Alt. capital proposal ‘right thing to do’

SUPPORT FOR ISSUING ALT. CAPITAL PROPOSED RULE; ‘RIGHT THING TO DO’
State credit union system calls proposal ‘valuable tool in the tool box’

ARLINGTON, Va. — The state credit union system supports NCUA’s proposal to issue a rule on alternative capital – and the agency should do so, because it’s the right thing to do, NASCUS has written in its 19-page comment letter responding to the advance notice of proposed rulemaking on alternative capital.

“It is incumbent on supervisory authorities to not just do the popular and the easy, but to also do what is right,” NASCUS President and CEO Lucy Ito wrote in the association’s official comment letter on the proposal. “As with NCUA’s derivatives rule, supplemental capital is the right thing to do. It is a potentially valuable ‘tool in the tool box’ of credit unions’ and regulators’ risk management, provides a capital buffer, and serves as a counter cyclical means to maintain service to members.”

Ito also noted that, from a supervisory perspective (particularly one that also includes a perspective of a deposit insurer supervisor), “more capital, at risk and junior to the share insurance fund, is almost always better than less capital.”

The NASCUS leader wrote that including supplemental capital in risk-based capital ratio calculations is consistent with the statutory purposes of both state and federal credit unions and is sound public policy. She asserted that expanding credit union access to supplemental capital will not impair credit union mutual ownership and governance, nor imperil the credit union tax exemptions.

She also wrote that NCUA should look to existing regulation found in state, federal and international regulatory regimes for instruction on shaping its rule.

In general, the NASCUS letter touches on five significant areas:

• Incorporating supplemental capital into credit union regulatory capital rules is good public policy;
• NCUA has the authority to issue a risk-based supplemental capital rule;
• Initial supplemental capital rules should focus on fundamental principles while allowing enough flexibility for the marketplace to develop and innovate;
• As it moves forward in its rulemaking, NCUA should work closely consultation and cooperation with state regulators as envisioned by Congress in the Credit Union Membership Access Act (CUMAA);
• A regulation should maintain compatibility with credit union cooperative principles: preservation of the cooperative model; robust investor safeguards; prudential safety and soundness requirements

LINK:

Text of NASCUS letter on ANPR/alternative capital