NCUA White Paper Suggests Supplemental Capital is Appropriate for Policy Consideration

April 12, 2010 — In a white paper released April 12, a working group of the National Credit Union Administration (NCUA) discusses regulatory and statutory considerations for supplemental capital for credit unions, concluding a year of study on the topic.

This initiative was led by NCUA Board Member Gigi Hyland, who after discussions with NASCUS and state regulators began to study the topic of supplemental capital for credit unions. A group of NASCUS state regulators provided their insight to the NCUA working group as the project advanced. NASCUS has long been on record in support of allowing credit unions to access supplemental capital, and continues to encourage Congress to make the necessary changes to the Federal Credit Union Act.

"NASCUS agrees that it is an appropriate policy consideration and that after the necessary legislative changes are made, state and federal regulators are fully capable of developing the appropriate regulations to ensure that supplemental capital can be offered in a safe and sound manner and consistent with prudent consumer protections," said NASCUS President and CEO Mary Martha Fortney.

The white paper assesses NCUA's current authority and cites research on supplemental capital for credit unions. The working group makes the following four observations and conclusions:
1) Affording credit unions the ability to raise supplemental capital that counts towards PCA "net worth" requirements is an appropriate policy consideration; 2) PCA regulatory reform including a stronger and more meaningful risk-based capital system, as advanced by the NCUA Board in 2005 and 2007, should continue to be pursued as a priority. The reforms combined with supplemental capital could afford credit unions the opportunity to more effectively manage capital levels; and 3) Any statutory change that affords credit unions the ability to count supplemental capital towards PCA "net worth" must be accompanied by robust regulatory authority to assure reasonable safeguards and risk parameters are put in place.

NCUA Chairman Debbie Matz wrote to House Financial Services Chairman Barney Frank (D-Mass.) in December 2009 to encourage consideration of two narrow legislative remedies utilizing supplemental capital to reverse the disincentive to accepting new share deposits.

To view more about the white paper, follow this link to NCUA's website.