NWCUA Issues Localized Supplemental Capital Information

As supplemental capital legislation progresses in Congress, there is a need to educate lawmakers, reporters and credit union members about the details of supplemental capital and why it is an important issue for credit unions and their members. With that in mind, the Northwest Credit Union Association (NWCUA) has put together a rich outline of the issue’s key components along with a series of talking points specifically localized to the Northwest.

Supplemental Capital: THE NEED

Did You Know?

  • Current law restricts the ability of credit unions to build capital, limiting their ability to serve their members.  As a result, many healthy credit unions are being forced to turn away deposits and to restrict lending to satisfy overly rigid regulatory capital requirements.
  • Access to supplemental capital would eliminate this dilemma and help credit unions of all asset sizes.
  • Supplemental capital would enhance credit unions’ ability to serve their members and to help consumers and small businesses that need access to affordable credit, which in turn will help to grow jobs and stimulate the economic recovery.

Our Ask:

  • Congress should empower the NCUA, the federal regulator of credit unions, to authorize supplemental capital for well-managed credit unions.

What is the Need?

  • Capital is king for all financial institutions. As credit unions battered by the financial crisis recover in the coming few years, rebuilding capital ratios will be paramount.
  • Without access to alternate capital, and with earnings power facing headwinds, credit unions and their members will face a protracted period of reduced member service, disadvantageous member pricing, and very slow growth, unless Congress allows credit unions to access supplemental forms of capital.
  • Federal legislation is necessary to allow credit unions access to supplemental capital.
  • While the credit union movement as a whole remains very well capitalized, a number of credit unions are close to or past the prompt corrective action (PCA) triggers as a result of the recent financial crisis and the persistent downward pressure on credit union capital under current law.
  • Another economic downturn or increased market volatility could exacerbate this issue, limiting credit unions’ ability to serve their members and provide credit in the markets when its needed most
  • Congress must act now.

The NWCUA’s John Annaloro describes PCA this Way:

“The PCA trap is prohibiting some credit unions from doing what is core to their mission—serving their communities and offering consumers a choice in financial institutions.”

“There are credit unions in the Northwest—large and small—that are not able to market their services and are hesitant to take deposits because of another arbitrary statutory change that was put in place during negotiations around field of membership. H.R. 3993 will remove current capital barriers and allow credit unions to continue to thrive.”

What are the Implications for Credit Unions and their Members?

  • Supplemental capital would enhance credit unions’ ability to serve their members and to help consumers and small businesses that need access to affordable credit, which in turn will help to grow jobs and stimulate the economic recovery.
  • Supplemental capital would strengthen credit unions’ ability to weather inevitable economic downturns and would enhance the safety and soundness of the credit union system by providing an additional buffer against operating losses and against claims on the National Credit Union Share Insurance Fund (NCUSIF).
  • Supplemental capital would provide regulatory parity by providing the NCUA the same authority and flexibility to adjust capital requirements in response to changes in economic conditions that all other federal banking regulators currently have. 

Supplemental Capital: THE DETAILS

H.R. 3993, the “Capital Access for Small Business and Jobs Act,” was introduced Feb. 9, 2011, by Reps. Peter King, R-N.Y., and Brad Sherman, D-Calif.

  • H.R. 3993 is designed to provide credit unions with access to supplemental forms of capital while preserving regulatory flexibility.

H.R. 3993 details:

  • H.R. 3993 empowers the NCUA to allow qualified credit unions to augment their retained earnings with supplemental capital (uninsured non-share capital accounts). 
  • A bedrock principle of H.R. 3993 is that credit unions may not accept supplemental capital that would alter the cooperative nature of the credit union.
  • The bill also requires that non-share capital accounts be:
    • uninsured;
    • subordinate to all other claims against the credit union, including the claims of creditors, shareholders, and the NCUSIF;
    • eligible to be applied to cover operating losses of the credit union in excess of its retained earnings and, to the extent so applied, will not be replenished;
    • subject to maturity limits as determined by the NCUA Board; and
    • offered by a credit union that is determined by the NCUA Board to be sufficiently capitalized and well-managed.
  • H.R. 3993 is a bipartisan solution that is supported by the credit union industry and its regualtors.

The NWCUA’s John Annaloro says H.R. 3993 “allow credit unions to continue to thrive” because it removes capital barriers.

The NWCUA’s Troy Stang said recently that H.R. 3993 is a “significant step forward” for credit unions.

CUNA’s Bill Cheney described it in a press statement as “visionary legislation.”
Reps. King and Sherman described the legislation this way:

  • “When sound small businesses and homebuyers were having trouble finding credit during the liquidity crunch, credit unions filled that lending gap in many parts of the country. But current law is discouraging credit unions from continuing to grow to meet community needs.”
  • They added that the bill resolves that by allowing credit unions to access supplemental forms of capital, which will minimize the probability of credit union insolvency and ensure they can continue to best serve the millions of Americans who “currently look to credit unions as a vital source of affordable financial services – and grow to meet the needs of new members.”

Questions? Contact a member of the Association’s Legislative Affairs team:

Jennifer Wagner, Director of Legislative Advocacy
Mark Minickiello, Vice President, Legislative Affairs
Stacy Augustine, Senior Vice President & General Counsel

Posted in Compliance News, NCUA.