WASHINGTON – The large-scale losses among many of the nation’s biggest credit unions are prompting some in the credit union movement to renew calls for access to outside sources of capital.
"It’s time for us to re-liquify the credit union movement," said Buck Sebastian, president of Tampa, Florida’s GTE FCU, which lost $27.5 million last year.
Sebastian, who was a top executive at NCUA before moving to Florida to run one of the nation’s largest credit unions, is lobbying NCUA and Congress for a new charter which would allow credit unions to raise capital from outside sources. The capital, so-called non-member shares, would have features similar to preferred shares, would carry a different rate than regular shares and would not have voting rights, according to Sebastian’s plan. "We should be allowed to receive it and count it as capital," he told The Credit Union Journal.
For years, the debate within the credit union movement over capital has centered in whether credit unions should be able to raise capital from outside the system. One school of though has it that inviting outside ownership, however it may be structured, could endanger the cherished federal tax exemption because of it may violate the concept of cooperative ownership. But others, especially a group of California credit union executives, have been pushing for years to allow credit unions to raise secondary capital through non-member deposits.
Faced with the diminution of capital among several large credit unions, especially those in California, a group of California credit union executives convinced Congress earlier this month to allow credit unions to accept outside capital–but only from government sources–like the Treasury Department’s Troubled Asset Relief Program. "My concern for our industry," said Simone Lagomarsino, president of Kinecta FCU, who traveled with the group to Capitol Hill, "is seeing $700 billion infused as capital into the banks; and they’re going to leverage that sixteen times. We need access to capital," she said, adding, "it’s a difficult time to be looking to our members for additional capital."
But Sebastian’s proposal, which he calls "a credit union on steroids," goes much further. His hybrid credit union would agree to pay federal income taxes up to 12% and abide by the Community Reinvestment Act, in exchange for enhanced powers, including open fields of membership; unlimited lending (no caps on member business loans); would calculate reserves based on risk-weighting; and would have the ability to raise capital from outside sources.
The hybrid credit union would be known as a Federal Financial Services Cooperative and would be a not-for-profit cooperative run by a voluntary board of directors.
