The NCUA board approved plans Thursday to seek public comment on alternative types of capital that might be used to meet statutory capital standards.
“There are significant implications of alternative capital for the credit union system, and this subject is just as important for credit unions who aren’t planning to issue alternative capital as it is for those who are,” Chairman Rick Metsger said. “Agencies issue these advance notices when they are considering a wide range of options and are looking for comment on the best course to follow.”
Board member J. Mark McWatters agreed with the proposal, saying the board is moving slowly on the complex issue.
In a meeting that lasted less than 15 minutes, the board also agreed to solicit comment on making a 1.6% inflationary increase to the maximum civil penalties permitted under law. The increase is required under federal law.
In approving the capital proposal, the board noted that there are two categories of alternative capital—secondary capital and supplemental capital. Federal law permits low-income credit unions to issue secondary capital, which counts toward the net worth ratio and the risk-based net worth requirement of the agency’s prompt corrective action standards.
Metsger said that only 3% of the credit unions designated as low-income take advantage of the secondary capital allowance.
The board also is soliciting comment on whether to allow credit unions to issue supplemental capital instruments that would only count toward the risk-based net worth requirement.
In the Federal Register notice seeking comment, the NCUA said that while the agency cannot change the definition of net worth, the board does have discretion in designing the risk-based net worth requirement.
“It is possible for the Board to authorize a credit union that is not low-income designated to issue alternative capital instruments that would count towards satisfying the risk-based net worth requirement – but not the net worth ratio,” the NCUA said in the Federal Register filing.
The agency said that with respect to federal credit unions, the basis for their tax exemption stems in part from the recognition by Congress that most credit unions cannot access capital markets to raise capital.
“If all credit unions, not just low-income designated credit unions, have the ability to access the capital markets to meet capital standards, it could call into question one of the bases for the credit union tax exemption,” the agency said.
NAFCU immediately supported the agency effort to seek comment on supplemental capital.
“NAFCU has long championed providing credit unions with more flexibility to meet capital requirements,” said Carrie Hunt, NAFCU’s executive vice president of government affairs and general counsel.
Hunt said that NAFCU will continue to push for legislative changes that would provide access to all credit unions access to additional capital.
CUNA President/CEO Jim Nussle stressed the need for credit unions to weigh in on the plan.
“It is vital that credit union stakeholders carefully consider the questions put forth by NCUA, and to submit their comments on the matter during the comment period,” he said.
