The banking industry knows it cannot support a proposal from the National Credit Union Administration to expand credit unions’ access to investor capital.
The problem is that the American Bankers Association and the Independent Community Bankers of America, the industry's top lobbying groups, must first parse over the fine points of what's turned out to be a complicated proposal. Industry observers, for instance, pointed out that the NCUA posed a number of questions in the 50-page advance-notice document.
That could also explain why the NCUA has received no comment letters nearly five weeks after approving the advance notice of proposed rulemaking. Two weeks have passed since the proposal’s publication in the Federal Register.
The ICBA will oppose the proposal based on an argument that allowing investor capital would contradict a key reason for the credit union industry's tax-exempt status, said Christopher Cole, the group's senior regulatory counsel. A spokesman for the American Bankers Association confirmed that the group, which is studying the issue, also plans to file a comment letter objecting to the plan.
Capital provides critical fuel for financial institutions, allowing them to make more — and often larger — loans. Banks view enhanced lending capabilities for credit unions, which are tax-exempt organizations, as a threat to their own operations.
The NCUA, meanwhile, believes credit unions could raise up to $1 billion in fairly short order if some form of supplemental capital is established.
The absence of correspondence to date marks a definite break from the NCUA’s recent past. In 2015 and 2016, the agency received record numbers of letters commenting on proposed changes to risk-based capital, member-business lending and field-of-membership regulations.
An NCUA spokesman said Tuesday that officials remain hopeful the agency will end up with a substantial number of responses about alternative capital.
The NCUA’s board “issued the advance notice last month to collect the thoughts and ideas from credit union stakeholders in front of the rulemaking process, to inform the agency as we study whether or not to make changes in the existing regulation,” a spokesman said. “This is a complex undertaking, with significant implications for the credit union system. The board encouraged credit unions to comment, and we hope they will. This kind of dialogue in the early stages is quite valuable.”
Dennis Dollar, a former NCUA chairman, said responses will begin rolling in once credit unions have time to fully study the matter.
“Supplemental capital has a strong support base in credit union land, although the intricacies of it probably make some credit unions hesitant to get involved in the details outlined in the” advance notice , Dollar said.
“I would expect considerably more comments before the comment period ends, and I anticipate a great number more comments when a formal and specific proposal comes along,” Dollar added.
The NCUA “asked some pretty specific questions,” said Keith Leggett, a retired ABA economist who writes CU Watch, a blog about credit unions. “It’s going to take time for people to think things through.”
The NCUA would probably receive more responses once it issues an actual proposed regulation, Leggett said.
As things stand now, retained earnings are the only form of capital available to most credit unions. Low-income designated credit unions, which make up about 40% of the total number of the industry total, are allowed to raise secondary capital and count it toward net worth, but fewer than 100 do so, according to the NCUA. Through June 30 there was about $181 million of secondary capital on the industry’s books.
Along with streamlining its rules governing secondary capital, the board is also mulling plans to let all credit unions issue supplemental capital that would count toward the looming risk-based capital requirement.