NCUA General Counsel Mike McKenna on Wednesday clarified the NCUA's position onrisk-based capital and supplemental capital.

During a House Financial Services Committee hearing Tuesday,Rep. Brad Sherman (D-Calif.) asked McKenna why the NCUA has notaddressed supplemental capital in the agency's proposed risk-based capital rule.

McKenna's response was interpreted by some that the NCUA wouldconsider adding a supplemental capital provision to its pendingrisk-based rule.

In a letter to Financial Services Committee Chairman JebHensarling (R-Texas) and Ranking Member Maxine Waters (D-Calif.) onWednesday, McKenna explained that the NCUA currently has limitedstatutory authority to establish supplemental capital.

“Except for those credit unions designated as low-income,Congress limited the definition of net worth in the Federal CreditUnion Act to retained earnings as defined by generally acceptedaccounting principles. Therefore, unless Congress amends thestatutory definition of net worth, other forms of capital,including supplemental capital, cannot legally be counted as networth for federally insured, consumer credit unions, other thanthose with a low-income designation,” McKenna wrote.

“(The) NCUA did specifically address the issue of supplementalcapital for low-income designated credit unions in the proposedrule on risk-based capital. (The) NCUA would allow low-incomecredit unions to count supplemental capital, or secondary capital,as it is referred to in the proposed rule, in the risk-basedcapital numerator for purposes of calculating their risk-basedcapital ratio,” McKenna added.

McKenna said a credit union's inability to raise capital outsideof retained earnings limits its ability to serve members.

He added that the NCUA supports the Capital Access for SmallBusinesses and Jobs Act (H.R. 719), introduced by Rep. Peter King(R-N.Y.), which would give credit unions an additional tool topromote sufficient capital stability by amending the definition of“net worth” in the Federal Credit Union Act.