ALEXANDRIA, Va. – In a ruling that will have far reaching implications, NCUA said that membership capital shares on deposit with a corporate credit union are available to cover the growing losses at corporates, even during the three-year notice period for withdrawal of the capital.
NCUA’s corporate rule 704 requires that the entire MCS balance “be exposed to losses arising during the pendency of the notice period,” the agency said in a new legal opinion.
The new legal opinion will apply to thousands of credit unions which have begun the process of withdrawing their membership capital shares as growing corporate losses are eating increasing amounts of MCS.
“The full balance of a membership capital account being amortized, not just the remaining nonamortized portion, is available to absorb losses in excess of the sum of retained earnings and paid-in capital until the funds are released by the corporate credit union,” NCUA stated.
The language of the rule, indicating that funds in an adjustable balance MCS account are “frozen” once notice of intent to withdraw has been submitted, is merely a reference to “the inapplicability, post-notice of intent to withdraw, of the adjustment criteria,” said NCUA. That means during the notice period the withdrawing credit union is neither entitled to a return of some portion of the funds, nor obligated to make an additional contribution. “However, the funds remain subject to impairment and depletion during the notice period due to losses that exceed available retained earnings and paid-in capital.”
The legal opinion was provided to credit union attorney Richard Schulman of the Wheaton, Ill., firm Esp, Kreuzer, Cores & McLaughlin, LLP.
