WASHINGTON – State credit union regulators called on Congress yesterday to give credit unions new powers to raise alternative capital to enable them to rebuild net worth, which has been diminished over the past two years.
"The majority of credit unions are weathering conditions today," said Thomas Candon, deputy commissioner of banking in Vermont, told the Senate Banking Committee during yesterday’s hearing on the state of the banking industry. "However, as stated previously, credit unions’ earnings are suffering and credit unions are losing money. We need to act now to ensure credit unions remain as safe and sound as possible."
The call comes as the troubles in the corporate credit union network, combined with problems at some large credit unions, have erased as much as $3 billion of credit union capital over the past 18 months, reducing the industry average from 11.8% to 10.2%. "During the corporate stabilization process, supplemental capital may have mitigated some of the unintended consequences to net worth categories at natural person credit unions," said Candon.
The diminished capital has given major impetus to an issue that for years has vexed credit union leaders who have struggled with the potential impact alternative capital might have on the mutual structure of credit unions.
"Reform in this area is critical and timely," said Candon, who was representing the National Association of State CU Supervisors before the Senate panel.
"Allowing credit unions access to supplemental capital with regulatory approval and robust oversight will improve their ability to react to market conditions, grow safely into the future and serve their members in this challenged economy. It would also provide a tool for credit unions to use if they face declining net worth or liquidity needs. We feel strongly that now is the time to permit this important change," said the Vermont regulator.
Candon said NASCUS, which has been working with CUNA and NAFCU on a legislative proposal for alternative capital, believes three main principles should be adhered to: that any alternative capital does not alter the mutuality of a credit union; that consumers are full disclosure and protection and that it is approved by the regulator.
