WASHINGTON (5/6/13)--The National Credit Union Administration backs a bill that would allow well-capitalized credit unions to match a growing deposit base from a growing membership with capital from sources other than retained earnings--which currently is the only type of capital that counts toward capital ratio.
Under current law, the more deposits a credit union accepts, the more its capital ratio declines. When capital ratios decline, credit unions could face prompt statute regulated corrective action by their regulator.
NCUA Chair Debbie Matz pledged in a May 2 letter to Rep. Peter King (R-N.Y.), the bill's chief sponsor along with Rep. Brad Sherman (D-Calif.), that if the U.S. Congress enacts King's Capital Access for Small Business and Jobs Act (H.R. 719), her agency will "promptly propose the necessary rule changes required for implementation."
Matz wrote, "As we witnessed during the recent economic crisis, maintaining sufficient capital is critical at time of economic stress...Your legislation would provide credit unions with an additional tool to promote sufficient capital--even under adverse economic conditions--and ensure that healthy credit unions would no longer be forced to turn away deposits in order to protect their net worth."
The Credit Union National Association strongly advocates for giving credit unions access to supplemental capital. In a recent letter, CUNA urged federal lawmakers to consider the capital concerns of credit unions as Congress discusses Basel III exemptions for small banks.
"To be clear: we would have very significant concerns if Congress were to exempt the small banks from the Basel III capital requirements and not at the same time address reforms to credit union capital requirements," CUNA President/CEO Bill Cheney urged in the letter to all members of the U.S. House.
Basel III standards would require U.S. banks to hold common equity of 4.5% by 2015. In addition, banks would be required to hold a 2.5% conservation buffer, which would be gradually introduced by 2019, and increase Tier 1 levels from 4% to 6% by 2015.
Recent House legislation (H.R. 1693) would exempt community banks from the application of Basel III capital standards.