ALEXANDRIA, Va. (11/24/15)--The National Credit Union Administration recommended Congress consider legislation to allow healthy, well-managed credit unions to issue supplemental capital that will count as net worth, the agency told the U.S. House Financial Services Committee Monday.
The agency sent a 228-page report to the committee in response to questions about its risk-based capital (RBC) proposal.
“A credit union’s inability to raise capital outside of retained earnings limits its ability to grow its field of membership and to offer greater options to eligible consumers,” the report reads. “Consequently, NCUA has previously supported efforts and will continue to encourage Congress to authorize healthy and well-managed credit unions to issue supplemental capital that will count as net worth under conditions determined by the NCUA board.”
The NCUA started a supplemental capital working group at the end of last year, and according to the report, the group plans to present its recommendations to the board regarding revisions that could be made to NCUA's regulations through a separate rulemaking to allow additional supplemental forms of capital to be included in the RBC ratio.
The NCUA board's intent is to finalize a new supplemental capital rule before the 2019 effective date of its RBC rule.
The report also highlighted NCUA support for a CUNA-backed bill, the Capital Access for Small Businesses and Jobs Act (H.R. 989), which would allow credit unions to issue supplemental capital that would count as net worth.
The report also outlines several technical changes the NCUA would like to see in the Federal Credit Union Act, which it says would “improve the operation of the system of prompt corrective action for federally insured credit unions.”
Those changes include replacing the earnings retention requirement for adequately capitalized credit unions in section 1790d(e) with the authority of the NCUA board to require a net worth restoration plan if the situation so warrants.
An additional change would make it clear that “other corrective action” is not an action the NCUA board itself undertakes, but an action NCUA orders a critically undercapitalized credit union to take. Also, it would make clear that the board determined the appropriate prompt corrective action and not the credit union.
The NCUA also recommends Congress replace “calendar quarter” with “90 calendar days” within section 1790d(i). The calendar quarter reference potentially delays measurement and subsequent action until a calendar quarter has lapsed, according to the agency.
Reps. Stephen Fincher (R-Tenn.), Denny Heck (D-Wash.) and Bill Posey (R-Fla.) asked the NCUA in October to voluntarily conduct a study that was called for in the CUNA-supported Risk-Based Capital Study Act (H.R. 2769). The bill called for a delay in the implementation of the rule until a study of the RBC rule and its effects were completed and reported to Congress.
The NCUA passed the RBC rule at its October board meeting, though Matz said she would provide the details the legislators sought.
The NCUA’s report, in addition to the legislative recommendations, explains the rationale behind the RBC rule, the impact the final rule would have and the agency’s legal authority for issuing a two-tiered RBC standard, which many have argued is not permissible under the Federal Credit Union Act.