As the election season bears down on Washington and credit unions are focused on finding a vehicle for business lending, not too much is heard about capital reform for credit unions. The way the Congress works, that could mean capital reform is dead for 2010 or it's not.
As business lending seems to have the most opportunity right now, credit unions access to and treatment of capital should be the No. 1 legislative issue in 2011.
I'm a convert. I support supplemental capital for credit unions, but restrictions must apply. Healthy credit unions should be permitted to offer members the ability to invest in their financial institution without expectation of special treatment other than a higher return on their uninsured funds. The one member, one vote philosophy must be maintained.
However, probably more helpful and more likely to get approval in Washington is risk-based capital. As the international banking scene lays out its framework for capital, so should credit unions. Positioned as a tool for the regulators to better understand the issues of a credit union, it would be difficult for lawmakers to responsibly deny this for credit unions when the other financial regulators are using it. A risk-based capital framework for credit unions, depending upon the leverage ratio, is something the American Bankers Association has said it would not oppose. To quote ABA Economist Keith Leggett from 2006: "Yes, we think it's wise that you have risk-based capital standards that are comparable to banks' risk-based standards." The NCUA and the industry working on this together will also have a greater impact with the legislators.
Either or both will help credit unions to better run their credit unions to expand financial services to those who need them and act as an even more influential governor on pricing. Or at least it will help them not cut back services in order to pay for the NCUA assessments.