ABA: CU Alternate Capital Proposal ‘Inconsistent’ with Charter

ABA today wrote to the National Credit Union Administration opposing NCUA’s advanced notice of proposed rulemaking to extend the types of investment capital that federally insured credit unions could use to meet certain regulatory requirements. NCUA is considering whether to allow credit unions to use investment capital (that would be uninsured capital subordinate to other claims) to satisfy the risk-based net worth ratio requirement.

Under current law, only low-income designated credit unions are allowed to use secondary capital to satisfy two regulatory requirements: the net worth ratio and the risk-based net-worth ratio. While any change to the net worth ratio would require an act of Congress, the NCUA asserted in the proposal that it has broad authority to adjust the risk-based net worth ratio requirement and therefore may choose to allow credit unions that are not low-income designated to use alternative capital to meet this requirement.

In its comments, ABA said that allowing credit unions to issue alternative capital “would be inconsistent with the purpose of their charter, undermine the foundation of their tax exemption and introduce potentially significant safety and soundness concerns to their balance sheets.” Furthermore, ABA said that were NCUA to move forward with the proposal, it would be overstepping its legal authority. Rather than advancing the current proposal, ABA called on NCUA to increase its efforts to facilitate conversions of credit unions to federal mutual savings bank charters for those wishing to expand their operations or increase their access to capital. For more information, contact ABA’s Brittany Kleinpaste.

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