Texas The Latest To Seek Secondary Capital, But...

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Credit unions in the Lone Star State, like those in at least half a dozen other states, are seeking powers from the state legislature to allow them to offer alternative, or secondary, capital instruments. The credit union lobby wants to downplay the issue, because of the possibility of raising the ire of the bankers, always a possibility when credit unions try to expand their powers.

But the Texas bid on secondary capital, like those in the other states, will provide credit unions with little incentive unless, or until, Congress lets them count that capital as net worth under NCUA's prompt corrective action (PCA) minimum capital rules.

The rules, passed as part of HR 1151, continue to limit the definition of net worth to retained earnings.

While a consensus of the credit union movement clearly wants a secondary capital allowance, there are still some within the movement who continue to oppose it, arguing secondary capital would dilute the traditional ownership structure of credit unions. This difference of opinion was evident when NCUA Chairman Dennis Dollar testified alongside North Carolina CU supervisor Jerrie Lattimore on the proposed regulatory relief bill. Dollar, acknowledging the disparity within the credit union movement, has neglected to endorse the secondary capital allowance, while Lattimore, who was representing NASCUS, urged Congress to include the secondary capital provision in the bill to give credit unions a new option to raise net worth.

The credit union lobby in Washington is treading carefully on this matter, lest it break out into a major impediment to the pending regulatory relief bill. They know this is one of the issues targeted by the bankers, who helped get the PCA requirement and its limitations, into HR 1151.

The bill, as it stands, does not have the secondary capital provision in it. But Rep. Brad Sherman, he California Democrat who made a half-hearted bid to get the measure in the bill last year, pledged to try again.

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