CUs Deserve a Complete Capital Restructuring
NCUA Chairman Debbie Matz renewed her call for supplemental capital for credit unions in a letter to the Senate Banking and House Financial Services Committees. The credit union trades heralded the letter while the ABA's Keith Leggett took a swipe at it in his blog, "Credit Union Watch."
Matz proposed allowing credit unions meeting certain NCUA-established criteria to exclude zero-risk assets, such as Treasury securities from the definition of total assets. The NCUA would set a minimum net worth requirement and determine whether share growth is the cause of declining net-worth, and not poor management or unsafe practices, before a credit union would be allowed to exercise this exclusion.
Supplemental capital can be a touchy subject among credit union volunteers and executives. Terms would have to be rock solid and long term to keep supplemental capital investors from trying to exert influence. They must not be able to simply pick up their ball and go home if they don't like the way things are going.
In exchange for that, the premium paid out to investors must be high but not so high that it's not worth it to the credit union.
In years past, Keith Leggett did not disapprove of credit unions getting risk-based capital so much as the leverage ratio used. Yet the ABA has fiercely and successfully opposed supplemental capital. It doesn't make sense to put all credit unions' eggs into the supplemental capital basket.
But it's early in the legislative season and many more initiatives are likely to come up, from net worth to member business lending. These cannot be half-loafed despite bankers' objections.