"Secondary capital is a legislative issue," said John McKechnie, director of public and congressional affairs for the agency. "In the event Congress determines that secondary capital should be authorized for credit unions, it would also be necessary for Congress to provide authority for the NCUA to promulgate regulations to ensure that credit unions exercise the authority in a safe and sound manner and provide proper investor protections."
Among the agency's concerns that McKechnie listed included controls to mitigate systemic risk issues would be needed if credit unions can invest in secondary capital instruments of other credit unions. Also, provisions for regulatory accounting treatment would be needed to prevent the artificial inflation of systemwide net worth.
Any rules would also need effective consumer and investor protections relative to any authority to offer secondary capital to members or noninstitutional investors need to be in place.
There would also need to be limitations for individual credit unions on the authority to offer secondary capital, the total amount of net worth that secondary capital can make up, and term and other contractual issues would need to be addressed to ensure alternative capital truly functions as net worth and is not destabilizing.
--dmorrison@cutimes.com
