Allowing credit unions to raise supplemental capital that is counted toward net worth requirements is an "appropriate policy consideration," with certain restrictions in place, according to a report issued today by the NCUA's Working Group on Supplemental Capital chaired by Board Member Gigi Hyland.
The report said any capital must adhere to three principles: Preserving the cooperative mutual credit union model; robust investor safeguards; and increased prudential safety and soundness safeguards.
Any policy change to allow such capital would have to be approved by Congress because, the report concludes, the "NCUA cannot count other sources of capital as 'net worth,' by regulation."
The three acceptable types of capital, according to the report, would be: Voluntary capital invested by a credit union member; allowing credit unions to convert the par value share required for credit union membership to a form of supplemental capital and allowing credit unions to issue subordinated debt, subject to standard market practices, with the understanding that it does not come with voting rights or any other involvement in the management of the credit union.
In a cover letter accompanying the report Hyland noted that the recent economic crisis "spurred more vigorous discussion," within the credit union system on the issue and noted that credit unions are the only financial institution without access to sources of capital, beyond their retained earnings.
