The substantive economic and market-related challenges experienced nationwide over the past several years have highlighted the need for our industry to be better equipped at the strategic and operational levels to handle unforeseen market opportunities and challenges. Supplemental capital is a tool that credit unions could find useful for various scenarios, and for that reason it should be available to those who are interested in the opportunity it may provide and equipped to properly and prudently manage its use.
With net capital of nearly 12% and continued strong ROA, San Diego County Credit Union does not currently have a pre-designated reason to consider the use of supplemental capital in the near future. However, if supplemental capital was made available to the industry, management would take a look at potential opportunities to further strengthen our strategic position based on the related parameters associated with its use. On a prospective basis, the availability of supplemental capital could be highly important as a strategic and financial tool as the financial services industry and related competitive and market-related factors continue to evolve.
I would suggest that the need for supplemental capital availability in perspective relative to our industry, and the fact that many credit unions who would most likely be able to avail themselves of this tool are already well-capitalized, is as follows: The best time to check your roof for leaks and continued structural integrity is while the sun is shining brightly, not after the hurricane has already arrived.
San Diego County Credit Union
San Diego, Calif.
Yes. Supplemental capital is an important tool that will help well-managed credit unions of all sizes meet their members’ demands for affordable financial services.
Current law restricts the ability of credit unions to build capital, limiting their ability to serve members. Otherwise, healthy credit unions are being forced in some cases to discourage deposits, make fewer loans and scale back member services. This makes no sense.
Access to supplemental capital will allow credit unions to grow with their members’ needs. Supplemental capital would enhance our ability to serve members by making loans, opening new branch locations and expanding member service offerings.
Access to supplemental capital will also strengthen the ability of credit unions to weather inevitable economic downturns. And it will improve the safety and soundness of the entire credit union system without imposing additional cost or risk on taxpayers by providing an additional buffer against operating losses and claims on the National Credit Union Share Insurance Fund. BECU supports H.R. 3993, the “Capital Access for Small Businesses and Jobs Act,” as a bipartisan solution with broad-based industry support.
President/CEO, Boeing Employees Credit Union (BECU)
Yes. Law requires credit unions to maintain a net worth ratio of 7% to be considered well- capitalized and specifies that only retained earnings constitute net worth for credit unions. This requires credit unions to focus on revenue generation.
In the current economic climate, with suppressed consumer appetite for borrowing and historically low loan rates, interest margins are eroding, meaning that credit unions have to find alternate revenue streams to build and maintain net worth.
What are the alternatives?
Added or increased fees to the membership–not ideal. It is anticipated that Congress and the Consumer Financial Protection Bureau will further erode this revenue stream.
Explore off-balance sheet ventures. While there are some good alternatives to explore, some come with a high degree of risk or need for investment in the infrastructure to manage them. This is not practical for small to mid-sized credit unions.
Merger. Merger should be reserved as a strategic decision rather than necessity. Extreme consolidation of the industry leads to fewer consumer choices.
We would be inclined to use supplemental capital to maintain a low-cost consumer financial services choice and provide expanded convenience through service delivery channels.
Lacamas Community Credit Union
I do support credit union access to supplemental capital, even though Community America is not currently in need as we are well-capitalized. Broader access to capital is important for financial institutions that are growing faster than they can produce capital and this additional capital enables credit unions to be more competitive in the marketplace. The acquisition of supplemental capital allows you to better serve your members, whether they are new or existing members. Not only does this allow for additional membership growth, it allows for deeper member relationships that will ultimately help members achieve their financial goals.
Community America CU
We absolutely support legislation that would allow credit unions to raise supplemental capital and measure capital adequacy through a risk-based capital methodology as adopted in Basel I/II/III. There are significant growth opportunities ahead for credit unions and community-based institutions, but it will take significant levels of capital to support that growth. Even if annualized earnings were to move back to 1% or higher, our growth will still be limited by relatively slow growth in capital.
For the past 30 years, community-based financial institutions have been losing market share to the largest 100 banks. Credit unions, community banks and thrifts had nearly 60% of the retail deposit market in 1992. Today that stands below 30%, with credit unions below 10%.
Many consumers are fed up with the large, impersonal banks and are looking to move their financial business back to local institutions. We see this everyday in our market. The ability to raise supplemental capital is essential to enabling credit unions to achieve their potential in the marketplace today. If the value proposition we provide to our members based on cooperative principles is so valuable, then we should be striving to make a much bigger difference in the marketplace.
Chief Operating Officer
Coastal Federal Credit Union
Yes. At this time, we have had to decrease rates in order to discourage deposits. This should be a time when we should be excited to grow with all the press promoting credit unions. We would use it to assist us with managing our share growth. The access to supplemental capital could assist all credit unions that would like to grow but do not have the capital to maintain it.
Westmoreland Community FCU