ALEXANDRIA, Va.-The first step on the potential road to supplemental capital: some regulatory soul searching at NCUA.
"We need to look within NCUA and have some internal dialog about what the agency position is on supplemental capital and come to some resolution regulatorily as to what supplemental capital should look like," said NCUA Board Member Gigi Hyland, days after she announced she is putting a discussion of the issue on the fast track. "I think the perception has been that NCUA doesn't supplemental capital, and I think that is a misperception. But first we at NCUA need to determine what our position is."
Before anyone troops off to the Hill to push for some sort of alternative capital, there is much to be ironed out, Hyland suggested. Among the key factors to consider: who should be able to subscribe (members, non-members, institutions?), what sort of disclosures are needed, what it will count for as far as net worth requirements and what happens to it when a credit union fails.
"Who can subscribe is one of the very basic issue we have to explore," Hyland related. "You're really looking at some of the fundamentals of what makes a credit union a credit union."
Other Issues Also On Agenda
That's not to say that supplemental capital is contrary to the credit union philosophy. Indeed, low-income and corporate credit unions in the U.S. already have access to supplemental capital, as do credit unions in other countries, like Canada.
Supplemental capital won't be the only issue explored, Hyland said, adding, "could credit unions somehow share capital? Is there a way for credit union ith excess capital to lend it out, and how would that effect the systemic risk of the industry? These are all questions that need to be looked at."
Risk-based capital inevitably will be part of the conversation, as well, as regulators look to see where capital modernization can become a safety and soundness tool, Hyland offered. The challenge, Hyland observed, is that previous discussions regarding risk-based capital and Prompt Corrective Action reform has focused on seeking lower capital requirements, and right now, due to the financial crisis, Congress is very much focused on exactly the opposite end game.
Hyland hopes to get the process started at NCUA "very, very early in January" with the potential for state and federal regulators to get together not long after that, perhaps at CUNA's GAC, if not sooner than that.
Beyond the structural questions, there's the potentially larger question of whether NCUA really wants to go to Congress to seek amendments to the Federal Credit Union act that would be necessary in order to offer supplemental capital to credit unions. "NCUA may not have the appetite for this, I don't know," Hyland observed.
And it's not just NCUA's appetite that needs to be measured. "Clearly the trades and credit unions have had a lot of dialogue on supplemental capital over the years, and my sense is that there was a wide abyss between those who believe it should be pursued and those who believe it should not be pursued," Hyland commented. "I don't have any scientific evidence, but anecdotally, my sense is that gap has closed."
And What About Congress?
Congress' appetite will also have to be determined. There are some who suggest Congress is far too busy dealing with financial institutions and industries that are on the brink of failing to deal with the credit union industry, that is widely perceived as being comparatively healthy.
Still, NAFCU, CUNA, NASCUS and other credit union leaders have all suggested the time is ripe to go to Congress now, while the movement is still healthy and can potentially be part of the economic solution.
Part of that equation, Hyland suggested, is also which group goes to Congress on this issue. It might, she said, go down better with Congress if the initiative comes from the regulator as opposed to from the regulated.
