unions to obtain alternative capital.
* Credit unions can expand their capital bases by using alternative capital in ways that will not dilute their cooperative ownership, value and governance structure.
* Several different mechanisms for raising alternative capital are appropriate and feasible. Among them are obtaining capital from outside investors and acquiring special long-term deposits from credit union members.
* A broad menu of alternative capital options would best serve credit unions, their members and the general public. There is no single method that is best for all credit unions seeking alternative capital.
* It would be appropriate for credit union regulators to review and approve a credit union’s alternative capital plans and mechanisms prior to its issuance of alternative capital instruments.
* Steps should be taken promptly to repeal or reform statutes and regulations that currently prohibit credit unions from obtaining alternative capital. There are no compelling reasons to delay.
For info on this study: www.filene.org. For other stories on this subject, use the keywords “Alternative Capital” in the search function at www.cujournal.com.
