SAN ANTONIO — Allowing credit unions to access supplemental capital would help them grow better but could cost them their tax-exempt status, CUNA Mutual Senior Vice President of Strategy and Business Development John Lass told a breakout session of America’s Credit Union Conference.
“Supplemental capital can enable individual credit unions to grow even if capital has been drawn down,” Lass said. “There are many examples of financial cooperative systems around the world that have effectively used alternative capital to build sustainable financial models.”
He noted that currently credit unions are heavily dependent on fee income, especially overdraft, interchange and mortgage refinancing fees. But given the priorities of federal regulators and the likelihood of higher interest rates, those fees are likely to decline and thus pose a threat to the health of credit unions.
But any advantages that credit unions could gain from being able to raise additional capital might be offset because it might blur the distinction between banks and credit unions and cause lawmakers to revisit the federal tax exemption, he said in response to a question.
He noted that Desjardins, the largest Canadian cooperative, as one of several examples of financial cooperatives that have successfully utilized subordinated debt to strengthen their businesses.