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A
special message
from
Mary Martha Fortney, President and CEO,
August 23, 2007
At the NASCUS State System Summit in early August, a panel of capital experts grabbed the attention of attendees with a powerful dialogue about capital reform.
NASCUS was particularly interested in this discussion; NASCUS has long supported capital reform for credit unions, including alternative capital. The NASCUS Capital Modernization Subcommittee has focused on studying capital reform solutions, and we have testified before Congress on the importance of capital reform to regulatory relief and safety and soundness.
The discussion on capital reform at the Summit provided a variety of perspectives on the issue from Bob Hoel, the Filene Institute; Dr. William Jackson, University of Alabama; and Larry Fazio, National Credit Union Administration (NCUA).
At the Summit, Hoel explained that the credit union movement is overcapitalized and that if credit unions can only have capital through retained earnings, then there will be no new credit unions. NASCUS has also expressed concern about credit unions’ reliance on retained earnings. State regulators and credit unions understand that even with the lower leverage ratio and risk-based capital as proposed in the Credit Union Regulatory Improvements Act (CURIA), some state-chartered credit unions may not be able to rely solely on retained earnings to meet the capital base required by prompt corrective action (PCA) standards.
Jackson remarked that excess capital in the US credit union movement was a “systemic problem” and that deregulation in this area would allow for more competition. Further he said that the extra funds held in excess capital could be extended to members to help meet their financial needs.
Fazio discussed the NCUA PCA reform proposal to attendees (as included in CURIA), and explained that capital reform is a priority for NCUA. NASCUS is pleased that the NCUA is focused on capital reform. Further, we believe that the PCA reform proposal would be enhanced by the addition of alternative capital. NASCUS stresses that capital reform combined with access to alternative capital will help credit unions serve the financial needs of their members.
Alternative capital has been a heated topic in recent years in the credit union community. Many state regulators and forward-thinking credit unions believe there is a compelling need for alternative capital. The NASCUS Alternative Capital Task Force developed a white paper in 2006 titled, “Alternative Capital for Credit Unions … Why Not?” that details three alternative capital instruments. NASCUS has shared the paper with the credit union community, including the NCUA to promote discussion on the feasibility and benefits of alternative capital.
NASCUS has also been working with the Filene Institute on an upcoming study that summarizes various published research on alternative capital. We will continue to work with Filene and other interested parties to make alternative capital a reality for credit unions, although the reality is far from near.
During his remarks at the Summit, Dr. Jackson commented that American credit unions “can do better, much better” regarding capital reform. NASCUS feels similarly and will continue its efforts to support capital reform and alternative capital for credit unions.
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