The NCUA Board has approved changes to the agency's regulations to allow eligible credit unions to use capital they might access from the Troubled Asset Relief Program.
The Obama Administration has authorized credit unions that have been recognized as community development financial institutions by the U.S. Treasury Department's CDFI Fund to apply for up to 3.5% of their total assets in capital from TARP funds. The NCUA's rule change paves the way for federally insured credit unions to participate in the program.
The change allows participating credit unions to redeem their TARP funds more quickly than they would have otherwise been able to under existing regulations, the NCUA noted in the interim rule.
The CDFI program sets the interest rate for the TARP funds at 2% for the first eight years. Without an amendment to existing regulations, LICUs that choose to accept TARP funds in the form of secondary capital will be required to hold an annually-decreasing percentage of TARP funds at 9% interest over five years, a rate potentially higher than other rates that would become available on secondary capital accounts, the agency explained.