More than 100 executives from credit unions, CUSOs, regulators and advisory firms dialed into a March 4 conference call to find out what credit unions will have to do to obtain money under the U.S. Treasury's Community Development Capital Initiative.
The Treasury and White House first announced the program in February. It makes funds from the Troubled Asset Relief Program available to development banks and credit unions in the form of long-term, low-interest loans that will be used to strengthen capital positions. The conference was one of the opportunities CUs had to find out what they would have to do to obtain a loan, which can be for up to 3.5% of a credit union's assets. The loans will carry an interest rate of 2% for eight years and then a rate of 9% for credit unions that want to hold on to them for five more years.
The good news from the call came early. The initial application for the money will be two pages long. But the details about what credit unions would have to do to support the application were a bit more daunting.
Since the program is targeted at community development financial institutions, credit unions that wish to participate have to be recognized as a low-income credit union by the NCUA and as a community development financial institution by the Treasury's Community Development Financial Institutions Fund.
This dual hurdle challenges a number of credit unions that might have one designation but not both. It also throws the question of supplementary capital and its role in a credit union into sharp relief, according to Cliff Rosenthal, CEO of the National Federation of Community Development Credit Unions who participated on the call.
"It's not clear to me that sufficient numbers of credit unions really understand what subordinated capital is, how it works and what it can mean for a credit union," Rosenthal said on the call, adding that the federation was extending a helping hand to credit unions wanting to apply.
Secondary capital plans from those CUs that have applied for CDCI money are due before May 3, but the NCUA recommended interested credit unions submit them as soon as possible. Credit unions seeking to apply for the CDCI loans have to have their applications in by April 2. Those credit unions that are not already certified as CDFIs have until April 16 to submit an application for that designation to the CDFI Fund.
Rosenthal challenged the notion that the money provided to credit unions should be seen as a negative for credit unions just because the money comes from the TARP program.
"In contrast to the banks, the TARP money being provided should be seen as vote of confidence for credit unions," Rosenthal told the call participants. He said a credit union using the funds must receive an NCUA blessing that the credit union is "viable."